HOUSTON, Jan. 18 — 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., San Francisco, 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.
The PUC is attempting to derail Pacific Gas & Electric’s plan, calling it a “regulatory jailbreak.” The bankruptcy judge overseeing the case has given regulators until Feb. 13 to show they have a viable alternative.
Pacific Gas & Electric, the electric and gas utility of PG&E Corp., 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.
S&P said the utility’s ability to emerge from bankruptcy protection and pay off creditors with cash and $9.5 billion of new debt depends on the generation company’s being regulated by Federal Regulatory Energy Commission instead of the PUC. The generation company will sell its output to the newly created distribution company at long-term fixed prices rather than at production costs as the state wants.
PG&E asked FERC for a ‘determination’ if the proposed prices are ‘just and reasonable.’ S&P called the proposed rates “critical” for the ratings agency to assign investment grade ratings to the successor companies.
PG&E’s plan has the creditors’ committees support but challenges remain, S&P said. “PG&E must establish that federal law can preempt numerous state laws and regulations that govern PG&E’s operations so that PG&E can accomplish the transfer of operating assets from the CPUC regulated utility to successor companies and shift a significant portion of regulatory oversight to the FERC,” S&P said.
Separately, PG&E Thursday filed a $4.1 billion breach of contract claim against the state of California alleging the company was prevented from charging market-based rates for its generation as promised by the 1996 deregulation law. The suit also claimed a law passed in 2001 prohibits the sale of PG&E’s remaining power plants, violating the 1996 deregulation legislation that ordered utilities to sell generation.
Standard & Poor’s warned ‘material’ changes to Pacific Gas & Electric’s proposed reorganization plan could jeopardize an investment grade credit rating.