Stealthy Deal Protects Profits of PG&E's Parents

Christian Berthelsen, Chronicle Staff Writer Tuesday, January 16, 2001 ©2001 San Francisco Chronicle

URL: http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/01/16/MN184364.DTL

PG&E Corp. has quietly won approval from federal regulators to restructure itself in a way that shields the parent company's profits, and shareholders, from the mounting debts of the utility it owns.

The move appears to allow Pacific Gas and Electric Co.'s parent to record substantial profits while maintaining that its subsidiary, which supplies power to 4.5 million customers, is teetering on the edge of bankruptcy and trying to force ratepayers to pick up the tab.

The corporate restructuring, approved by the Federal Energy Regulatory Commission on Friday, came as a surprise to consumer advocates and state leaders dealing with the energy crisis -- including Gov. Gray Davis. They have been working feverishly the past seven days to construct a deal that would alleviate debt pressure on PG&E and Southern California Edison by having the state of California buy power and provide it to the utilities at cost.

Steve Moviglio, a spokesman for Davis, said the governor was displeased by PG&E's move, although he said it was not likely to derail the state's efforts to intervene in the crisis. He also said Davis was "disappointed that FERC acted in the middle of the night without notice to all parties."

Ratepayer advocates and even some state officials have said that any aid to the ailing utilities should be offset by the huge profits that PG&E Corp. has made during the crisis from electricity generation and trading revenues. The money has certainly flowed in the other direction, they argue. In the past, PG&E Corp. has used revenues from the utility to pay down corporate debt, pay stock dividends and buy assets in other states.

PG&E Corp.'s action appears to eliminate that possible means of paying off at least part of the $2 billion in debt incurred since November by its utility,

Pacific Gas and Electric Co., as it bought power at prices higher than it can legally charge customers.

"It's certainly a response to them feeling the threat that the holding company's going to be held responsible for all this," said Bob Finkelstein, an attorney for The Utility Reform Network, an advocacy group.

Meanwhile, California's energy crisis continued in full force yesterday, as the California Independent System Operator issued a Stage Two emergency, meaning that demand had reached within 5 percent of the state's electric supply, prompting requests to certain large users to shut down and conserve power. This occurred despite a national holiday, Martin Luther King Day, on which most businesses were closed and demand was forecast to reach about 30, 000 megawatts, a fairly modest number.

Further, conditions appeared as if they were going to worsen imminently. Edison said it will be unable to pay bills coming due today, and PG&E said it has only about $500 million on hand to cover what it owes. Bankruptcy filings by both utilities appeared more likely.

State leaders were still in negotiations yesterday to broker a deal in which California's Department of Water Resources would step in and buy power on behalf of the utilities, who are facing a growing inability to pay for their purchases. The talks were reported to be breaking down, however, because Davis refused to consider raising California rates or backing utility debts with a letter of credit from the state.

In San Francisco, state Senate President Pro Tem John Burton said legislation passed last week by the Assembly will probably make its way to the governor's desk by the end of the month. One bill would change the makeup of the boards that oversee the state's power market, and the other would prohibit utilities from selling off their power-generating assets.

In the midst of yet another Stage 2 electrical emergency the Democratic leader said, "I want the people of California to have long, stable, available energy throughout the rest of our lives."

But in the short term, with the threat of rolling blackouts and urgent requests for power conservation, Burton stated the obvious: "Turn the goddamn lights off," he said.

NO CHALLENGES TO RESTRUCTURING

The Federal Energy Regulatory Commission approved PG&E's restructuring plan on a 3-to-1 vote on Friday. It was apparently described in a Dec. 28 public notice as a stock transfer, and thus flew under the radar screens of most observers. Details of the plan were first reported in the Wall Street Journal on Monday.

Greg Pruett, a spokesman for PG&E Corp., said the intent of the plan was merely to allow another unit of the corporate parent, National Energy Group, to receive its own credit rating that would be weighed independently of the troubled utility. But he acknowledged that all or nearly all of PG&E Corp.'s assets outside the utility are held by National Energy Group and that the move would reduce the liability for the corporation.

Although it was unclear whether PG&E informed state leaders of its plans, Pruett said the notice of the meeting was publicly available and had at least been provided to the Public Utilities Commission.

In addition to proceeds from the sale of power plants and other revenues that PG&E has forwarded on to its corporate parent, the utility has reaped windfall profits during the crisis from the generation and sale of electricity and has not applied those profits to its own debt. To do so would require an accounting rule change by the California Public Utilities Commission, but company officials have maintained that should not be done.

PG&E IN DEBT TO ITSELF

Critics say that PG&E is its own biggest debtor, with money flying out of one pocket and into the other and that nearly half of its debt is owed to itself. In the third quarter of 2000, the company reported a 22 percent increase in profits, with a net income of $225 million, while saying it expected California consumers to eventually pick up the tab for its debt.

-- Martin Thompson (mthom1927@aol.com), January 16, 2001

Answers

Now you begin to see the plan.This "parent company will make millions" The "consumer"you and me,"the little guy".will pay this tab!!! It is called transfer of wealth.I call it out and out "theft". In the mean time the Gov & regulators are standing by and allowing this to take place. QUESTION????WHY are they allowing it??? Answer it yourself.

-- jax (jax@borg.com), January 16, 2001.