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In a surprise compromise designed to ensure its exit from Chapter 11 bankruptcy early next year, Pacific Gas & Electric Co. has agreed to key modifications to its reorganization plan. The company filed comments with state regulators late Monday, revising the financial mechanism by which it intends to restructure its $12 billion in debts and eliminating the reimbursement of $125 million in professional fees incurred by its parent company during the bankruptcy. According to the joint filing by PG&E and The Utility Reform Network, a non-profit consumer advocacy group, the compromise has the potential to save ratepayers up to $1 billion. PG&E’s eleventh-hour filing with the CPUC stunned some of the parties involved in the case. The company submitted the comments to state regulators two days before the California Public Utilities Commission is scheduled to hold a crucial vote that will determine the fate of PG&E’s bid to emerge from bankruptcy. “It’s pretty incredible to file something at 9:30 at night on Monday and expect that the commission is going to adopt it on Thursday,” said Deputy San Francisco City Attorney Theresa Mueller. Federal bankruptcy judge Dennis Montali ruled Friday that PG&E’s reorganization plan does not violate federal bankruptcy law. But the plan also needs the blessing of the CPUC, which must determine whether the plan is in the public interest. The compromise represents a change of tack for PG&E, which until now has steadfastly insisted that it would not negotiate the terms of a settlement agreement that’s at the heart of its bankruptcy reorganization plan. But with most of the CPUC’s five commissioners expressing reservations about the agreement as currently drafted, PG&E apparently concluded its best hope lay in making some concessions. CPUC President Michael Peevey and commissioners Loretta Lynch, Jeff Brown and Carl Wood have all issued their own alternate proposals, which revise the terms of PG&E’s plan to various degrees. The compromise filed by PG&E calls for adopting Peevey’s alternate proposal No. 2, and grafting onto it a financial instrument advocated by TURN. “TURN and PG&E agree that PG&E should emerge from Chapter 11 at the earliest possible date, that it should do so as an investment-grade company, and that customer rates should be reduced to the maximum extent feasible,” read the filing. Mueller, of the city attorney’s office, noted that PG&E’s modifications should require a public comment period, which could push back Thursday’s vote by the CPUC. The city attorney’s office is one of numerous parties, including the state attorney general, the Office of Ratepayers Advocates, and, at one point, TURN, that have objected to PG&E’s plan, calling it too costly for ratepayers and fraught with illegal provisions. Among the key criticisms of the plan are provisions giving the bankruptcy court exclusive jurisdiction over disputes in the settlement agreement, binding future commissions to the plan’s nine-year term and releasing billions of dollars in claims against parent PG&E Corp. None of those objections are resolved in PG&E’s modified plan. The most significant change involves the refinancing of the plan’s $2.21 billion regulatory asset — a fictitious paper asset that PG&E can borrow money against to pay off its creditors. Under its original plan, PG&E would amortize this regulatory asset over nine years using ratepayer revenues. The compromise would refinance the regulatory asset as soon as PG&E emerges from bankruptcy in 2004 by issuing up to $3 billion in bonds. The low interest rate that PG&E expects to obtain on the bonds could save ratepayers up to $1 billion. In its filing, PG&E stipulates that the state must pass specific legislation authorizing the refinancing of its regulatory asset. Edward O’Neill, a partner at Davis Wright Tremaine who represents TURN, said that he didn’t anticipate difficulty in getting a bill passed, given the Legislature’s interest in obtaining ratepayer savings and the language of the bill. The PG&E filing also deletes a provision from the original plan that left the utility on the hook for parent PG&E Corp.’s expenses in the bankruptcy case. Weil, Gotshal & Manges, along with several other law firms and accounting firms, have racked up nearly $125 million representing PG&E Corp. since PG&E declared bankruptcy in 2001. The modified plan releases PG&E of any obligation to pay the fees and precludes PG&E Corp. from seeking to recover the costs in bankruptcy court. One of the most strident objectors to the PG&E reorganization plan has been TURN, which had initially proposed the bond measure as an alternative means of financing PG&E’s reorganization. But TURN’s scheme failed to win the backing of any CPUC commissioners. In a statement released Tuesday, TURN characterized its decision to drop its objections to Peevey’s alternate proposal as a choice between the lesser of two evils. “TURN was between a rock and a hard place in having to decide whether to agree not to oppose a decision that would have the least possible cost to ratepayers or continue to fight what appeared to be a losing battle,” said Executive Director Bob Finkelstein.

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