PG&E to argue federal bankruptcy law trumps state law

HOUSTON, Jan. 25 — Pacific Gas & Electric Co. will argue federal bankruptcy law trumps state law at a hearing Friday in its efforts to persuade a US bankruptcy judge to approve the utility’s reorganization plan.

The federal bankruptcy code also allows a plan to transfer assets without approval of state agencies, Pacific Gas & Electric, a unit of PG&E Corp., said. The California Public Utilities Commission, the state attorney general, and some consumer groups are fighting the company’s reorganization proposal, which would shift some assets away from state regulation.

“Congress has deliberately withheld from state regulators the very veto power over public utility reorganizations that the CPUC seeks to wield in this case,” the company said in its brief to the court. “Congress has expressly determined that only a ‘rate change provided for in the plan’ of reorganization is subject to state regulatory preapproval,” PG&E stated in its filing. “PG&E plan does not call for such a change in rates.”

The company called the Utility Reform Network’s (TURN) claim the plan will cost consumers $20 billion extra over the next 12 years “a fairy tale and a Big Lie.” PG&E’s plan of reorganization does not require a retail rate increase,” it said.

PG&E’s plan asks the court to preempt some 37 PUC regulations and state laws to complete the transfer of certain assets and establish three new California-based companies. But the company said the plan won’t exempt PG&E from the ordinary regulatory oversight of the PUC and other state agencies.

PG&E’ said under the plan of reorganization, all valid claims would be paid in full by borrowing against the full value of the assets and the utility would regain its creditworthy status.

The judge has given the PUC until Feb. 13 to submit a counter reorganization proposal. Last week, credit rating agency Standard & Poor’s warned ‘material’ changes to Pacific Gas & Electric Co.’s proposed bankruptcy reorganization plan could jeopardize an investment grade credit rating.

If the bankruptcy court and regulators approve the California utility’s reorganization plan, S&P said the new successor companies can achieve investment grade credit ratings. S&P said a key element of the reorganization proposed by PG&E Corp. is the division of the operating activities among four successor companies.

Generation and transmission of electricity and natural gas transmission would be divided among three companies under a single holding company. The holding company will be separate from an electric and gas distribution company that will inherit the PG&E name and be regulated by the California Public Utilities Commission.

Pacific Gas & Electric filed for protection from creditors in federal bankruptcy court in April 2001. Utilities in California faced spiking spot prices for wholesale electricity and were unable to pass through the cost increases to their customers because of a retail rate freeze. The utilities were ordered to sell generating plants under the state’s 1996 deregulation law.

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