A provision in the pending settlement between Pacific Gas & Electric and the California Public Utilities Commission staff is getting a lot more air play these days?the one that could relieve PG&E Corp. of liability for accepting $5 billion from its subsidiary PG&E, the utility. The state attorney general (AG) is crying foul because if the proposed settlement is approved, the provision could knock out its claim, as well as the city and county of San Francisco?s allegation, that the $5 billion the utility transferred to its parent violates state law. Upstreaming the money could be ?a basis to undermine the respective law enforcement actions filed against PG&E? and its parent corporation, Attorney General Bill Lockyer recently wrote in letters to the CPUC. He asked that any final settlement include ?clear and unambiguous terms? that nothing in it could be construed as allowing the parent company to be immune to pending litigation. The refusal of PG&E?s parent corporation to use its funds to help bail out the utility at the time it was about to file for bankruptcy violates its agreement with the CPUC to give ?first priority? to PG&E?s capital needs, the AG alleges. San Francisco claims that PG&E Corp. took $5 billion from the utility between 1997 and 2000, leaving the utility bereft and forcing it to seek rate increases and ultimately to go into bankruptcy court. PG&E attorney Stephen Neal argued last week that the utility had no claim against its parent and PG&E was able to raise money in the capital market. Federal bankruptcy judge Dennis Montali replied that would essentially mean the first-priority rule applied only when the utility was doing well. ?You are saying it is no good when you?re in trouble?? Montali asked. One of the allegations involves whether the upstreaming of money was fraudulent. If there was an improper transfer before a bankruptcy filing, the claim holds no water if a debtor is insolvent. Judge Montali noted that PG&E, however, is solvent. The cash-transfer issue is also before the CPUC. The CPUC has before it three versions of the settlement with PG&E over how to pull it out of bankruptcy. One would approve the settlement negotiated between PG&E officials and CPUC staff as is, which Montali is considering. A second would make one major change involving the commission?s commitment guaranteeing the utility?s future shareholder dividends. A third involves major rewrites of the settlement. However, all three versions of the CPUC?s settlement agreement?including administrative law judge Robert Barnett?s proposal that seeks to rewrite much of the deal?deny a request by San Francisco to make it clear that the dispute over the $5 billion in PG&E Corp.?s pocket is viable. ?Our objective . . . is to settle all matters between the settling parties (and no others) and return to a regulatory relations not burdened with extraneous claims,? said Barnett in his proposed decision. The CPUC?s legal division refused to comment on the matter. Bob Glynn, PG&E Corp. chief executive officer and chair, and Gordon Smith, PG&E chief executive officer, maintain that the language in the pending CPUC settlement does not affect the AG?s claim, according to a PG&E spokesperson. The issue is before the state and federal venues because on October 8, the U.S. District Court in San Francisco threw out the AG?s and San Francisco?s plan to pursue the $5 billion. Even if the AG is able to pursue the parent corporation in theory, in reality the money just may not exist. The utility also reported that while it has $4.4 billion in cash on hand as of the end of the third-quarter reporting season, its parent company has only $835 million.