Suit says firm’s actions led utility to bankruptcy

The San Diego Union-Tribune

State Attorney General Bill Lockyer yesterday charged that Pacific Gas and Electric Corp. drove its regulated utility business into bankruptcy by engaging in illegal and fraudulent business practices.

Seeking the return of up to $4 billion plus penalties, the civil lawsuit filed in San Francisco Superior Court alleges that PG&E Corp. funneled $4.6 billion from its now-bankrupt Bay Area utility to the parent corporation.

Compounding the matter, Lockyer said, is that when problems arose at PG&E‘s regulated utility, the parent company barred the flow of assets back into the beleaguered subsidiary.

“PG&E has been engaging in unfair and deceptive practices,” Lockyer said. “The corporation deliberately failed to disclose its true intentions and misled the California Public Utilities Commission.”

Asked why PG&E was targeted for the suit, a spokeswoman for the attorney general said the company was alone among the state’s utilities in seeking to remove itself from California regulatory oversight. PG&E has failed to engage in negotiations with the state over the repercussion of the electricity crisis, she added.

In response, PG&E Corp. said the transactions cited by the attorney general have been reviewed numerous times and found to be proper.

“This action by the attorney general is unwarranted, discriminatory and harmful to California,” the company said in a statement yesterday.

The company added that its holding-company structure had been approved by the utilities commission and that the commission had twice audited its compliance with state rules.

But Loretta Lynch, president of the utilities commission, applauded the attorney general’s action. She noted that PG&E Corp. is seeking to move assets from the bankrupt utility unit to the parent company at “fire-sale prices.”

Lynch said that Lockyer’s lawsuit will allow a court to determine the legality of that action, which she opposes as an inappropriate transfer of assets paid for by utility customers. She said that earlier this week the commission affirmed that holding companies must give “first priority” to the financial integrity of their regulated utility operations.

PG&E Corp. has grown beyond its Bay Area gas and electric company — a business regulated by California Public Utilities Commission — to include an unregulated national energy group, including 30 power plants in 10 states.

While the national group is profitable, the PG&E utility unit filed for bankruptcy during the peak of the power crisis last April, saying it had accumulated billions in debts from paying more for electricity than it was able to collect from customers.

The case brought by Lockyer highlights the complexities that resulted from deregulation.

California’s deregulation plan had consumers paying billions to the state’s regulated utilities, money that often went to fund shareholder dividends, stock buybacks and new operations for the parent companies.

That created little stir until the utility units ran into problems two years ago, when electricity prices soared.

Simultaneously, sister units of the same companies — or even the utilities themselves in the case of San Diego Gas & Electric — were selling power to California for substantial profits.

Doug Heller, a consumer advocate with the Foundation for Taxpayer and Consumer Rights, said he hoped the attorney general’s lawsuit against PG&E Corp. would halt talk of what Heller said were plans for a consumer bailout of the company recently proposed by the utilities commission.

“A ratepayer bailout should be off the table and instead the state should focus its efforts on holding PG&E accountable for its behavior,” Heller said.

Heller said that Southern California Edison had engaged in a similar siphoning of cash from its utility unit to other operations and called on the attorney general to file suit against that company as well.

A spokesman for Edison, which is negotiating with the state to clear what it claims are billions in debts, declined to comment on Heller’s allegation.

Legal experts said the attorney general’s case could be complicated by PG&E bankruptcy proceedings. The attorney general’s office said it expected to overcome attempts to delay its case.