PG&E bankruptcy controversy
Breaking News
April 6, 2001
What PG&E bankruptcy could mean
Sarah Lacy
Say you are a business owner. You owe twice your cash flow in coming months. You've already defaulted on payments. Your credit rating has been downgraded and lenders have denied you further credit.
Chances are you're headed to bankruptcy court -- where Pacific Gas and Electric Co. trekked today.
Bankruptcy would reduce the role of the governor, the legislature and the California Public Utilities Commission as many substantive actions would be under the direction of bankruptcy court, according to experts contacted by the Business Journal for a story last fall on PG&E's then-threated bankruptcy.
In a filing with the Securities and Exchange commission last fall, PG&E predicted that a bankruptcy filing would "likely resulting rolling brownouts for some time and a rise in consumer rates in order to pay debt and continue to operate." The document further states that bankruptcy wouldn't fix the underlying problem which it called, at that time, a dysfunctional market and supply/demand imbalance.
But some bankruptcy experts aren't so sure a judge would have jurisdiction to raise consumer rates.
"The rules of bankruptcy code are complicated," notes one local bankruptcy attorney. "Out of all the companies that file Chapter 11, only a small percentage get their reorganization plan confirmed."
A handful of attorneys randomly contacted for this story weren't able to comment because PG&E was a client of their firms.
"Raising rates may be included in the reorganization plan but it would still be subject to regulatory approval," Patrick Costello, attorney at Palo Alto law firm Gray Cary Ware & Freldenrich LLP told the Business Journal last year. "A utility can't use bankruptcy court to avoid the jurisdiction of the PUC, but it may be the only way to get a reorganization plan approved."
Mr. Costello, and other local attorneys, last fall told the Business Journal that the worst case scenario would be a Chapter 11 reorganization bankruptcy, due to the nature of PG&E's business and virtual monopoly position in the market.
Bankruptcy may be advantageous for some creditors, attorneys say. Bank loans typically get a bigger percentage of payment than bond holders or share holders under bankruptcy proceedings. Also, once bankruptcy is declared, a company extending new credit to PG&E would have some guarantee of repayment under the discretion of the court, Mr. Costello says.
In a teleconference with reporters today, company officials emphasized that the utility's parent company, PGE Corp., was not part of the bankruptcy filing.