PG&E to Pay Creditors 15 Cents on the Dollar / Many say they'll be driven bankrupt

Source: The San Francisco Chronicle Publication date: 2001-03-02 Arrival time: 2001-03-03

Pacific Gas and Electric Co. said yesterday it would pay only about 15 cents on the dollar for its outstanding power bills, sparking outrage among smaller creditors, who accused the utility of driving them out of business. In a filing to securities regulators, PG&E revealed it would pay just $228 million of about $1.4 billion due for recent electricity purchases.

"How would you feel if your boss gave you just 15 percent of your paycheck and said he'll get back to you for the rest?" asked Bob Judd, director of the California Biomass Energy Alliance, representing operators of 28 wood-fired plants statewide.

PG&E's filing marks a turning point in California's energy crisis. It is now possible that not only will the state's largest utility go under, but it could take a number of power generators with it.

PG&E, now in talks with the governor on a possible financial bailout, is telling creditors to be thankful for whatever they get. If the utility declares bankruptcy, all parties know, many creditors may receive nothing.

Still, time is running out for Ridgewood Power, a New Jersey company with 14 plants in California. It already has had to shut down three facilities in PG&E's service area because it can no longer afford to keep them running.

'NOWHERE NEAR'

"The amount of money PG&E is giving us is nowhere near what we need to pay our natural gas suppliers," said Martin Quinn, Ridgewood's chief operating officer. "We could restart the plants tomorrow if we could be released from our PG&E contracts and sell to another buyer."

He added that his company would ask federal regulators to nullify its contracts with PG&E so Ridgewood could bid for alternative power contracts being offered by California state officials.

PG&E's larger creditors reacted more cautiously to word that the utility would pay only a fraction of its outstanding bills.

"We have to study the consequences and see," said Richard Wheatley, a spokesman for Houston's Reliant Energy, which formed a creditors' committee last month with other leading electricity providers. "We don't know how much of the money we'll get."

Reliant and other major creditors are grappling with how much leeway to grant PG&E on its unpaid bills before deciding to cut their losses and push the cash-strapped utility into bankruptcy.

'VERY CONCERNED'

"We are very concerned about the credit issue," said Steve Stengel, a spokesman for Houston's Dynegy Inc., another member of the creditors' committee. "But we are still interested in finding a comprehensive solution to California's energy situation."

That may depend on the outcome of current talks Gov. Gray Davis is holding with PG&E and Southern California Edison to purchase the utilities' transmission lines as part of a multibillion-dollar bailout package.

PG&E and Edison are saddled with nearly $13 billion in debt as a result of ill-conceived efforts to deregulate the state's electricity market.

The announcement of partial payments was not a complete surprise to PG&E's creditors. The utility's chief financial officer, Kent Harvey, told investors in a conference call last month that PG&E would prefer to "make partial payments than no payments at all."

PG&E has defaulted on more than $730 million in short-term debt payments since January amid growing concerns that the utility will file for bankruptcy protection.

In response, three California counties have formed their own creditors' committee to recoup investments in PG&E's short-term debt, also known as commercial paper.

The three -- Santa Cruz, Riverside and Siskiyou counties -- are inviting other public agencies to join forces in seeking compensation from PG&E for the defaulted payments.

The prospect of PG&E filing for bankruptcy has diminished somewhat in recent weeks as Davis and Sacramento lawmakers scrambled to come up with proposals to rescue California's utilities from financial ruin.

Although Edison has said it is prepared to sell its power lines to the state for nearly $3 billion, PG&E so far has refused to follow suit.

However, as The Chronicle reported yesterday, the utility retained outside counsel this week to offer advice on a possible sale of its power lines, increasing the likelihood that a deal may be in the works.

SUITS ALLEGE MISMANAGEMENT

Separately, PG&E said yesterday it had been hit with a pair of lawsuits seeking almost $3 billion in restitution for financial mismanagement.

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-- Martin Thompson (mthom1927@aol.com), March 04, 2001