March 26, 2001

PG&E Bailout Talks `Not Encouraging,’ Senator Says (Update1)

(Sacramento, California) PG&E Corp.’s negotiations with the state of California on a financial rescue package are “not encouraging’ and the state Senate is consulting with bankruptcy lawyers, a top Democratic senator said.

The Senate is discussing the possibility that PG&E and aides to Governor Gray Davis won’t reach an agreement and creditors will force the state’s largest utility into bankruptcy, Senate Utilities Committee Chairwoman Debra Bowen said. The Legislature renewed talks in the past week with lawyers on potential responses to a bankruptcy filing, she said.

PG&E and Davis aides are negotiating the sale of the utilities’ transmission lines in return for billions to help them pay down past debts. Those talks have so far failed to produce an agreement. PG&E said in a filing today it may be forced to take an after-tax charge of as much as $4.1 billion unless it can recover those costs and pay its debts.

“Much of what I’ve heard has not been encouraging” Bowen told reporters today. “I’ve been working with utility bankruptcy counsel to make sure we have a strategy for what to do if those talks fail.”

“Bankruptcy continues to be something that is not a solution and is something we continue to avoid,” PG&E spokesman John Nelson said.

California gave PG&E a “detailed offer” and the utility responded with a list of questions, said Joseph Fichera, chief executive of New York-based investment adviser Saber Partners LLC. Fichera is leading the negotiations for Davis and the state.

The state is close to an agreement with Edison International, Fichera said. Edison’s Southern California Edison, the state’s No. 2 investor-owned utility, has already announced a framework agreement with the state to sell its transmission lines for $2.76 billion.

–David Ward in Sacramento (415) 912-2995 or dward@bloomberg.net with reporting by Daniel Taub in (Sacramento, through the San Francisco newsroom (415) 912-2980/dfr