SAN FRANCISCO, June 23, 2003 — U.S. Bankruptcy Judge Randall J. Newsome announced Thursday that a proposed settlement agreement has been reached by the staff of the California Public Utilities Commission and Pacific Gas and Electric Company to end PG&E’s bankruptcy.
Judge Newsome announced the settlement at a press conference held jointly with representatives of the CPUC, PG&E, and the Official Committee of Unsecured Creditors. “The settlement is a good one,” said Judge Newsome, who called it “very much in the public interest.” Judge Newsome added that the judicially-sponsored settlement is designed to serve the best interests of consumers, the state, and the environment.
“I’d like to compliment the judge for bringing the parties together and getting them to this point, where PG&E has agreed not to disaggregate,” CPUC President Michael R. Peevey said in a statement concerning the announcement. “The Commission will now study the settlement agreement diligently during a rigorous review and public hearing process that will begin as soon as possible.”
The settlement agreement’s highlights include the following:
* PG&E will abandon its effort to divide the utility into four parts, with three of them under federal control. Instead, the utility will remain intact under CPUC regulation.
* The CPUC staff projects that rates will come down starting January 1, 2004, by approximately $350 million per year. Rates are projected to come down by about half a cent (from their current 13.87 cents/kwh) on January 1, 2004, and continue falling to about 12.8 cents by 2008.
* PG&E will dedicate 140,000 acres of watershed lands, valued at approximately $300 million, to maintain its hydroelectric operations and to be used in perpetuity for public purposes. PG&E will establish a non-profit corporation to oversee the lands and the environmental enhancements, and fund the corporation with $70 million.
* A $15 million venture capital fund will be established to foster and promote new, clean energy technologies.
* Creditors will be paid in full.
* The settlement will end the litigation and allow the parties to move ahead. It would allow PG&E to emerge from bankruptcy as an investment-grade, credit-worthy operating company that will stay intact under state control, enhancing the State’s ability to manage California energy policy.
“The parties recognize that reliable electric and gas service is of the utmost importance to the safety, health and welfare of California’s citizenry and economy,” the settlement agreement states.
PG&E filed for bankruptcy protection on April 6, 2001. The company submitted its original plan of reorganization in September 2001, and the CPUC filed its alternative plan in April 2002. A trial on the competing plans before U.S. Bankruptcy Court Judge Dennis Montali began on November 18, 2002. On March 5, 2003, Judge Montali ordered the parties to hold settlement meetings beginning March 10 under the supervision of Judge Newsome. Those talks resulted in today’s agreement.
The settlement agreement is subject to two independent processes of review — one by the CPUC, and one by the Bankruptcy Court. The CPUC will review the agreement in a formal hearing process to be conducted over the next three to five months before a vote is taken by the Commission on whether to adopt it. As for the Bankruptcy Court, the parties’ agreed-upon bankruptcy timeline is as follows: PG&E will file the agreed-upon plan of reorganization and accompanying disclosure statement by the end of June. The parties will request that Judge Montali hold a hearing on the disclosure statement in late July, and after creditors have an opportunity to vote on the plan, to hold a confirmation hearing in late October.
Full text of the proposed settlement is available at http://www.solem.com/cpucpgesettlement.pdf.
Statement by U.S. Bankruptcy Judge Randall J. Newsome follows:
Thank you all for coming here today. With me today are the lawyers representing three of the parties in this case. Representing the California Public Utilities Commission are Alan Kornberg from the New York firm of Paul, Weiss, Rifkind, Wharton & Garrison, and Paul Clanon, Director of the CPUC’s Energy Division. Representing PG&E are James Lopes from the San Francisco firm of Howard, Rice, Nemerovski, Canady, Falk & Rabkin, and Joseph Malkin from the San Francisco firm of Orrick, Herrington & Sutcliffe. Representing the Official Committee of Unsecured Creditors is Paul Aronzon of the Los Angeles office of Milbank, Tweed, Hadley & McCloy. Clanon will speak about the details of the agreement, then Malkin will speak for PG&E, then Aronzon will speak for the creditors, and then we’ll take your questions.
In early March, Bankruptcy Judge Dennis Montali, the judge assigned to the PG&E Chapter 11 case, asked me to explore the possibility of conducting a judicially supervised settlement conference. At that time the parties were mired in litigation over competing Chapter 11 plans. The hearing on confirmation of the plans had already extended nearly four months, and it is no exaggeration to suggest they might have lasted at least another 6 months. Appeals from Judge Montali’s decision were a near certainty, and the ultimate resolution of PG&E’s business restructuring might not have been reached for several more years. Everyone recognized that further delay in resolving this case almost surely would have devastating consequences not only for PG&E, but also for the health, safety and welfare of the citizens of California. Yet both sides were dug into their positions, and I think it’s fair to say that neither side held out much hope for achieving a settlement.
After the most difficult settlement negotiations I’ve ever overseen during my 21 years as a bankruptcy judge, I am pleased to report that the staffs of the CPUC and PG&E have reached a proposed settlement. Neither side is completely happy with the agreement that was forged, and certainly neither side got all of what it wanted. But both sides recognize that they had few choices, and they were all bad; that this agreement was the best they would get now or ever, and that it is far better for the company and the State of California than the unthinkable consequence of careening forward with their destructive litigation. Sometimes it looked like they’d never get here, but get here they did. The fact that no one is entirely happy with the agreement is a sure sign that the settlement is a good one.
This settlement marks a significant turning point not only in California’s energy crisis, but in the relationship of these parties as well. The settlement establishes a new plan of reorganization for the utility that allows it to emerge from bankruptcy, intact, subject to continued state regulation. There are still steps to take, including an extensive public hearing process and vote by the Public Utilities Commission, approval by the PG&E Board of Directors, and hearings and approval by the Bankruptcy Court. But this settlement is a huge step in the right direction and very much in the public interest.
The agreement contains environmental enhancements, establishes an incubator for clean energy technology, lowers electricity rates, and stabilizes the heretofore combative relations between the parties. Without this agreement, PG&E faced a precarious future of uncertainty due to litigation and appeals, with troubling consequences for our state. Now, the utility can regain financial soundness with a new capital structure and a stable regulatory environment. In my considered opinion, today’s settlement agreement is a fair deal for both sides and of great benefit for all Californians.
What transpired in negotiations remains confidential. The parties can answer questions about the proposed settlement plan, but not about how we got here today.
I will continue to work with all parties to the PG&E bankruptcy towards the goal of resolving all further objections and obstacles to the company’s reorganization.