Utility regulators partner in PG&E bankruptcy

By Karen Gaudette, The Associated Press
Wednesday June 26, 2002

SAN FRANCISCO — California energy regulators hope partnering with global investment banking and capital markets giant UBS Warburg will boost support on Wall Street for their plan to lift the state’s largest utility from bankruptcy. 

The partnership, announced Tuesday during a news conference, would become official if U.S. Bankruptcy Judge Dennis Montali approves the state’s request that Pacific Gas and Electric Co. pay UBS’ fees — $3 million upon Montali’s approval and roughly $5 million more if the firm arranges and obtains the state’s financing. 

“It’s a major endorsement by one of the most important financial institutions in the world and we hope that Wall Street will view it as an important development,” said Alan Kornberg, an attorney representing the state Public Utilities Commission in the bankruptcy. 

Gary Cohen, general counsel for the PUC, said the state chose to work with UBS Warburg because of its “stellar” reputation, its size and its “extensive experience in the utilities sector and in the state of California.” 

Calls to PG&E for comment Tuesday were not immediately returned. 

The announcement comes at a critical point in PG&E’s 14-month-old bankruptcy, born of the power crisis that brought rolling blackouts to California households and businesses in 2001. PG&E’s creditors are reviewing the two reorganization plans and must support or reject them by mid-August to help Montali determine which, if any, offers the best means by which they’ll be paid. 

The utility hopes to regain its good credit by transferring transmission lines, power plants and other assets away from state oversight and into three new companies that would be regulated by the federal government. Analysts say that would allow PG&E to borrow more money to pay its debts, since it would escape state control over how much it can charge for electricity. 

The state’s plan calls for the utility’s 4.6 million ratepayers to pay billions, PG&E to sell common stock and its parent — PG&E Corp. — to forego a huge chunk of profits. Both swear the other’s plan is fatally flawed. 

While credit-rating agency Standard and Poor’s has pledged to grant PG&E creditworthiness should Montali confirm its reorganization plan, the PUC’s plan has received a lukewarm response. But Ken Crews, vice chairman of UBS Warburg, said financial support for PG&E’s plan may erode because the utility hopes to split itself into separate trading, distribution and generation divisions at a time when many power companies are moving toward combining operations.