Bankruptcy
Aug. 3, 2002
Judge Sets PG&E Reorganization Timetable
SAN FRANCISCO - The climactic court tests of rival bankruptcy reorganization plans proposed by Pacific Gas and Electric Co. and the state Public Utilities Commission will begin Nov. 12, the judge in PG&E's Chapter 11 case said Thursday.
U.S. Bankruptcy Judge Dennis Montali's schedule sets up a confrontation that could easily extend into the winter between two radically different visions of the future for the giant utility.
Actually, the PUC argues Montali will never have to turn his attention to the PG&E plan. Attorneys for the state regulatory agency raised the notion that if Montali decides its plan is legally and financially viable, that would be enough to kill the PG&E proposal.
Montali also approved schedules for briefing and taking depositions on the competing plans. The approval process, known in bankruptcy jargon as "confirmation," involves a full-blown trial, complete with witnesses, as a way of testing each plan's viability.
Key questions are likely to involve the legality of each plan, plus their ability to produce a financially sound business structure, according to attorneys involved in the process.
PG&E's creditors are now examining both plans and by Aug. 12 will cast votes indicating their preference for one proposal or the other. Many observers believe the creditors will vote to allow both plans to proceed to the confirmation step.
There was no indication Thursday how long that process will take. PG&E spokesman Ron Low said the utility still believes it can emerge from bankruptcy by Jan. 1, 2003, despite the barely six weeks that would allow for completing the trials.
Under the judge's schedule, the PUC will make its case first, followed by PG&E's arguments in favor of its plan. The timing at least allows for the possibility that PG&E's plan may never go forward.
"We believe if our plan is confirmed, you never get to the PG&E plan," said Alan Kornberg, the PUC's lead bankruptcy lawyer. Kornberg is with New York's Paul, Weiss, Rifkind, Wharton & Garrison.
PG&E officials, however, strenuously argued Thursday that their plan would receive a full airing. Even if Montali finds the PUC plan viable, "he still hasn't heard our argument," said Low.
The matter goes to the heart of the PG&E proposal, the preemption by the federal bankruptcy code of PUC's regulatory authority over many aspects of the company's business. PG&E has proposed splitting itself into four new entities, only one of which would be subject to continued PUC control.
The PUC, by contrast, has proposed a plan that requires no preemption of state law, relying instead on a financial restructuring involving debt issuance and stock transfers.
The utility has argued that its plan would involve little reduction of state authority over the company, noting that other laws, such as environmental statutes, would still apply after the plan is enacted. However, the PUC would have no oversight of the massive transfer of assets proposed by the utility's reorganization plan or of wholesale rates charged by PG&E's hydroelectric plants to the reorganized utility.
In February, Montali rejected what he called PG&E's wholesale, "take-no-prisoners" approach to preemption. But the judge allowed the utility to argue that it would be necessary to preempt certain state laws and regulations in order to accomplish its reorganization.
PUC attorneys assert that it would be logically impossible for the utility to succeed with its argument that preemption is necessary if Montali finds that the state's plan is viable.
"One of the things they have to do is show that preemption is necessary," said PUC General Counsel Gary Cohen. "If our plan is confirmable, then their preemption is not necessary. That means as a matter of law that an element they must prove is not met."
While Montali gave no indication whether he agreed with the PUC's assertion, Cohen said the schedule approved by the judge would at least allow the commission to argue its case.
But Low expressed confidence that Montali will allow PG&E's plan to be fully presented, even if the judge finds the state's plan to be acceptable.
"We believe we will be able to prove we can preempt the limited amount of state laws contemplated by our plan," he said.
Among the dates set by Montali was a Sept. 4 hearing on another potentially contentious issue, involving what information could be kept confidential in the case.
Dennis Pfaff
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