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PUC FILES OPPOSITION TO PG&E BANKRUPTCY REORGANIZATION PLAN
The California Public Utilities Commission (PUC) today filed with the U.S. Bankruptcy Court its opposition to Pacific Gas and Electric Company's (PG&E) disclosure statement describing its plan of reorganization under Chapter 11, calling the proposed plan a regulatory jailbreak of a scope never before attempted in a bankruptcy case.
The PUC said the real purpose of the reorganization plan is to escape from state regulatory oversight, and not simply to adjust the utility's relationship with its creditors and restore it to financial health. PG&E's reorganization plan and its disclosure statement were prepared and filed without any negotiation or discussion with many of the key players involved in the case and in the regulation of PG&E's operations, including the PUC and representatives of the State of California.
The PUC filing asserts that PG&E's reorganization scheme is deeply flawed on many levels - both constitutionally and with regard to bankruptcy law.
PG&E's proposed plan:
· Fails to Contain Adequate Means for Implementation:
PG&E's plan is dependent upon its obtaining no fewer than 15 favorable rulings, each designed to displace portions of the PUC's and the State of California's century-old regulatory authority over PG&E's operations. The PUC believes that the Bankruptcy Court should not and will not give PG&E those rulings and that therefore the plan can't be implemented.
· Was Not Submitted in "Good Faith" - a Requirement of Bankruptcy Law:
The focus of PG&E's plan is its desired escape from state regulation, which may well be the primary motivation for PG&E's decision to abruptly file for bankruptcy and sidestep alternatives that keep it under PUC and State regulatory control.
¬ There exists no basis under the Bankruptcy Code for PG&E's attempted use of Chapter 11 as a legislative device to displace entire regulatory schemes. PG&E is not acting in good faith by attempting to use the plan process to deregulate itself by shifting significant estate assets beyond state regulation.
¬ PG&E grossly mischaracterizes many of the PUC's and the State's actions taken prior to its bankruptcy filing and after. The result is that the disclosure statement is riddled with half-truths and hyperbole and is plainly misleading.
¬ PG&E, by unfairly slanting the factual background and other aspects of its disclosure statement, is attempting to portray the PUC and the State as incompetent so that it can curry favor with creditors in support of its deregulation scheme.
· May Provide for Hidden Rate Increases:
The PUC suspects that PG&E's plan is premised upon a disguised rate increase. PG&E's plan and disclosure statement may be premised upon the assumption that a three-cent rate increase ordered by the PUC in March 2001 belongs to PG&E, but that matter remains unclear, as a portion of that three-cent rate increase is to be allocated to the California Department of Water Resources (DWR). If PG&E hopes to keep it all (or any portion that would otherwise belong to DWR), then its electric rates must necessarily increase. In addition, PG&E proposes to sell its retained generation at rates higher than its cost of service.
· May Not be Feasible:
If PG&E is unable to obtain various declaratory and injunctive rulings and other preemptive relief it seeks, then its plan will not be feasible. If PG&E's plan is confirmed, the Reorganized Debtor (currently the utility) would be stripped of many crown jewels, such as its hydroelectric and transmission assets, yet it would remain burdened with many of the liabilities with which it entered bankruptcy. The PUC fears that this imbalance in the Reorganized Debtor's remaining assets and liabilities could seriously jeopardize its ability to weather future financial storms. This fear is supported by PG&E's own financial projections, which show that the Reorganized Debtor's current liabilities will exceed its current assets by between approximately $750 million and $800 million per year between the years 2002 through 2005.
PG&E's reorganization plan and disclosure statement contain inadequate information; fail to identify significant claims that PG&E's bankruptcy estate may have against third parties, such as its parent company and generators; and insufficiently disclose the risks associated with PG&E's scheme to escape regulatory control.
PG&E's proposed reorganization disclosure statement is deeply flawed on many levels, and such flaws make approval of PG&E's proposed plan imprudent.