By Kate Thomas
HOUSTON, Apr. 6, 2001Wholesale power companies and other creditors could be forced to write off billions of dollars as a result of Pacific Gas & Electric Co.’s Chapter 11 bankruptcy filing.
Ending months of speculation, Pacific Gas & Electric Co., the utility subsidiary of PG&E Corp., filed for reorganization Friday in a San Francisco bankruptcy court. The filing will permit the utility to continue operating, while protecting assets from creditors.
During a teleconference, executives with the California utility said power wholesalers are expected to file claims in California bankruptcy court along with other creditors, and any party can object to the demands which will then be adjudicated by the bankruptcy judge. The utility’s unpaid wholesale electric bill amounted to $8.9 billion at the end of February.
However, PG&E Corp. Chairman Robert Glynn said the company expected “all valid claims will be paid in full.”
Neither the parent company nor any other subsidiaries, including its National Energy Group, have filed for Chapter 11 or are affected by the utility filing, Glynn said.
The company said in a statement the action was taken because its unreimbursed energy are rising at a rate of $300 million/month, regulatory decisions have put the company at an economic disadvantage, and the “now unmistakable fact that negotiations with [California] Gov. Gray Davis and his representatives are going nowhere.”
Glynn said the company heard a “lot of words,” during Davis’s televised address Thursday night, but no sign of action. He said the company and representatives of the governor’s staff have met just once in the past month to try to negotiate a global settlement. PGE has “educated team after team” with no discernable progress, he said..
In his address, Davis said he was continuing to negotiate for the state to purchase the transmission assets of Pacific Gas & Electric and Southern California Edison. The proceeds of the sale would have been used by the companies to pay off their debts.
Assessed filing daily
Executives said they have assessed the pros and cons of a bankruptcy filing daily for the past month, and Thursday determined reorganization was in the best interests of the company, its creditors, and customers. The action was taken to insure the company is not forced to pay out more than it is taking in, Glynn said.
He noted there is still no assurance the state is willing to take responsibility for buying the full net-short positionor the amount of power needed to supply the utility’s customers over and above what it is generating from its own power plants.
Glynn said under federal and state law the company is entitled to recover its wholesale costs. The problem arose because the state’s utilities are paying out more for wholesale power than they have been able to recover in retail rates. The California Public Utilities Commission recently granted Pacific Gas & Electric and Southern California Edison Co. a 3 cents/kw-hr increase, but Glynn said it is apparent its payment to the California Department of Water Resources will be more than “we receive in rates.”
“We hope the judge will take a constructive role in a global solution with benefits to all,” Glynn said. But to form a plan of reorganization the executive said will take agreement among creditors and the state. It was not clear whether a bankruptcy judge has authority to raise rates without action by state regulators.
Going forward, Gordon Smith, president of the utility, said the company’s operations will be unaffected by the reorganization. Pacific Gas & Electric will continue to operate its nuclear, hydro, and fossil fuel power plants as normal, he said. Smith said the court filing will provide a more “disciplined and organized forum for operating the utility.”
Smith also emphasized the Chapter 11 filing will not contribute to blackouts, but he warned given the state’s “severe power shortage” outages are almost “inevitable” this summer.
The filing prompted swift reaction from fellow utilities and politicians in Washington. Southern California Edison Co. Chairman John Bryson called it a “sad day” for the state. While Southern California Edison is also months in arrears on its bills, Bryson said the company continues to believe a comprehensive solution to “our current crisis is a preferable course to take. PG&E’s decision today does not change our position.”
On Capitol Hill, US Rep. Billy Tauzin (R-La.), chairman of the House Committee on Energy & Commerce said the filing was as predictable as night following day, and should serve as a warning to those who want to manipulate the marketplace through price controls.
“It simply doesn’t work,” he said. “We remain committed to helping California through this ongoing crisis, but phony politically driven solutions are not the answer.”
US Rep. Joe Barton (R-Tex.), chairman of the House Subcommittee on Energy & Air Quality, said Pacific Gas & Electric was the victim of a state-imposed “buy high, sell low” strategy.