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Pacific Gas & Electric Co. lost the right Wednesday to be the only voice directing how it emerges from bankruptcy. At a hearing in federal bankruptcy court Wednesday, Judge Dennis Montali of the Northern District of California broke PG&E’s exclusivity over its bankruptcy reorganization plan, opening the door to a rival plan authored by the California Public Utilities Commission. The CPUC had filed an outline of the plan two weeks ago. Wednesday’s ruling gives it the green light to file the full plan, which it must do by April 15. “The debtor has not satisfied the requisite statutory cause to continue exclusivity,” said Montali. The CPUC’s plan contained several unanswered questions, acknowledged Montali, “but I’m not about to say that it’s a bad faith or frivolous plan.” The news, which is a blow to San Francisco-based PG&E, means that it must now compete with an alternative plan as it strives to restructure some $13 billion in debt. No statement from PG&E was available at press time. Two weeks ago, PG&E General Counsel Roger Peters played down the significance of losing exclusivity in a conference call. “I don’t think it would be a significant setback because we would continue to go forward with our plan. It has support of all of the major constituencies in the case,” he said. The news is also a black eye for San Francisco’s Howard, Rice, Nemerovski, Canady, Falk & Rabkin, PG&E’s lead outside counsel for the bankruptcy case. According to documents from the U.S. Trustee’s office, the firm had billed more than $8.6 million on the case as of Nov. 30. PG&E’s bankruptcy reorganization plan, filed in September, seeks to transfer many of its power-generating and transmission assets from under state regulation to federal oversight. The utility contends such a move will allow it to borrow more money against the assets so that it can repay its debts. While PG&E concedes the move violates up to 37 CPUC regulations and state laws, it argues that federal law allows the bankruptcy court to pre-empt state laws. That argument ran into trouble earlier this month when Judge Montali ruled that the utility’s reorganization plan did not make a good case for pre-emption and asked PG&E to come back with more details. PG&E is both appealing that ruling and preparing an amended plan per Montali’s guidance. Montali also had previously allowed the CPUC, an outspoken opponent of PG&E’s reorganization plan, to file a term sheet for an alternative bankruptcy reorganization plan. PG&E has not been subtle about its distaste for the rival plan. Last week it lambasted the CPUC’s term sheet, calling it “patently defective” and contending that its math was off by $4.5 billion and that it would reduce the utility’s credit rating to junk bond status. Attorneys for PG&E maintained that argument Thursday. “This is not a credible term sheet,” said Howard Rice’s Jim Lopes. “It’s off by billions of dollars.” But the CPUC argued that many of the wrong numbers resulted from misinformation provided by PG&E. “We concede that we have to scrub the number — I don’t think that’s a surprise. We are an outsider looking in,” said Alan Kornberg of New York-based Paul, Weiss, Rifkind, Wharton & Garrison, the CPUC’s lead outside counsel. “We’ll get it right by the time we file our plan.”

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