State Sues Parent of Troubled PG&E;
State Atty. Gen. Bill Lockyer filed a lawsuit Thursday against Pacific Gas & Electric Corp., the parent of PG&E; Co., that seeks the return of as much as $4 billion Lockyer says was illegally siphoned from the state’s largest utility, driving it into bankruptcy.
The Superior Court suit alleges that PG&E; Corp. violated agreements with state regulators that were designed to protect PG&E; Co. and its Northern and Central California customers when the giant holding company was formed five years ago.
“Those promises have been consistently and repeatedly broken,” Lockyer told a news conference in Oakland. “When you follow the money between the child and the parent, you find all the money went from the child to the parent. Not a nickel went to try to rescue the child.”
The civil suit, alleging fraudulent and deceptive business practices, was hailed by state regulators and consumer advocates. It is the first major legal action by the attorney general in the ongoing state investigations into the energy crisis and whether power providers illegally profited from it.
Lockyer said that he has not ruled out criminal charges but that his first priority is recouping $600 million to $4 billion for PG&E; ratepayers. The suit also seeks penalties for each alleged improper transfer of funds, which Lockyer says could amount to at least $500 million for the state coffers.
PG&E; Corp. issued a statement calling the suit “unwarranted, discriminatory and harmful to California” and saying that the company expects to prevail in court.
The corporation said the transfers from its San Francisco-based utility have been repeatedly audited by state regulators, with no indication of wrongdoing.
“Since there is no basis for another review of these same events, the attorney general’s complaint . . . appears to be more related to his ongoing efforts to obstruct our utility’s plans for emerging from bankruptcy.”
The lawsuit opens a new front in the continuing battle between PG&E; and the state. The utility filed for protection from creditors in federal Bankruptcy Court in April, then proposed a controversial reorganization plan that shifts its transmission and generation assets to new subsidiaries of its parent company.
The attorney general and the state Public Utilities Commission have moved in Bankruptcy Court to block PG&E;’s plan, calling it an attempt to escape state regulation and bolster its profits on the backs of ratepayers. The PUC this week asked the judge for permission to submit an alternate plan that it is developing.
The lawsuit names PG&E; President and Chief Executive Robert Glynn Jr. and other top officials, many of whom hold positions at both the utility and the parent company. It alleges that they conspired to use ratepayer money and other PG&E; assets “to cross-subsidize PG&E; Corp. and other subsidiaries . . . as part of a plan to evade the PUC’s regulatory authority . . . and make PG&E; Corp. one of the largest unregulated generating companies in the United States.”
Their actions, the suit said, violated some of the nearly two dozen conditions under which the PUC allowed PG&E; to form a holding company in 1996 during the early days of deregulation of wholesale energy markets. One condition said the capital requirements of PG&E; would be given “first priority” by the corporation.
However, the suit said the money flowed in only one direction--to the parent company--even when PG&E; was unable to cover the costs of providing power to its customers during the energy crisis and was plunging into debt.
From 1997 through the summer of 2000, the suit said, the utility provided $4.6 billion to its parent in the form of repurchases of PG&E; common stock and of $1.76 billion in shareholder dividends.
The suit also said PG&E; paid its parent hundreds of millions dollars more than the utility’s share of the income taxes that were due.
In the summer of 2000, PG&E; sought emergency rate increases from the PUC. But in the first nine months of that year, the suit said, the utility transferred $632 million of the $1.8 billion it generated to its parent.
The suit alleged that the corporation failed to abide by its agreement with the PUC to assist the utility although it had cash reserves of about $307 million on Dec. 29, 2000.
The PUC paved the way Wednesday for Lockyer’s suit by defining the extent to which the holding company must give first priority to the financial needs of the utility. For one thing, the PUC ruled, the holding company is prohibited from acquiring assets of the utility for inadequate consideration.
“I am pleased that Atty. Gen. Lockyer has acted promptly to follow up on the commission’s actions yesterday, which provided a basis to claim that PG&E; Corp. is violating conditions established by the commission when it authorized [the holding company],” PUC President Loretta M. Lynch said in a statement.
Lynch said the PUC, which launched an inquiry into the holding company transactions last year, may join the attorney general’s suit or file a separate one over any violations of the Public Utilities Code and commission rules.
The attorney general’s lawsuit named PG&E; Corp., but not the utility. Clark Kelso, director of the government and public policy program at the McGeorge School of Law in Sacramento, said that may help Lockyer avoid federal Bankruptcy Court jurisdiction, which would not apply to the corporation because it is not in bankruptcy.
Kelso said the suit may increase pressure for an agreement to resolve the bankruptcy case. “There are lots of things in play now,” he said. “It would be a good time for all parties to see if there is a way to adjust the [reorganization] plan to be acceptable for everyone.”
Bob Finkelstein, supervising attorney for the Utility Reform Network, lauded the suit, saying: “This is potentially very good news for California consumers and especially PG&E; customers. It is very encouraging to see someone trying to reverse what has been a massive flow of money from the utility up to the holding company. . . . They tried to have it both ways: ‘What’s yours is mine, and what’s mine is going to stay mine.’ ”
