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In a move that throws the future of the Pacific Gas & Electric Co.’s bankruptcy case into doubt, an administrative law judge has rejected the agreement at the heart of the utility’s plan of reorganization. In an opinion released late Tuesday, Judge Robert Barnett advised the California Public Utilities Commission to reject a settlement agreement between PG&E and state regulators, saying its defects were “patent, obvious on the first reading.” Meanwhile, CPUC President Michael Peevey offered two alternate decisions for the five commissioners to consider when they vote on whether to ratify the settlement agreement Dec. 18. Barnett’s widely anticipated decision threatens to derail the confirmation trial underway for PG&E’s Chapter 11 reorganization plan. The judge took issue with provisions binding the CPUC to the terms of the agreement for the next nine years and ceding jurisdiction over rate setting to the federal bankruptcy court. “The commission cannot be powerless to protect PG&E’s ratepayers from unjust and unreasonable rates or practices during the nine-year term of the proposed settlement,” wrote Barnett. He offered a modified agreement, which purported to retain the financial provisions of the settlement agreement while resolving his concerns. PG&E has indicated in the past that the settlement agreement is not open for negotiation. “No one provision can be reworked to make it ‘better’ without changing the bargain reflected in the proposed settlement agreement, and, thus, upsetting the balance of interests that this proposed settlement achieves,” PG&E CEO Gordon Smith testified earlier this year. As a result of the state’s energy crisis, PG&E filed for Chapter 11 bankruptcy protection in April 2001. The utility and the CPUC sparred in bankruptcy court for months, with each side advancing its own blueprint for how best to restructure PG&E’s $12 billion in debts. After being ordered into private, judicially supervised mediation last spring, PG&E and the CPUC announced a settlement agreement in June. That agreement is the basis for the current PG&E plan of reorganization. Closing arguments in the bankruptcy court confirmation trial of that plan are scheduled for Monday. Under the terms of the settlement agreement, the agreement must be approved by the bankruptcy court, the commission and the boards of directors of PG&E and parent PG&E Corp. Failure to secure any one of these approvals is grounds for any party to terminate the agreement. “If the proposed settlement doesn’t receive one of the approvals, it can’t be implemented,” said PG&E spokesman Ron Low. One of CPUC President Peevey’s alternate decisions proposes to adopt the settlement agreement as is. His second one, which was labeled his “preferred” alternate, adopts certain enhanced environmental protections, as well as some non-economic changes to the agreement. “We are on track and on schedule to resolve this matter by the end of the year,” Peevey said in a prepared statement. “Judge Barnett’s proposed decision and my two alternates will maintain PG&E as a vertically integrated utility subject to CPUC regulation and will contribute to a decision by the full commission that should benefit PG&E ratepayers, the state and the environment.”

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