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Palo Alto Online

Publication Date: Wednesday, April 11, 2001

Palo Alto utilities may be on their own Palo Alto utilities may be on their own (April 11, 2001)

With PG&E bankruptcy, city looks at power options

by Geoff S. Fein

P acific Gas and Electric Company, the utility that supplies electricity and gas to more than 14 million Californians, filed for bankruptcy Friday morning. What this means for the City of Palo Alto Utilities' 29,000 customers, however, is unknown.

The timing of PG&E's action came as a surprise to Palo Alto city and utility officials. However, they were not caught completely off-guard and had been preparing for PG&E's bankruptcy.

"I was somewhat surprised. I thought it would happen sooner," said Dexter Dawes, a Palo Alto Utility Advisory Commission member. "This puts us into a brave new world."

City Councilman Bern Beecham said the city has been aggressive in planning for this eventuality. The city has brought together experts, including bankruptcy attorney Larry Engel, to help.

"Some of us believed this day would come," he said. "But by no means (was it) clear it would happen."

With the threat of PG&E filing bankruptcy, Palo Alto formed an oversight committee to determine if the city manager or director of utilities should be allowed to buy power from other sources.

"Forming the committee helped the city prepare for this," said Randy Baldschun, assistant director of customer service for City of Palo Alto Utilities. "We will ask the attorney when we will get a handle on the ramifications."

In a written statement from Robert D. Glynn Jr., chairman of PG&E Co., the utility had to take this action in light of unpaid energy costs that are now increasing by $300 million per month. He said the utility had to turn to the courts because both the regulatory and political processes have failed.

"We chose to file for Chapter 11 reorganization affirmatively because we expect the court will provide the venue needed to reach a solution, which thus far the State and the State's regulators have been unable to achieve," Glynn said.

Although PG&E filed bankruptcy, Glynn said it will continue to deliver electricity and gas to its customers.

A bankruptcy judge will eventually determine how to handle the situation, Beecham said.

Beecham and Dawes both agree that PG&E's bankruptcy will impact Palo Altans.

"We will see a dramatic increase in our costs," Dawes said. "But we don't know how much or when."

PG&E's action came less than 24 hours after Gov. Gray Davis told Californians they will have to pay higher utility rates to help the state get through its power crisis.

Jennifer Ramp, a spokeswoman with PG&E, said she could not comment on any connection between the Governor's speech and PG&E's decision.

Palo Alto could fare better than other communities that buy power directly from PG&E. Palo Alto buys about 80 percent of its power from the Western Area Power Administration. Western in turn buys power from PG&E. The contracts have helped Palo Alto keep its rates lower than many neighboring cities. However, a judge could nullify PG&E's contract with Western, Dawes said.

That could seriously affect Palo Alto's rates, Beecham added. "Western will look for the lowest cost power," he said.

However, with the utility situation in California in such bad shape, even the lowest rates could mean a price hike for Palo Alto.

"We need to hope for the best and plan for the worst," Beecham said.

The news of PG&E's bankruptcy also came a few days after the Palo Alto Utilities Advisory Commission began debating a 40-percent rate increase for Palo Alto utility customers

There are several possibilities facing Western and Palo Alto. PG&E could renegotiate its contract with Western; Western could go after a new contract with another utility; or Palo Alto could try to negotiate its own contract for electricity, Baldschun said.

City officials were concerned PG&E would file for bankruptcy in Delaware, a state where corporations go to die, Beecham said. That is because the courts in Delaware are "very lenient to debtors," he added. City officials were relieved to learn the utility filed in California.

PG&E's bankruptcy could also affect its investment in affordable housing projects, said Fran Wagstaff, executive director for the Mid Peninsula Housing Coalition (MPHC).

The housing agency has one development in San Jose that PG&E had committed investment funds.

"We are looking at other investors," Wagstaff said.

PG&E's bankruptcy could cause MPHC to wind up with a shortfall of money. How much, Wagstaff couldn't say.

"PG&E has been a major player," she said. "I can't imagine (now) they'll be looking for tax shelters." <@$p>


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