US Court Rejects Calif Move On PG&E Reorganization

SAN FRANCISCO, CA -- - A U.S. court has rejected California's efforts to drag assets held by PG&E Corp. subsidiaries into bankruptcy proceedings against its utility Pacific Gas & Electric Co.

The opinion, written by 9th Circuit Court of Appeals Judge Ronald Gould, rejects a challenge by California Attorney General Bill Lockyer that argued the Federal Energy Regulatory Commission failed to give opponents a fair hearing before it approved PG&E's corporate reorganization back in February 2001.

Lockyer's challenge also accused FERC of failing to adequately notify the public of "essential attributes" of PG&E's reorganization.

California lawmakers have called PG&E's move a ploy to hide millions of dollars worth of assets from creditors as its regulated utility tumbled toward bankruptcy buying electricity at the height of the state's 2000-01 energy crisis.

PG&E itself later called the move "ringfencing" when explaining its actions to the Securities and Exchange Commission.

The plan reincorporated three PG&E subsidiaries, called the NEG companies, in Delaware and interposed a new company, PG&E National Energy Group, LLC, between PG&E Corp. and the NEG companies in a bid to improve PG&E's credit rating.

In April 2001, less than two months after FERC approved PG&E's reorganization, San Francisco-based utility Pacific Gas & Electric Co. filed for Chapter 11 bankruptcy protection, citing a $13 billion debt.

After taking its unregulated energy subsidiaries out of creditors' reach, PG&E proposed getting the financially drained utility back on its feet by spinning off three new energy subsidiaries to run its power generation, the electric transmission grid, and natural gas pipelines.

Creating independent subsidiaries takes many of the utility's assets and operations out from under state regulatory control and places them instead under what California argues is far less strict federal jurisdiction.

To prevent this, the California Public Utilities Commission has proposed its own reorganization plan for the utility.

The rival plans are still being debated before federal Bankruptcy Court Judge Dennis Montali, who is expected to rule on the reorganization later this year and lay out what utility industry analysts widely expect will be a compromise plan.

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