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Ratepayers given a voice: U.S. Bankruptcy Court puts consumers on equal footing in debate over PG&E's case.

By Claire Cooper Bee Legal Affairs Writer (Published May 5, 2001)

SAN FRANCISCO -- The U.S. Bankruptcy Court took the unprecedented step Friday of giving electricity ratepayers a seat at the table in deciding how Pacific Gas and Electric will repay its debt.

The appointment of a nine-member committee means that organizations representing families, businesses, farms and government will participate on an equal basis with banks, electricity wholesalers and other PG&E creditors in devising a debt payment plan that could include substantial rate increases.

The San Francisco-based utility sought bankruptcy court protection April 6 after running up more than $8 billion in debt for electricity purchases after wholesale electricity rates spiked while customer rates remained frozen.

"This is a positive step toward ensuring that the interests of the public at large will be considered. It certainly gives the process credibility," said Lawrence C. Levine, a professor at McGeorge School of Law.

Consumer groups had worried that the bankruptcy reorganization would be strictly a corporate affair and feared ratepayers would be kept out of the process at their peril. Their inclusion will be an important protection against any deal between PG&E and its creditors that would come at ratepayers' expense, said law professor Warren Grimes of Southwestern Law School in Los Angeles.

As it is, PG&E's 13 million customers face rate increases of 29 percent in coming months.

Friday's announcement is the most significant development so far in the PG&E bankruptcy case, the third largest ever. In recent weeks, U.S. Bankruptcy Court Judge Dennis Montali has heard a parade of lawyers arguing for the right to either break or enforce contracts with PG&E.

Members of the newly named consumer committee acknowledged that they represent diverse constituencies that often have disagreed on what constitutes a fair rate structure. But they said they hoped to work together smoothly in the interests of establishing a reliable source of energy without gouging anyone.

"We're coming in with a perspective, not a position," said committee member Rachel Kaldor, executive director of the California Dairy Institute.

Another member, Nettie Hoge, executive director of The Utility Reform Network (TURN), said the committee also will raise questions on such issues as whether PG&E's transfer of money to its parent corporation influenced California's energy crisis. PG&E Corp., the parent company, is not involved in the bankruptcy.

"We have an opportunity to examine the debtor and explore issues that are relevant, to propose a (debt reorganization) plan and to comment on the plan that the debtors provide," she said.

The committee was the result of negotiations among Hoge, regional Consumers Union chief Harry Snyder and Linda Ekstrom Stanley, the U.S. trustee in charge of the bankruptcy proceedings.

Stanley chose the committee members, drawing heavily on the ranks of veteran advocates who have been representing consumer interests in proceedings before the state Public Utilities Commission.

They include representatives of the California School Boards Association, the California Farm Bureau Federation, the California Small Business Association and Small Business Roundtable, the California Restaurant Association, the California Manufacturers & Technology Association and the California City-County Streetlight Association.

McGeorge law professor John Sims said giving such groups a voice in the proceedings was warranted because a utility isn't an ordinary company that can set its own rates and operating rules.

"The whole reason the system of public utilities exists is to protect ratepayers," Sims said.

While the creditors' committee did not respond to requests for comment Friday, PG&E spokesman Ron Low said the utility "respectfully disagreed" with Stanley's decision to allow a ratepayers' committee, rather than the California Attorney General's Office, to represent energy customers.

Stanley said she took the unusual step because the state, which is asserting a constitutional right of sovereign immunity, has opted to stay out of the bankruptcy proceedings. She said Attorney General Bill Lockyer had no objection to her decision.

Stanley acted under a provision of Chapter 11 of the U.S. Bankruptcy Code that directs the trustee to appoint a creditors' committee and allows the trustee to appoint additional, unspecified committees.

According to John D. Ayer, who teaches bankruptcy law at the University of California, Davis, various kinds of consumer committees have participated in bankruptcy proceedings from time to time.

But there appears to be no case in which a ratepayers' committee has been given comparable clout as a full participant alongside the debtor and creditors.

In a similar case, the 1988 bankruptcy proceeding involving a New Hampshire utility, a court granted a consumer group the status of intervenor, which allowed it to present arguments on a limited range of issues.

In that case, the state was the ratepayers' official voice in the proceedings. The deal on which the state signed off included a 46 percent rate increase.

-- Helium (, May 05, 2001

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