Supreme Court Keeps PG&E in State Court

By Published On: October 6, 2006

The U.S. Supreme Court refused to hear Pacific Gas & Electric’s appeal seeking to knock out up to $5 billion in energy crisis-related claims. The court’s October 2 ruling allows the case to proceed in San Francisco Superior Court seeking restitution and damages. The state and San Francisco allege that the utility illicitly sent $4.6 billion to its parent corporation prior to PG&E entering bankruptcy court at the end of the 2000-01 energy crisis. “It is a great thing, and there is no question that restitution is allowed,” said Theresa Mueller, San Francisco deputy city attorney. PG&E said the high court’s ruling was far less important than the merits of the underlying case. The $4.6 billion transactions at issue “were looked at by the California Public Utilities Commission and Legislature, and fully contemplated as part of deregulation,” said Brian Hertzog, PG&E spokesperson. He insisted that the upstreamed funds were used to cover taxes from the sale of the gas-fired power plants “as essentially directed by the CPUC.” The money also paid dividends and repurchased stock. The city and county of San Francisco and the California attorney general sued PG&E in 2002. They claimed that the utility’s parent, PG&E Corp., fraudulently took $4.6 billion from the utility just prior to its bankruptcy filing and then failed to bail out the cash-poor utility in 2001. In October 2003, Federal District Court judge Vaughn Walker said the restitution claim was a federal matter because the utility was tied up in federal bankruptcy court. He was overruled by the Ninth Circuit. While the lack of grounds for a hearing at the nation’s top court was a boon to plaintiffs, the state and San Francisco scored a more significant victory in January when the Ninth Circuit Court of Appeals overturned Vaughn’s ruling and held that the restitution claims should be decided by a state court (Circuit, Jan. 13, 2006). Since the case was revived at the beginning of the year, it has been plodding along at the superior court. It remains in the pretrial discovery phase. If plaintiffs prevail, a critical issue will be who pays any awarded restitution claim – shareholders or ratepayers. – Elizabeth McCarthy

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