PG&E's recent Chapter 11 bankruptcy filing is the most dramatic event yet in California's electric power crisis. Politicians, regulators, ratepayers, investors, creditors, taxpayers and PG&E employees and management are now eagerly following the proceedings in Judge Dennis Montali's courtroom for clues about what bankruptcy means for them. The short answer is that bankruptcy law provides a process for solving the problems arising out of the spectacular failure of California's flawed electric power market, but not a solution. The parties (not the Bankruptcy Code or Judge Montali) will have to provide the solution.

Bankruptcy judges cannot generate and deliver electric power to avert rolling blackouts or determine market prices. They cannot broadly restructure state and federal regulatory systems and wholesale power markets. It is essential, of course, that these things happen. California requires a stable long-term source of electric power, and Californians will have to pay prices for power that are reasonably related to the cost of providing it over the long term.

The status quo fails on both counts. A solution will have to be found through lengthy and complex negotiations among all the various constituencies, undoubtedly punctuated by litigation and political posturing, over the next several years.

It is wildly speculative to predict what the ultimate fix for the deregulation fiasco will be or the final terms of PG&E's reorganization plan. But it is unthinkable that California consumers and businesses will be left with perpetual shortages and blackouts, and wildly volatile prices generating windfall profits for some and devastating losses for others.

It is reasonable to hope that PG&E's bankruptcy filing is a positive first step toward resolution of the power crisis. The shock value of PG&E's bankruptcy is itself significant. It puts us decisively past denial of the existence of the problem. Denial seems to have been the preferred strategy of state and federal regulatory authorities, consumer groups and even the utilities themselves for a good part of the past year, even as prices careened out of control and the lights started to go out in PG&E and Edison service areas across the state.

Moreover, the neutral apolitical bankruptcy forum and its established procedures may give the parties the tools they need, including political cover, to make the hard choices that will lead to a long-term solution. Inevitably, rate increases for private utility customers will be part of that solution. The public will accept those increases if they are tied to an overall plan that is widely perceived as stable, workable and fair, and that assures the public that its power needs will be met.

Like all court proceedings, bankruptcy proceedings always have the potential of degenerating into a litigation free-for-all where all hope of a solution is lost in a fog of strategic behavior, endless bickering and posturing. Certainly, the PG&E case raises daunting legal, financial, political and public policy problems. But bankruptcy professionals take pride in constructively engaging parties with adverse interests in pragmatism and in solving complex problems through hardheaded compromise.