Pacific Gas & Electric, Utilities Commission reach settlement on reorganization

By Peter Heap

New York, June 19 - Pacific Gas & Electric Co. and the California Public Utilities Commission reached a settlement that will allow the utility to emerge from bankruptcy.

Under the agreement, Pacific Gas & Electric will abandon its effort to divide into four parts with three under federal control. Instead the utility will remain intact under CPUC regulation.

Creditors will be paid in full. All will be paid in cash except for some pollution control bonds, which, along with the utility's preferred stock, will be reinstated.

And Pacific Gas & Electric will emerge from bankruptcy as an investment-grade company.

The settlement was announced by U.S. Bankruptcy Judge Randall J. Newsome at a press conference with representatives of Pacific Gas & Electric, the CPUC and the official committee of unsecured creditors.

It follows an order by the bankruptcy court for the various parties in the case to hold settlement meetings.

Newsome describe the settlement as "a good one" that is "very much in the public interest" in a news release. He also called the process "the most difficult settlement negotiations I've ever overseen during my 21 years as a bankruptcy judge."

Also under the settlement, the CPUC projects rates will decline starting on Jan. 1, 2004 by about $350 million a year, declining about 0.5 cent initially from their current 13.87 cents/kwh and down to 12.8c in 2008.

Pacific Gas & Electric 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 it with $70 million.

A $15 million venture capital fund will be established to foster and promote new, clean energy technologies.

The settlement will end litigation.

PG&E Corp. and utility shareholders will forego dividend payments until July 1, 2004. After that there will be no restrictions. The total of missed dividends since payments were suspended in January 2001 is $1.7 billion.

The CPUC said it will start a review and public hearing process as soon as possible. It is expected to take three to five months and will be followed by a vote by the Commission on whether to adopt the plan.

Pacific Gas & Electric will file the plan of reorganization and accompanying disclosure statement by the end of June. A hearing on the disclosure statement will be requested for late July. A confirmation hearing is anticipated in late October.

Pacific Gas & Electric filed for bankruptcy protection on April 6, 2001.

"Neither side is completely happy with the agreement that was forged, and certainly neither side got all of what it wanted," Newsome commented. "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."

In a statement Pacific Gas & Electric and PG&E said: "The proposed settlement would resolve the utility's Chapter 11 proceeding on acceptable terms. It meets basic goals we set for any reorganization plan: it would allow Pacific Gas and Electric Company to emerge from Chapter 11 as an investment-grade utility, pay all valid creditor claims in full, with interest, and do so without raising our customers' rates.

"PG&E has agreed to this proposed settlement because it is the quickest way to resolve the Chapter 11 proceeding, in a manner that is fair to our customers and our company."

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