Appeals Court Rules California Can Seek Restitution From Utility

California can proceed with its suit seeking more than $4 billion in restitution from Pacific Gas and Electric Corp., the U.S. Ninth Circuit Court of Appeals ruled recently.

In a 23-page opinion, the federal appeals court ruled that a San Francisco Superior Court should hear the lawsuit filed by state Attorney General Bill Lockyer in 2002 against San Francisco-based PG&E Corp.

In that suit, the attorney general alleged that PG&E Corp. illegally took about $4 billion to $5 billion from its utility from 1997 to 1999. The suit claimed the move violated California Public Utilities Commission rules requiring the holding company to give priority to its subsidiary's financial needs. The utility company filed for bankruptcy protection in 2001.

But U.S. District Judge Vaughn Walker ruled in 2003 that the state and the city of San Francisco, which filed a similar a lawsuit, could not seek restitution because PG&E was in bankruptcy at the time and federal bankruptcy laws blocked the restitution case from being heard in state court.

However, a three-judge panel saw things differently. In a 2-to-1 decision, the judges cleared the way for Lockyer to present the case to San Francisco Superior Court Judge Richard Kramer. The court said that the bankruptcy laws do not prohibit Lockyer and the city of San Francisco from pursuing the money.

"We're pleased that we're allowed to pursue this on behalf of ratepayers," Lockyer said in a recent phone interview.

PG&E spokesman Brian Hertzog said the transfer of money to the holding company complied with public utilities commission rules. He said the issues should have been resolved in bankruptcy court and not state court.

"The important thing for us is that it does not in any way change the fact or our view of the merits of (Lockyer's) case," Hertzog said. "The transactions between the parent and subsidiary were routine."

Hertzog said any claims of restitution should be between the parent company and its subsidiary. He said PG&E has not decided whether to appeal the ruling.

Lockyer said the state has filed about 100 lawsuits against energy firms that he said overcharged consumers during the energy crisis a few years ago. Some of those suits have been settled and to date the state has collected about $5.5 billion, he said.