Vote Will Give 74,000 Creditors a Say on PG&E; Payment Plans

In a vote that will help chart the future of California’s largest utility, 74,000 creditors of Pacific Gas & Electric Co. will be sent ballots this week asking them whether they favor PG&E;’s blueprint for repaying $13.5 billion in claims or a competing plan from state regulators.

The balloting, which ends Aug. 12, will be used by a federal bankruptcy judge in San Francisco as he decides whether to adopt PG&E;’s plan to restructure itself, the California Public Utilities Commission’s plan or neither proposal.

The voting comes more than a year after PG&E; filed for Chapter 11 protection from creditors and sets the stage for the final battles of one of the nation’s biggest and most bitterly contested bankruptcy cases. The case’s outcome could determine how quickly PG&E; can emerge from bankruptcy and resume buying power for its millions of customers in Northern and Central California.

The PUC and PG&E; have attacked each other’s plans in court and in public. Not even a mediation effort ordered by the judge resolved their disputes. Each side has threatened legal action if the other’s plan is adopted. And each has courted the official committee of PG&E; creditors, hoping to win support for its plan.

In the end, the committee of representatives from various creditor classes took a middle ground. It is recommending that creditors, ranging from large financial institutions to PG&E; vendors, vote for both plans because each promises to fully repay the utility’s debts with interest and enable PG&E; to emerge from bankruptcy with its financial health.

The committee concluded that both plans are better than other alternatives, such as liquidating PG&E;’s assets.

But concerns prevented the panel from recommending that creditors express a preference for either plan.

PG&E;’s plan calls for splitting the utility into four separate entities and moving its hydroelectric and nuclear facilities to a new subsidiary of its parent company, PG&E; Corp. The plan also requires preemption of dozens of state laws and shifts parts of the company outside the reach of the PUC, which branded the plan a regulatory “jailbreak.”

The PUC plan would keep PG&E; under state regulatory control and would use about $3.6 billion of PG&E;’s cash on hand and some financial restructuring to repay the claims in full.

The PUC proposes to pay off creditors entirely in cash, while PG&E; plans to satisfy 60% of the debt with cash and 40% with notes.

The creditors committee said PG&E;’s plan carries significant regulatory hurdles and risks of litigation that could delay payment to creditors. The Public Utility Commission’s plan, they said, has fewer legal barriers and is simpler but “faces uncertainties over its financial feasibility.”

Without creditor acceptance, a plan is doomed. The creditors can vote for either plan--or both. If they vote for both, they can express a preference.

The committee’s attorney, Robert Moore of Milbank, Tweed, Hadley & McCloy in Los Angeles, said voting for both plans is the safest course. “All this is saying to a creditor is that you should leave those options open because [both plans] are attempting to give you the same result,” he said.

At the next stage of the bankruptcy--a confirmation hearing in the fall--Judge Dennis Montali will consider the voting results as he decides whether to confirm PG&E;’s plan, the PUC’s plan or neither. Among other things, he will assess whether PG&E; can legally preempt state laws, whether the PUC’s plan is financially viable and whether either plan would require a rate increase.

“At the end of the day, it is the judge who determines which plan gets confirmed, not creditors,” said Brian Hermann, outside bankruptcy counsel for the PUC.

A private contractor is sending out 600-page packets containing ballots, the creditors committee recommendation and copies of both plans.

PG&E; asked the judge for permission to hire another contractor to solicit the support of creditors in person, by e-mail, letter and other means--and to answer questions about the PG&E; plan.

“We intend to reach out to as many creditors as possible,” said company spokesman Ron Low. “We are confident that our plan will be confirmed, [and] we believe that the commission’s alternate plan cannot be confirmed.”

Hermann, the PUC’s lawyer, said the committee recommendation was a good omen for the PUC’s plan. “A tie goes to the PUC because we started [developing a plan] seven months behind PG&E;,” he said.

One of PG&E;’s creditors is its longtime nemesis, the Utility Reform Network. The PUC awarded tens of thousands of dollars in intervenor compensation for legal work TURN has performed in connection with PG&E; cases before the regulatory body.

TURN has argued that neither plan is good for consumers. The PG&E; plan allows the utility to move generation assets to a PG&E; Corp. subsidiary and to sell the power into the California market under a 12-year contract at a price that TURN contends is much higher than the current rate. The PUC plan allows the utility to help reduce its debts by having con- sumers continue to pay what TURN says are excessive electricity rates.

So how will TURN vote?

“Obviously we will vote against PG&E;’s plan, and the only question is whether we will vote for the lesser of two evils--the PUC plan,” said Mike Florio, senior attorney for TURN.