FYI
----- Forwarded by Lisa Yoho/NA/Enron on 05/09/2001 05:13 PM -----

	Maria Arefieva
	05/09/2001 05:03 PM
		 
		 To: Lisa Yoho/NA/Enron@Enron
		 cc: 
		 Subject: (BN  ) PG&E Says National Energy Group Assets May Be at Risk


----- Forwarded by Maria Arefieva/NA/Enron on 05/09/2001 05:03 PM -----

	"MASHA AREFIEVA, ENRON GAS SERVICES C" <MASHA@bloomberg.net>
	05/09/2001 03:07 PM
		 
		 To: MARIA.AREFIEVA@enron.com
		 cc: 
		 Subject: (BN  ) PG&E Says National Energy Group Assets May Be at Risk

FYI



PG&E Says National Energy Group Assets May Be at Risk (Correct)
2001-05-08 21:31 (New York)

PG&E Says National Energy Group Assets May Be at Risk (Correct)

     (Corrects second paragraph to reflect National Energy Group
doesn't hold utility's generating facilities and gas plants.)

     New York, May 8 (Bloomberg) -- Creditors of PG&E Corp.'s
bankrupt Pacific Gas & Electric utility unit may be able to grab
assets of PG&E National Energy Group, a subsidiary the parent had
intended to insulate, PG&E told the Securities and Exchange
Commission.
     By February this year, PG&E had restructured National Energy
Group hoping to isolate the new unit's assets. The structure
allowed National Energy Group to get a separate credit rating and
borrow funds without affecting other units.
     In its filing, PG&E said creditors may try to link payments
between the utility and the parent to $349 million in capital
contributions that PG&E made to National Energy Group in 2000,
including $250 million transferred in the fourth quarter. National
Energy Group's investment grade credit ratings, which were
affirmed following Pacific Gas's April 6 bankruptcy, were based on
the assumption that the new structure insulated the assets.
     ``Bankruptcy law is designed to scrutinize the transactions
between the company and those with inside influence that took
place before the bankruptcy filing,'' Elizabeth Warren, a Harvard
Law School professor, said prior to the filing. ``You do that so
creditors can be compensated.''
     On Feb. 20, Moody's Investors Service gave the National
Energy Group an investment grade long-term rating of ``Baa2.'' The
ratings company said the company's legal structure and independent
financing strategy protect it from PG&E creditors that may attempt
to force a consolidation or bankruptcy.

                    Insolvent Transfers

     Under the federal bankruptcy laws, when a company that's
insolvent transfers assets to a parent and gets less than fair
value, the bankruptcy court can unwind the transaction. The court
can also undo asset transfers intended either to defraud
creditors.
     PG&E said it couldn't assure that fraudulent transfer claims
in Pacific Gas's Chapter 11 case wouldn't be successful. If any
such claims do succeed, they may have a significantly adverse
impact, the company said. PG&E said it thinks Pacific Gas was
solvent when it made payments to the parent and that creditors
hadn't been defrauded.
     In some circumstances, bankruptcy judges can undo corporate
restructurings. In this case, National Energy Group's assets could
be lumped with its parent's and used to pay off creditors.
     PG&E said such a combination of assets, known as substantive
consolidation, ``is an exception rather than the rule.''
     Another risk is the possibility that California regulators
may try and rescind payments that PG&E made to National Energy
Group, the parent said in the filing.
     The California Public Utilities Commission began an
investigation of intercompany payments between all parts of the
PG&E corporate structure on April 3.
     The filing disclosed that National Energy Group has more than
$2.22 billion of short- and long-term debt, including debt to its
parent, as of Dec. 31.
     PG&E owns all the stock of the National Energy Group, which
it used as collateral for a $1 billion loan arranged by General
Electric Capital Corp. and Lehman Commercial Paper Inc. If PG&E
defaults on the loan, control of the company would move to the
creditors, which may cause a default under certain obligations of
the National Energy Group, the filing said.

--Liz Goldenberg in New York (212) 893-3940 or
lgoldenberg@bloomberg.net, and Jeff St.Onge in Wilmington,
Delaware, (302) 984-3362 or jstonge@bloomberg.net, through the San
Francisco newsroom, (415) 912-2980/gcb

Story illustration: For a graph of the Bloomberg PowerMatch
Trading Index of Northern California power prices, see
{PMATNPSP <Index> GP D <GO>}. To graph the Bloomberg PowerMatch
Index of Southern California power prices, see
{PMATSPSP <INDEX> GP D <GO>}. For today's top energy stories, see
{TOP NRG <GO>}

REI US <Equity> CN
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-0- (BN ) May/09/2001  1:31 GMT