-----Original Message-----
> Electricity Daily
> 
> Tuesday, September 25, 2001
> 
> Analysis: PG&E's Brilliant Reorganization
> The reorganization plan that PG&E Corp. and Pacific Gas and Electric filed
> in U.S. Bankruptcy Court last week (ED, Sept. 21) is brilliant in its
> simplicity. It essentially moves as much of the company's hard assets as
> possible away from California's notoriously business-averse politicians
> and regulators and to the more predictable feds. That step, itself, makes
> the businesses creditworthy, because it creates a predictable revenue
> stream.
> The one element of the business that can't be severed from the
> jurisdiction of the rapacious California Public Utilities Commission - the
> retail electricity and gas distribution utility - will be so fenced in by
> federally-approved wholesale contracts that the CPUC will have no choice
> but to pass through costs preordained as just and reasonable or face
> certain loss in the courts. In the meantime, PG&E's filed rate case
> continues in court, with every likelihood of success, further limiting the
> damage that the demented regulators can impose.
> PG&E's hydro system is already subject to Federal Energy Regulatory
> Commission regulation, although many consumer groups in the state don't
> seem to understand that fact. Under the reorganization plan, the Diablo
> Canyon nuclear plant would become a wholesale provider with a
> FERC-approved tariff. PG&E's pipeline system, historically a "Hinshaw"
> pipeline not subject to federal jurisdiction, would become a traditional
> interstate system under FERC jurisdiction.
> The politicians and regulators quickly recognized what PG&E would do and
> have been gnashing their teeth furiously since the announcement. But it
> appears there is little they can do other than lament. The plan would not
> raise rates, so the court has no reason to consult with the CPUC. And
> federal law clearly trumps state law when it comes to protecting
> creditors. 
> The fact that the creditors are lined up behind the reorganization plan is
> the worst news the state could hear. According to bankruptcy experts, it
> is highly unlikely that the court would reject a plan that the creditors
> endorse. Because they get all their money paid, with interest, the
> creditors are largely made whole (the largest will have to take some notes
> as part of the repayment).
> Will the bankruptcy reorganization plan lead Southern California Edison
> into bankruptcy? There are two lines of argument on this question, both
> valid. One suggests that the plan will lead Gov. Gray Davis and the
> backers of his Edison bailout to push harder for quick action, lest Edison
> decide it can do better in court than it can in the Legislature. The other
> line argues that PG&E's plan will lead Edison's creditors to put the
> utility quickly into Chapter 11 involuntarily.
> The Reuters news service last week reported that power generators Mirant
> Corp. and Reliant Energy are looking for a third creditor to push the
> company into involuntary bankruptcy. Sources indicate that the city of
> Long Beach may be the third creditor needed to push the state's second
> largest utility into bankruptcy
> Ted Craver, chief financial officer of Edison International, the utility's
> parent, told a conference call to creditors last week that the company
> would not voluntarily seek bankruptcy protection and would "vigorously
> oppose any involuntary bankruptcy petition." But under bankruptcy law,
> according to legal experts, once the creditors file, there is little
> Edison could do. 
> In addition, the unveiling of the PG&E plan last Thursday will embolden
> Republicans in the Legislature, and perhaps some Democrats, to put a
> rescue package for SCE on hold. The PG&E filing has much to recommend
> itself to both Republican and Democratic legislators. It does not raise
> retail rates. It does not involve any form of a state "bailout" of the
> utility. It provides a clear path for the state to get out of the energy
> procurement business.
> -- Kennedy Maize
> 
>