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Bankruptcy Filing by PG&E Pulls Plug on Governor, Legislators
Casualties: Plans to buy power lines and lure back alternative energy producers seem to be dead.
By MIGUEL BUSTILLO,JULIE TAMAKI and CARL INGRAM, Times Staff Writers
SACRAMENTO--Months of delicate planning by California's legislators to rescue the state from a deepening energy crisis collapsed into chaos and uncertainty Friday with the bankruptcy filing by Pacific Gas & Electric.
Among the most immediate casualties of the bankruptcy, according to legislators and others, were Gov. Gray Davis' proposal to purchase transmission lines from the state's largest utilities and a plan to coax alternative energy producers back into the market by guaranteeing payments to them. Both those ideas, part of a panoply of energy proposals intended to pull California out of its crisis, now appear dead.
The state budget moves ahead, but California's annual spending plan, which is being depleted at a rate of about $50 million a day for electricity purchases, will not get the replenishment, at least for now, that officials had expected.
California's financial well-being took a hit as well, as an influential bond rating service changed the state's rating from stable to negative. That could have long-term ramifications on its ability to borrow money for projects large and small.
Finally, the bankruptcy refocuses the state government's role and effectively strips California's political leadership of much of its control over the outcome of the crisis, replacing elected officials with a bankruptcy judge. It is now in court, not on the floor of the Legislature, that the energy crisis is likely to be addressed.
As the court assumes a central role, Assemblyman Fred Keeley (D-Boulder Creek), one of the leading legislators on the energy crisis, said he expects lawmakers to shift from trying to meet the expensive cost of electricity to fighting it.
"There is a lot of debate about, 'Is this increase enough, how much of a haircut should the utilities take?' " Keeley said. "This should bring the conversation back to the root cause of this problem: disparity between supply and demand."
That loss of control is something most of the politicians had worked desperately to avoid: In a meeting with Republican legislators this week, Davis called bankruptcy "a nightmare scenario." "We are no longer controlling the outcome," said Assemblyman Roderick Wright (D-Los Angeles), the head of the lower house's Utilities and Commerce Committee. "At the beginning of this year, we were in control of the situation. Now we just added a new player to this game, one with decision-making power."
The consequences of the court's new role remain hard to fathom. But the PG&E bankruptcy filing immediately means that some of the centerpieces of Davis' plan to reduce power prices and restore the utilities to financial health are almost certainly obsolete. In recent weeks, most had appeared doomed anyway.
Davis had hoped to let the utilities regain their financial footing by having the state purchase their massive web of power transmission lines for billions of dollars. From the start, PG&E balked at that proposal, calling the lines one of its most crucial assets.
There will be no such deal with PG&E anymore--or at least, there will be no deal that occurs outside a Bankruptcy Court, where the state will have to compete with private buyers for the power lines and probably bid expensive market prices. That could affect negotiations to buy the lines of the state's second-largest utility, Southern California Edison.
Republicans, who had unanimously opposed the transmission line plan, said it is certainly dead now, if it had not been dead on arrival. Another portion of the plan now in shambles is the state's effort to reduce the prices paid to alternative energy producers while making sure the producers got paid for their electricity.
The alternative energy producers, which include makers of solar and wind power, generate more than a quarter of the power consumed in California. But in recent weeks their output has been slashed in half, contributing to last month's blackouts. Many have stopped generating electricity because the utilities have failed to fully pay them for months. PG&E and Edison are estimated to owe them more than $1.5 billion.
After an attempt to lower the producers' rates faltered in the Legislature, Davis stepped in. His plan to slash the producers' rates and to order the utilities to begin paying them this month was approved last month by the Public Utilities Commission. But it failed to bring the generators back online. Instead, it prompted a growing number of them to file civil lawsuits seeking to have their contracts with the utilities suspended--a tactic that one generator recently found successful.
Should the producers be freed from the contracts in the courts, they will probably begin selling their supplies out on the spot market, which would be both good and bad news for California. The state could see more megawatts return to its power grid, but most likely at a higher cost.
A judge will make that call in civil court--and another jurist will take charge of matters in the bankruptcy proceedings, a development that some producers welcome. Although its effect on the state budget is less dramatic, some officials believe that will be the area in which the bankruptcy will cause the most critical consequences.
California has spent more than $3 billion since January purchasing electricity because the state's largest utilities were too financially hobbled to do so. The state's plan is to repay the budget with a record $10 billion in bonds, which would then be retired by utility ratepayers out of their monthly bills.
In theory, the bond deal is supposed to be immune from a utility bankruptcy because California is supposed to receive certain repayment. In practice, however, Wall Street analysts and Sacramento politicians expect bankruptcy to indefinitely slow the repayment process, as lawyers scour the details of the bankruptcy filing.
"This puts everything on hold," said Assembly Republican leader Dave Cox (R-Fair Oaks). The bankruptcy could also affect the finalizing of $4.125 billion in short-term loans that J.P. Morgan Chase & Co., the state's chief underwriter on the bonds, tentatively secured this week to repay the state treasury until the bonds are issued. Alan Markow, a J.P. Morgan vice president, said: "We are not going to loan money that we do not expect to get back."
A slew of long-term contracts being cut between the state and energy suppliers also could be affected, although indirectly. Money to pay off the state's obligations under those contracts is supposed to come from utility rates, which now will be caught up in the court proceedings.
Despite those tremors, state Treasurer Phil Angelides said he still expects the loan and bond to proceed without significant delay. "As a matter of prudence, we are reviewing the effect of the filing," Angelides said, "but we believe this will not ultimately affect our ability to issue bonds and repay the general fund."
Indeed, many legislators found a silver lining in the PG&E bankruptcy. Even before Friday's filing, in fact, there was a growing consensus among Democratic legislators that bankruptcy was no longer something to be avoided. "I think we are better off with them in Bankruptcy Court," state Sen. Jackie Speier (D-Hillsborough) said. "The lights stay on. I think a bankruptcy judge is going to act prudently and not necessarily give PG&E exactly what they want."
By removing the issue of PG&E's back debt from Sacramento, legislators said their priorities could return where they belong: cracking down on the generators charging excessive rates and finding ways to bolster electricity supplies, possibly through a state power authority that would build power plants.
"We have to rethink, 'What are our goals? What do we propose now that works?' " said Sen. Debra Bowen (D-Marina del Rey), head of the Senate Energy Committee. "The table gets much bigger now because the creditors and the bondholders and everybody winds up having to be a part of the discussion." * * * Times staff writer Nancy Vogel contributed to this story.
-- Swissrose (firstname.lastname@example.org), April 07, 2001