By John Woolfolk and Jennifer Bjorhus
An influential state lawmaker is quietly lining up private financiers to try to buy PG&E out of bankruptcy and have it run as a privately funded non-profit utility.
Assembly Speaker pro Tem Fred Keeley, D-Santa Cruz, would not identify the potential backers but said there is serious money and interest on the table. Such a deal could lower consumer rates and pay creditors more quickly than under PG&E's controversial reorganization plan, he said.
``We have four groups of potential financiers who have the experience and the ability to form the capital and to move forward,'' Keeley said. ``I believe, instantaneously, rates could be lowered at least 20 percent.''
If successful, the move would create a quasi-public utility, tentatively called California Gas & Electric. The public would have control over PG&E's valuable hydroelectric dams, nuclear reactors and transmission lines without requiring taxpayer money or legislative approval.
In recent months, Keeley and his aides have shopped the plan to potential investors, businesses, farmers, consumer groups, creditors and other state officials, drawing reactions ranging from encouragement to skepticism.
The proposal is still embryonic, and many observers gave it long odds. Keeley said the acquisition cost would have to be negotiated.
PG&E owes creditors $13 billion and says its assets are worth $25 billion. Skeptics wondered who would pay so much for an old utility in a state now notorious for its energy mismanagement.
``It takes one heck of a lot of money to do something like that,'' said Mike Buckley, an Oakland attorney representing some power generators in the bankruptcy. ``It just seems to me highly unlikely that it's going to be possible to finance that kind of a deal in today's economic climate.''
Even if the money is forthcoming, the bid still would face high hurdles. The judge overseeing PG&E's bankruptcy isn't entertaining new reorganization plans, and the utility and its creditors aren't welcoming purchase offers.
``We've developed a plan that gets us out of Chapter 11 without asking to raise rates,'' said Pacific Gas & Electric Co. spokesman Ron Low.
But PG&E's plan has so outraged consumers and state officials that it may not be approved -- something, Keeley said, that presents an opportunity.
PG&E may determine that a sale is better than years of court challenges or the possibility of another plan being approved, Keeley said.
John Hansen of Nossaman, Guthner, Knox & Elliott, who represents PG&E pensioners, said there is ``a certain allure'' to having a new company come in and start fresh.
Consumer advocates are supportive.
``There are so many really good reasons why public control over those assets would be good,'' said Nettie Hoge of The Utility Reform Network.
PG&E's plan would break the utility into four companies and shift most of its power plants, transmission system and hydroelectric system outside of state control. The new companies would issue bonds to pay off creditors and restructure some long-term debt.
State officials and consumer advocates have called the plan a ``regulatory jailbreak'' that would leave consumers paying inflated rates for years.
The California Public Utilities Commission has submitted its own plan that would keep PG&E intact and pay creditors through debt restructuring, shareholder dividends, stock sales and surplus revenue from rates that now are well above wholesale energy costs. Creditors are expected to vote on the plans this summer.
Although Keeley said he has floated the purchase idea with creditors, those available Tuesday were highly skeptical.
``We are really well into the process here,'' said Ron Oliner, a partner at Buchalter, Nemer, Fields & Younger in San Francisco, which represents some PG&E creditors. ``It would be really unlikely that the judge at this stage to allow someone to posit yet a third plan to creditor.''
While bankrupt companies often seek buyers, they usually make the move before presenting a reorganization plan to the court, Oliner said.
But Guy Phillips, Keeley's energy adviser, said that if the utility and its creditors decide to accept a sale, they could drop the bankruptcy proceeding and just ask the judge to sign off on the agreement.
The proposed new utility would have a unique structure offering the benefits of municipally owned power companies like those in Santa Clara, Palo Alto and Los Angeles, but without the risk of investing taxpayer money, Phillips said.
Like municipal utilities, the company would not have to pay federal taxes or dividends to shareholders, and would provide public control over the generation and transmission infrastructure, all of which would save ratepayers money, Phillips said.
Unlike publicly owned power companies, the utility would not be run by government bureaucrats like those blamed for locking the state into overpriced electricity contracts, Phillips said. It would be structured as a public benefit corporation, similar to the Public Employees Retirement System or the California Independent System Operator. The same PG&E crews would stay on and run the utility.
The financial backers would not own the utility's assets, but would be paid interest like a mortgage lender, Phillips said. Private financiers could raise money on the capital markets at lower rates than PG&E can get, providing a savings that could lower rates and pay for infrastructure improvements, he said.
The utility's governing structure -- an elected or appointed board -- is still under discussion, Keeley said, adding that he isn't interested in running it.
As for the deal's chances, Keeley likened it to speculating on the San Francisco Giants' chances of winning a pennant.
``We're in the first month of the season,'' Keeley said. ``But like the Giants, this is a team of serious professionals.''