The San Francisco Chronicle

The state Supreme Court on Wednesday rejected a consumer organization’s challenge to state regulators’ plans to bring Pacific Gas & Electric Co. out of bankruptcy.

The proposal, introduced by the state Public Utilities Commission, is a rival to PG&E‘s plan, which would transfer the utility’s power plants and transmission lines to new companies overseen by market-oriented federal regulators. The PUC‘s proposal would keep the utility intact and repay its creditors with a combination of new loans and stock sales, a freeze on dividends and delay of a rate reduction.

Creditors are voting on both proposals. A bankruptcy judge will review the results, and legal challenges to both plans, in November.

Consumer groups have directed most of their criticism at the PG&E plan, but the Foundation for Taxpayer and Consumer Rights sued to block the PUC plan in April. The suit said the state’s 1996 deregulation law protects consumers from being charged for a utility’s past power costs and argued that the commission would violate that law by allowing rates to remain high.

The suit also accused the PUC of illegally agreeing on the plan in secret. The commission said it broke no laws. The justices denied a hearing without comment.

In a separate action, the court refused to review a PG&E appeal that could have led to a multibillion-dollar rate increase.

PG&E challenged a March 2001 PUC decision to change its accounting rules in a way that left a rate freeze in place but refused to let the utility pass through to customers its debts to suppliers accrued during the previous year’s surge in power prices.

PG&E contended that the commission’s action violated both state and federal law and was chiefly responsible for its April 2001 decision to file for bankruptcy. The company has also asked a federal judge in San Francisco to overturn the PUC order, a case that is still pending.

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E-mail Bob Egelko at [email protected]