ANOTHER “SURVIVOR” GAME:
THE PUC’S ROLE IN A UTILITY
BANKRUPTCY
THE GEE STRATEGIES GROUP
Robert W. Gee
President
NARUC SUMMER
COMMITTEE MEETINGS
Seattle, Washington
July 17, 2001
THREE OBJECTIVES

Abbreviated Bankruptcy 101 Lesson
 Texas Experience
 Relate to Present Day
THE GEE STRATEGIES GROUP
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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
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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
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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
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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
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The “Culture” Clash
Regulatory
Counsel


Preexisting relationships
Want to preserve relationship
beyond current case
Bankruptcy Counsel
No
prior relationships
One-shot deal/Play for keeps
Commissioner who?
THE GEE STRATEGIES GROUP
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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
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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
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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
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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
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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
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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
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Lesson from Texas PUC
Staff’s Intervention
Original Intent



Reality
A Resource to Court / Parties  Lesson: no good deed goes
To relate potentially acceptable unpunished
 Despite repeated explanations,
rate paths PUC would accept
Court rejected distinction between
To preserve Commission
PUC Staff and Commission
independence
THE GEE STRATEGIES GROUP
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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
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A Tough Call: Should a
PUC Get Further
Involved?
PROS
 Permits public policy
input in shaping
court’s order
confirming plan
 Forestalls other
parties from framing
jurisdictional conflict
in court’s order
CONS
 Risks being pulled
directly into
jurisdictional battle
 Risks blurring
Staff/Commission
distinction
 Collateral estoppel
exposure
THE GEE STRATEGIES GROUP
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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
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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
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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
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For More Information Contact:
The Gee Strategies Group
Robert W. Gee
President
1954 N. Cleveland St.
Arlington, VA 22201
(703) 465-9181 (voice and fax)
(703) 593-0116 (mobile)
Email: racbud @ ix.netcom.com
THE GEE STRATEGIES GROUP
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