City Wins Battle Against Pg&E’s Attempt To Gut Lawsuit

Herrera “Prepared To Fight For Ratepayers,” As Stage Is Set For Discovery Battle

The City and County of San Francisco this week cleared another big hurdle in its battle on behalf of San Francisco’s PG&E customers.

San Francisco Superior Court Judge Richard Kramer earlier this week denied motions brought by PG&E Corporation to strike significant provisions of the complaints filed by City and County of San Francisco and the Attorney General. PG&E sought to strike portions of the complaints related to the ability of the Court to order disgorgement to ratepayers of ill-gotten gains and the liability of corporate directors, among other provisions.

City Attorney Dennis Herrera sued PG&E Corporation last year, charging it with unfair and illegal business practices that drove its subsidiary, Pacific Gas and Electric Company, into bankruptcy.

The suit, filed in San Francisco Superior Court, asks PG&E Corp. to return as much as $5 billion to ratepayers, including $4.6 billion in illegally paid dividends and stock purchases and $663 million in inflated tax payments made by the utility to its parent. It also asks for penalties.

Judge Kramer found that the motions were improper at this stage of the case, before any discovery as to factual issues had taken place. The Judge directed the parties to begin moving forward with discovery on the major issues in the case. A status conference is set for April 1, 2003.

“This will be a long, hard-fought battle, I am pleased by this week’s rulings as should all PG&E ratepayers,” said City Attorney Dennis Herrera. “Corporate fraud against the citizens of San Francisco will not be tolerated by my office.”

PG&E Corp. originally tried to derail the case by arguing that it belonged in the bankruptcy court along with the utility’s bankruptcy case. Judge Dennis Montali, in the U.S. Bankruptcy Court for the Northern District of California, rejected that effort, sending the case back to the S.F. Superior Court.

“PG&E Corp. played a shell game with consumers,” Herrera said. “PG&E’s customers paid the rates that generated billions of dollars in cash for PG&E Corp., and were then assessed a 40% rate increase in 2001 to help PG&E recover its financial health. That increase would not have been necessary if the corporation had followed state law.”

During the four years before PG&E filed for bankruptcy protection in April, 2000, the utility transferred billions of dollars to PG&E Corp., which distributed the money to shareholders and unregulated subsidiaries. The suit charges that PG&E moved the money in an effort to keep it from creditors, including San Francisco and other municipal governments.

“Tellingly, just months before it declared bankruptcy, PG&E Corp. reorganized its subsidiaries through ring-fencing to try to put ratepayer money beyond the reach of its creditors, including San Francisco.” Herrera said. “One of the conditions of the creation of PG&E Corp. was that consumers would not be harmed. The creation of PG&E Corp. was supposed to be a safety valve, but instead it became a siphon in the pocketbooks of ratepayers.”