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Kent Harvey, the chief financial officer of bankrupt Pacific Gas & Electric Co., spent hours answering attorneys’ questions Monday as the latest trial over the company’s future got under way. The proceedings are the second attempt to confirm a reorganization plan that will lift PG&E out of Chapter 11 bankruptcy, where it’s been for the past 2 1/2 years. Harvey told the court that PG&E’s proposed reorganization plan meets the company’s three “key criteria” of not increasing electricity rates, paying all claimants in full, and achieving an investment-grade credit rating — just like PG&E’s first proposed reorganization plan, which went on trial roughly one year ago. That trial was suspended in March, when Judge Dennis Montali ordered PG&E and the state regulators pushing an alternative reorganization plan into mediation. After months of negotiations, the two sides inked a settlement agreement, which is the basis for the single plan of reorganization now on the table. While PG&E’s blueprint for reorganization is no longer being challenged by another plan, it still faces stiff opposition. A panel of objectors, representing the state of California, the city of San Francisco and a variety of other municipalities and creditors, sat grouped together on one side of the courtroom Monday, taking turns lobbing objections throughout the proceedings and preparing for their own opportunities to cross-examine the utility’s witnesses. The battle lines have shifted from the first plan’s confirmation trial, when the financial feasibility of PG&E’s reorganization plan was a major point of contention. This time around, financial questions have largely been resolved by what some say are more generous terms for creditors. Instead, regulatory and legal issues now predominate. “The question is what will the terms of dealing with PG&E in the future be, and this settlement and part of the plan define that relationship going forward,” Larry Engel, a lawyer representing the city of Palo Alto, said in a phone interview. “It further unbalances the David and Goliath nature of dealing with PG&E.” Among the disputed facets of the reorganization plan are provisions binding the California Public Utilities Commission to the settlement agreement and giving the bankruptcy court jurisdiction over future disputes involving the settlement agreement — including rate setting. “By virtue of the proposed plan, PG&E is attempting to unilaterally abrogate federal statutory law and to confer exclusive jurisdiction where it does not exist,” reads the trial brief submitted on behalf of several municipal objectors. Another provision releases all claims between PG&E Co. and parent PG&E Corp. The state of California and the city of San Francisco contend that the parent company illegally siphoned off roughly $5 billion from the utility during the energy crisis. PG&E’s Harvey said those claims were without merit, and rebutted contentions that the parent company, in fact, had an obligation to fund the utility during the crisis. “It would have been inappropriate to fund an operating shortfall with equity,” said Harvey, under cross-examination from Deputy City Attorney Cameron Baker. The new plan restructures PG&E’s $12 billion in debts by issuing approximately $8 billion in bonds and by using cash on hand. Unlike the first plan, which split PG&E into four separate companies and transferred three of the companies to federal regulation, the new plan maintains a single, state-regulated company. Harvey was the first of a list of witnesses, including PG&E Chairman Robert Glynn Jr. and Chief Executive Officer Gordon Smith, slated to testify in the trial. Montali has blocked off 20 days on his calendar, running through Dec. 18, to conduct the hearings, though his court order notes that this schedule does not imply that all of the dates will be necessary. In order for the plan to be confirmable, the settlement agreement must also be ratified by the CPUC. The commission held public hearings on the settlement last month, and Administrative Law Judge Robert Barnett is expected to issue a proposed decision on Nov. 18. The CPUC’s five commissioners could then vote on the settlement agreement as early as Dec. 18.

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