Court Will Hear $4.6B Case Against PG&E

Lawsuit alleges that the funds were illegally transferred from Pacific Gas and Electric Co. to its corporate parent before the utility's 2001 bankr...
Stephen TaubJanuary 11, 2006

California utility customers moved a step closer to recovering $4.6 billion from PG&E Corp., according to the Associated Press.

California Attorney General Bill Lockyer filed suit nearly four years ago, alleging that the funds were illegally transferred from Pacific Gas and Electric Co. to PG&E, its parent, before the utility’s 2001 bankruptcy, noted the wire service.

Judge Richard Kramer of San Francisco Superior Court had reportedly found that the reimbursement claim could not be heard in state court, citing federal bankruptcy laws. A federal appeals court has now ruled that Kramer can, indeed, preside over the lawsuit.

“This is a big win for PG&E ratepayers,” Tom Dresslar, a spokesman for Lockyer, told the AP. Brian Hertzog, a spokesman for the company, reportedly stated: “This has nothing to do with the merits of the case. From our perspective, there is no merit to (Lockyer’s) claim.”

The case goes back nearly a decade, after California deregulated its electricity market. Over four years, the regulated utility paid $4.6 billion of its profits to its parent, which spent the money to pay dividends, repurchase shares, and finance unregulated businesses outside California, the AP explained.

In the early part of this decade, California’s electricity rates surged and the utility suffered huge losses. To shield its unregulated businesses from the financial woes at its regulated utility, PG&E split itself into a number of entities. That technique, called ring fencing, made it difficult to seize the assets of other PG&E subsidiaries to pay the bills of the financially ailing utility. (For more, see CFO magazine’s October 2001 article “Ring Around the Subsidiary.”)

The utility spent three years in bankruptcy, as outsiders accused the holding company of milking the regulated subsidiary and investing more than $800 million in its unregulated businesses, according to the AP report.