Presentation on theme: "THE GEE STRATEGIES GROUP Robert W. Gee President NARUC SUMMER COMMITTEE MEETINGS Seattle, Washington July 17, 2001 ANOTHER “SURVIVOR” GAME: THE PUC’S ROLE."— Presentation transcript:
THE GEE STRATEGIES GROUP Robert W. Gee President NARUC SUMMER COMMITTEE MEETINGS Seattle, Washington July 17, 2001 ANOTHER “SURVIVOR” GAME: THE PUC’S ROLE IN A UTILITY BANKRUPTCY ANOTHER “SURVIVOR” GAME: THE PUC’S ROLE IN A UTILITY BANKRUPTCY
THE GEE STRATEGIES GROUP 2 THREE OBJECTIVES Abbreviated Bankruptcy 101 Lesson Texas Experience Relate to Present Day
THE GEE STRATEGIES GROUP 3 The El Paso Electric Bankruptcy Rates inadequate to meet escalating nuclear plant cost obligations Filed January 1992 Concluded Fall 1995 Stand-alone Plan /Failed merger attempt Rates: increased $25 million Cost: $100 million in fees Gee’s life shortened by 10 years
THE GEE STRATEGIES GROUP 4 Bankruptcy Court versus PUC Proceeding: Two Different Ballgames Different Legal Standards and Policy Objectives Sharply contrasting “ cultures” Greater number of participants Much higher level of public attention
THE GEE STRATEGIES GROUP 5 Bankruptcy Law and Policy Objectives Chapter 11 bankruptcy: maximizes value of debtor’s estate to satisfy creditors’ claims Rate increase: intended to boost estate value with other measures Law: empowers Court to approve restructurings, but requires PUC to approve rate increase if part of reorganization plan or rate change expressly conditioned upon such approval
THE GEE STRATEGIES GROUP 6 State Utility Law and Policy Objectives Law: May require PUC to preapprove utility consolidations and mergers Rates: just and reasonable Law mandates balancing utility’s (i.e., shareholders and bondholders) financial interests against that of ratepayers
THE GEE STRATEGIES GROUP 7 The “Culture” Clash Preexisting relationships Want to preserve relationship beyond current case Regulatory Counsel Bankruptcy Bankruptcy Counsel No prior relationships One-shot deal/Play for keeps Commissioner who?
THE GEE STRATEGIES GROUP 8 The Bankruptcy Proceeding: Who Participates? More than in utility case Creditors, Shareholder committees Potential suitors (friendly or unfriendly) wanting to acquire bankrupt estate Public Counsel, Cities, PUC (New Hampshire)or PUC Staff (Texas) CA Bankruptcy Court: Ratepayers’ Committee rejected as party
THE GEE STRATEGIES GROUP 9 PUC-Bankruptcy Court Jurisdictional Question One Q : Can the PUC continue setting rates during the bankruptcy proceeding? A: Yes. If “normal ratemaking activities”, not subject to “automatic stay” under bankruptcy law (prevents commencement or continuation of actions against, enforcement of claims against, or actions to obtain property of debtor utility). CA Bankruptcy judge: PG & E’s petition to enjoin PUC’s accounting order denied, citing “police and regulatory” exception to automatic stay.
THE GEE STRATEGIES GROUP 10 PUC-Bankruptcy Court Jurisdictional Question Two Q: Who establishes rate path at the confirmation of reorganization plan? A: PUC, if rate increase part of reorganization plan, but answer more complicated if restructuring (e.g., merger or consolidation) involved.
THE GEE STRATEGIES GROUP 11 The Bid for El Paso El Paso accepted acquisition bid from Central & Southwest Rejected acquisition bid by Southwestern Public Service PUC Staff & Public Counsel agreed with SPS regarding acceptable rate path but not able to do same with CSW
THE GEE STRATEGIES GROUP 12 The “Preemption” Issue Texas Law: PUC not required to preapprove mergers But PUC required to determine whether CSW merger consistent with public interest and disallow rate affect if not (valuation issues affecting rate base) Question: Would Bankruptcy Court’s merger approval preempt need for PUC’s “public interest” finding ?
THE GEE STRATEGIES GROUP 13 The Bankruptcy Court Decision Approved El Paso’s Reorg Plan with CSW merger Conditioned rate changes in plan or merger agreement on approvals by PUC Found “preemption” issue not ripe w/ PUC Staff amendments El Paso sought to enjoin PUC from addressing certain reorg issues, claiming Staff previously litigated same issues for PUC (doctrine of collateral estoppel) Court: deferred resolution, but found Staff and PUC to be same party to determine whether relitigation being attempted Bullet dodged when merger fell apart
THE GEE STRATEGIES GROUP 14 Lesson from Texas PUC Staff’s Intervention A Resource to Court / Parties To relate potentially acceptable rate paths PUC would accept To preserve Commission independence Lesson: no good deed goes unpunished Despite repeated explanations, Court rejected distinction between PUC Staff and Commission Original Intent Reality
THE GEE STRATEGIES GROUP 15 Implications for PG &E Bankruptcy If Bankruptcy court approves PG&E reorganization plan with restructuring of assets, will CPUC’s authority to establish rates be affected? Can Court factor consumer/public policy interests absent Staff or PUC party intervention? Should it? Are there alternative means of public policy input without intervention?
THE GEE STRATEGIES GROUP 16 A Tough Call: Should a PUC Get Further Involved? Permits public policy input in shaping court’s order confirming plan Forestalls other parties from framing jurisdictional conflict in court’s order Risks being pulled directly into jurisdictional battle Risks blurring Staff/Commission distinction Collateral estoppel exposure PROS CONS
THE GEE STRATEGIES GROUP 17 California Texas El Paso reorg plan: confirmed with fully integrated utility (TD&G) under COS No wholesale or retail power competition 10-year rate moratorium approved in plan PG&E: generation unbundled & “ring fencing” under attack Wholesale power priced at market Competition policies in flux FERC RTO decisions pending
THE GEE STRATEGIES GROUP 18 Utility Bankruptcy: Myth versus Reality Bankruptcy can bring chaos “under control” Regulators will eventually have a say in determining outcome Management is crying wolf when bankruptcy threatened Situation becomes highly unpredictable & more chaotic Utility will use bankruptcy process to gain leverage over regulators Management will likely be ousted & utility will lose public goodwill
THE GEE STRATEGIES GROUP 19 Epilogue: Lessons Learned To PUC’s: Carefully weigh manner of participation (by Staff, Commission, or otherwise) & avoid perception of playing “favorites” To utilities: Manage problem of significant goodwill loss To all: Brace for “culture” clash & prepare for the battle over jurisdiction
THE GEE STRATEGIES GROUP 20 For More Information Contact: The Gee Strategies Group Robert W. Gee President 1954 N. Cleveland St. Arlington, VA (703) (voice and fax) (703) (mobile) ix.netcom.com