CPUC?s Authority over Utility Holding Companies Affirmed

By Published On: May 29, 2004

Lawsuits by San Francisco and the state attorney general against PG&E Corp. got a boost from a state appellate court ruling. In a May 21 decision, the First District Court of Appeals upheld the California Public Utilities Commission?s jurisdiction to enforce its holding-company conditions over investor-owned utility parents. The lawsuits charge the parent company with failing to stem the flow of Pacific Gas & Electric?s red ink during the energy crisis after receiving $5 billion in upstreamed funds from its subsidiary. The three-judge panel also unanimously affirmed the CPUC?s interpretation of the ?first-priority condition.? It requires a holding company to give top priority to bailing out its utility to safeguard the latter?s obligation to serve. They also held that if the commission finds an investor-owned utility parent violated the first-priority condition, the corporation could challenge the findings in court. ?This is very good news,? said David Campos, deputy attorney for the city of San Francisco. PG&E attempted unsuccessfully to narrow the CPUC?s interpretation of the first-priority condition so ?it meant very little,? he said. San Francisco brought an action under the state?s unfair competition law, which included allegations that PG&E Corp. violated the first-priority condition by failing to infuse capital into the utility when it was under dire financial stress, which constitutes unfair business dealings. San Francisco?s suit has bounced between state and federal courts. The issue of whether the city?s restitution claim under state law should be decided in federal bankruptcy court or state court is pending before the Ninth Circuit Court of Appeals. Matt Freedman, attorney with The Utility Reform Network, who filed a brief in support of the CPUC, agreed that the appellate decision helped San Francisco?s and the AG?s suits by making clear that the commission can enforce holding-company conditions on parent companies. PG&E Corp. may appeal the matter to the California Supreme Court and has 40 days to decide whether to do so, states the company?s March 25 8K filing. PG&E Corp. ?is unable to predict how the CPUC will seek to enforce the holding company conditions in the future with respect to PG&E Corporation and what effect such enforcement will have on PG&E Corporation?s cash flow, results of operations, or financial conditions,? it states. The CPUC initiated an investigation into the utility-to-parent-company transactions in April 2001. The utility sent billions of dollars to its holding company after the launch of deregulation, but the parent did not give first priority to the capital requirements of its utility when in financial distress. <i>[Case #A099858]</i>

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