PG&E; Unit Files for Bankruptcy Protection

PG&E; Corp.’s energy wholesale unit filed for Bankruptcy Court protection Tuesday and proposed a reorganization plan that would end the San Francisco-based utility’s foray into the unregulated trading business.

Like other energy traders faced with slumping power prices and the fallout from Enron Corp.’s collapse, PG&E; National Energy Group Inc. was losing money. It reported a $3.4-billion loss in 2002 as it wound down its merchant power generation business and in November defaulted on nearly $3 billion in debt.

In May, parent company PG&E; hinted that a Chapter 11 filing was likely.

PG&E;’s chairman and chief executive, Robert D. Glynn Jr., told analysts Tuesday that the filing would have no effect on PG&E; or its Pacific Gas & Electric Co. unit -- California’s largest utility -- which was forced to seek Bankruptcy Court protection in April 2001 after amassing $13 billion in debt buying power during the state’s energy crisis.

Glynn said PG&E; had no financial obligations to National Energy Group.

Shares of PG&E; closed unchanged at $21.90 on the New York Stock Exchange.

Last month, the utility reached a tentative reorganization settlement with the state’s Public Utility Commission and, pending court approval, could emerge from bankruptcy protection in early 2004.

Tuesday’s filing by National Energy Group is “very important for PG&E; Corp. to clear the way and reduce the perception that it has exposure to NEG,” said Ellen Lapson, managing director in Fitch Ratings’ global power group.

Based in Bethesda, Md., National Energy Group operates more than 1,300 miles of natural gas pipelines, including an 80-mile pipeline in Southern California. The company also owns 27 power plants in 14 states that use coal, hydroelectric, natural gas and wind to generate power, according to its Chapter 11 filing in U.S. Bankruptcy Court in Maryland.

Spokeswoman Natalie Wymer said the company’s day-to-day operations wouldn’t be affected by the filing, but she said some workers would be laid off to help cut costs.

Under its proposed reorganization plan, National Energy Group would retain its power generation and pipeline businesses but would dismantle its energy trading unit.

The company would satisfy creditors’ claims with a combination of cash, new debt securities and new common stock, the plan says.

Ties between National Energy Group and PG&E; would be severed because the restructuring plan would wipe out the parent firm’s ownership stake. PG&E; officials said they were unable to negotiate a deal to retain ownership of National Energy Group.

In May, PG&E; reported a fiscal first-quarter net loss of $354 million, or 93 cents a share, results the company said “primarily reflect ongoing restructuring measures at PG&E; National Energy Group.”

National Energy Group said those PG&E; directors on its board have resigned.

Thomas B. King, who was National Energy Group’s president, stepped down and will remain with PG&E.; Joseph Bondi, currently chief restructuring officer, will become the firm’s chief executive pending court approval.

The Maryland company has about $114 million in cash and does not need special funding during the bankruptcy proceedings. In its filing, the company said it had $8.9 billion in liabilities and $7.9 billion in assets as of Dec. 31.

The bankruptcy filing made Tuesday covers National Energy Group as well as PG&E; Energy Trading Holdings Corp. and its subsidiaries.

Another related firm, USGen New England Inc., filed its own Chapter 11 petition, also on Tuesday.

Individual reorganization plans will be filed for PG&E; Energy Trading and the other entities, National Energy Group said.