SAN FRANCISCO — A federal bankruptcy judge rejected Pacific Gas and Electric Co.’s request for a pre-emptive, blanket exemption from state laws and regulations it claims will prevent it from paying off thousands of creditors.
U.S. Bankruptcy Judge Dennis Montali said federal bankruptcy code does not expressly permit PG&E’s reorganization plan to override dozens of state laws and regulations — including state control over how much it can charge for the electricity it generates.
Montali said in his decision released late Thursday that California’s largest utility was overreaching with its “across-the-board, take-no-prisoners” strategy to move more than $8 billion in assets beyond the reach of state regulators.
Given the strenuous opposition to what he described as PG&E’s “full-scale attack on any state law that interferes with the plan,” Montali said he could not approve the utility’s legal strategy.
However, he invited PG&E to appeal, saying he would allow the plan to move forward if PG&E can prove the pre-emptions would not compromise Californians’ public safety. He also would require the utility to convince him that dodging state oversight is the only way to return to creditworthiness.
PG&E said Friday it would prove that being freed from state oversight is key to its survival.
“While the court did not accept the utility’s argument that federal law automatically pre-empts state law, the ruling does provide that pre-emption is possible, if necessary to confirm the utility’s plan of reorganization,” PG&E said in a statement Friday.
PG&E Corp., the utility’s parent company, made a motion Friday to transfer a lawsuit filed by Attorney General Bill Lockyer from San Francisco Superior Court to the bankruptcy court.
In January, Lockyer sued the parent company alleging it transferred $4.6 billion from the utility, driving it into bankruptcy. That means the case relates to the bankruptcy filing and should also be heard by Montali, said PG&E Corp. spokesman Greg Pruett.
“Who is he making this claim on behalf of? Not the people of California,” Pruett said. “He’s making it on behalf of the debtor, PG&E the utility.”
The case was immediately transferred to the federal venue. The AG’s office will challenge that move, said Sandra Michioku, spokeswoman for Lockyer.
“This tactic by PG&E Corp. was expected. It would be good to remember that PG&E Corp. is not in bankrupt court, only the utility is,” she said.
Lockyer’s suit was for unfair business practices “in which the corporation siphoned off more than $4 billion from the utility and broke promises to California ratepayers,” Michioku said.
If the utility’s reorganization plan is approved, state officials vow to stall it for months in appeals court.
Gary Cohen, the PUC’s chief counsel, said in a news conference Friday he doubted PG&E could meet Montali’s requests. The PUC is scheduled to present an alternate plan next week.
The state Assembly’s point man on energy issues, Democrat Fred Keeley, said the ruling was a substantial victory for consumers, making it “much more difficult for PG&E to use ratepayers’ money to accomplish a regulatory jail break.” He emphasized, however, that PG&E’s plan is not dead. The utility now has a guide showing it ways to gain approval.
This potential has kept some creditors hopeful the utility will fulfill its promise of paying all its debts.
“The creditors committee continues to support the plan fully,” said Paul Aronzon, lead counsel for the committee. However, he said the group is “really looking forward” to hearing the details of the state’s alternate.
PG&E wants to transfer its power plants, hydroelectric dams, transmission networks and thousands of acres of land in the Sierra Nevada to its federally regulated parent corporation.
PG&E says federal regulation allows it to borrow more than $4 billion against the assets to pay creditors. Under its plan, the utility said all creditors would be paid in full and there would be no electric rate increase.
The PUC, consumer advocates and several federal agencies vehemently oppose the plan. Though PG&E says it would provide 12 years of stable power prices from its plants, the opponents say it means higher electric bills in the long term and a loss of local control over PG&E’s actions.
If PG&E transfers its property, state Sen. Debra Bowen, D-Marina del Rey and energy committee chairwoman, said she will push for the state to use eminent domain to keep the plants under California’s oversight.
Environmentalists and state officials worry that without state oversight, the land — home to endangered species as well as potentially lucrative timber — will be sold to businesses interested more in profits than protecting habitats.
Legal experts say the case could set a precedent for future utility bankruptcies because PG&E’s would be the first to dodge state regulation with a federal judge’s approval.
Linda Ekstrom Stanley, the U.S. Trustee in the case, said Montali’s decision “is giving a clear message that PG&E really has to revamp its plan and tell specifically the laws it wants to pre-empt.” Stanley monitors federal bankruptcy cases in Northern California.
The PUC has not revealed the fine print about its alternate plan, though in previous hearings it has said it would urge PG&E to use its $4.9 billion available cash to pay creditors.
PG&E slid into debt while a rate freeze prevented it from passing the full cost of soaring wholesale electricity prices on to its 4.6 million customers. It claims it owes more than $13 billion to thousands of creditors.
Until PG&E becomes creditworthy, the state must continue buying power. California has spent roughly $10 billion since January 2000 buying power for customers of PG&E and other utilities.
Shares of PG&E’s parent corporation fell 92 cents to $20.93 Friday.
On the Net:
Pacific Gas and Electric Co.: http://www.pge.com
Bankruptcy Court: http://www.canb.uscourts.gov
Public Utilities Commission: http://www.cpuc.ca.gov