Lockyer's PG&E; Suit Is Revived

Times Staff Writer

A federal appeals court gave a boost Tuesday to California Atty. Gen. Bill Lockyer's attempt to force PG&E; Corp. to return as much as $5 billion to customers of its utility subsidiary.

Judges at the U.S. 9th Circuit Court of Appeals voted 2-1 to allow Lockyer to pursue a lawsuit in state court that seeks restitution of profits allegedly transferred illegally by San Francisco-based Pacific Gas & Electric Co. to its corporate parent before seeking bankruptcy protection in 2001. The ruling reversed a lower court decision that blocked Locker and the city of San Francisco from seeking restitution because the utility was operating under Bankruptcy Court protection.

"This is good for us and good for the ratepayers in the PG&E; service area, who may eventually get some money back," Lockyer said in an interview. The attorney general said he was now free to go back to state Superior Court in San Francisco to argue that PG&E; Corp. violated state law by failing to give the utility's financial needs a higher priority than those of other subsidiaries.

He accused the PG&E; management of shifting profits from the state-regulated utility to the holding company in the years leading up to the 2000-01 energy crisis. The money was used to expand into unregulated businesses and pay stockholder dividends, among other things.

Pacific Gas & Electric Co., which serves 4.9 million electric and 4.1 million natural gas customers in Northern and Central California, was swamped with $9 billion in debt during the energy crisis when wholesale electricity prices soared and retail bills remained artificially capped. Consumer advocates argued that the money should be returned to the utility to help pay the debt, but the corporation adopted a "ring-fenced" structure to separate the finances of its subsidiaries.

The utility emerged from bankruptcy in April 2004, which ended various legal actions, including the Lockyer suit.

PG&E; Corp. said it acted properly and that it planned to fight the attorney general in state court. Company spokesman Brian Hertzog said the relations between the parent company and subsidiaries were scrutinized by the California Public Utilities Commission and were subjected to at least two audits by a state Senate committee.

"We feel very strongly that there is simply no merit to the claims that have been made" by the attorney general, Hertzog said.

Consumer advocates said they were heartened by the federal appeals court ruling and predicted that PG&E; might have a harder time defending itself in state court than it did in Bankruptcy Court, especially in a jury trial. Nevertheless, Mike Florio, an attorney with the Utility Reform Network in San Francisco, said the group was "not holding its breath" at the prospect that Lockyer would win a sizable judgment from PG&E.;

Lockyer suggested that rebates for PG&E; customers could come quickly if the company settled the case. He said he already had collected about $5 billion in settlements from other energy companies that he sued in the wake of the energy crisis.

PG&E; fell 14 cents to $37.20.

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