California PUC accuses PG&E of 'regulatory jailbreak'

By the OGJ Online Staff

HOUSTON, Nov. 28, 2001 — The California Public Utilities Commission called Pacific Gas & Electric Co.'s proposed reorganization a "regulatory jailbreak of a scope never before attempted in a bankruptcy case."

Further, the PUC said PG&E is "attempting to portray the PUC and the state as incompetent so that it can curry favor with creditors in support of its deregulation scheme." In a filing with the US Bankruptcy Court, the PUC said the real purpose of the reorganization plan is to escape "state regulatory oversight, and not simply to adjust the utility's relationship with its creditors and restore it to financial health."

That plan would split parent PG&E Corp. and its utility into stand-alone companies, including the transfer of its hydroelectric plants, the Diablo Canyon nuclear power plant and gas and electric transmission grids to unregulated units of the parent company.

The PUC said the plan is dependent upon obtaining no fewer than 15 favorable rulings, each designed to displace portions of the PUC's and the state's "century-old" regulatory authority over PG&E's operations.

In a response, Pacific Gas & Electric said the state attorney general and the PUC did not comply with the court's directive to identify the specific approvals that need to be obtained through an adversary proceeding and did not provide the legal arguments to support their contention.

The PUC said the reorganization plan and its disclosure statement were prepared and filed without any negotiation or discussion with many of the key players involved in the case or in the regulation of PG&E's operations, including the PUC and representatives of the state.

The plan is intended the give the utility $4.5 billion from the asset transfer to help pay off about $13 billion in debts, including $9 billion in unrecovered power costs amassed during the state energy crisis in 2000. The utility filed for bankruptcy protection in April after losing creditworthiness because it ran out of cash in the wake of a flawed deregulation scheme. US bankruptcy Judge Dennis Montali has scheduled a hearing on the plan Dec. 7.

The PUC filing claimed PG&E's reorganization scheme is "deeply flawed" on many levels — both constitutionally and with regard to bankruptcy law. It said there is no basis under bankruptcy law for PG&E's attempted use of Chapter 11 as a legislative device to displace entire regulatory schemes.

According to the petition, the reorganization plan may be an effort by Pacific Gas & Electric to keep all a 3¢ rate increase ordered by the PUC in March 2001. B it said the matter remained unclear, as a portion of the increase is to be allocated to the California Department of Water Resources (DWR).

"If PG&E hopes to keep it all (or any portion that would otherwise belong to DWR), then its electric rates must necessarily increase," the PUC said.

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