Bankruptcy Reorganization Plan Violates State Law
In a plan submitted to US Bankruptcy Court today, Pacific Gas and Electric has asked the court's permission to hand its electricity power plants over to its parent company, which would then be able to raise wholesale prices to windfall levels just as the out-of-state energy companies did last summer. The plan violates California law and consumer advocates predicted a massive battle.
"PG&E's plan is designed to enrich the parent company at the public's expense," said Doug Heller, consumer advocate with the Foundation for Taxpayer and Consumer Rights (FTCR). "The parent company bails out the utility with cash, just as we have said it could and should, but in exchange tries to steal the power plants to enable the parent company to rip-off the People of California once more."
Consumer advocates noted that the plan violated state law passed to protect California against this kind of deregulation-minded transfer of power plant ownership: California Public Utilities Code Section 377 states that "Notwithstanding any other provision of law, no facility for the generation of electricity owned by a public utility may be disposed of prior to January 1, 2006."
Consumer advocates noted that this plan is only the proposal of PG&E and has not received the support of the U.S. Bankruptcy Court Judge, Dennis Montali. Additionally, the Foundation for Taxpayer and Consumer Rights (FTCR) points out that any attempt to evade state law would be challenged by state authorities and would face a protracted legal battle.
"PG&E's re-organization proposal proves that the company's entire bankruptcy plan has been a thinly-veiled effort to escape the California regulatory system," said Heller. "Judge Montali should reject it out of hand, and reconsider whether or not this company, which can obviously take care of itself, should be allowed bankruptcy protection at all."
According to the PG&E proposal, the former utility will be split up into a California-regulated distribution company and the remainder of the utility, including the generation and transmission of power, will be passed up to unregulated companies within PG&E's holding company structure. Consumer advocates compare this proposal to the up-streaming of utility money to the PG&E parent corporation during the years since deregulation began, as documented in PUC audits of the company conducted last winter. The proposal also demonstrates that the PG&E Corporation has the resources to bail itself out without ratepayer or taxpayer assistance. According to FTCR, Judge Montali should require PG&E to pay those creditors with legitimate claims without breaking a California ban on the disposal of generation plants.
"PG&E showed their hand today and admitted that they can pay off their own debts. It would, however, be wrong for the bankruptcy court to upend state law and further deregulate California's energy system in exchange for PG&E taking responsibility for the crisis its own deregulation scheme caused. If approved, this plan would mark the second time that PG&E took billions of ratepayer dollars and assets from the utility for the benefit of its shareholders, and it is totally unacceptable," said Heller.
Consumer advocates also noted that this plan would fully pay off the private power companies that profiteered in California during the power crisis. As part of any reorganization plan, the Bankruptcy Court should consider whether or not the debts owed by the company to power generators are just and reasonable or whether some charges were illegal under federal law.