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Attorney General Files Petition to Remove PG&E Corporation's Exemption from Stricter SEC Oversight
(SACRAMENTO) – Attorney General Bill Lockyer today asked the U.S. Securities and Exchange Commission to strip Pacific Gas & Electric Corporation of its exemption from a federal law that regulates utility holding companies.
"The SEC must provide greater oversight of PG&E Corporation in order to protect the ratepayers and people of California," said Lockyer. "In light of the recent corporate scandals and upheavals in the SEC's leadership, it's perhaps more important than ever that the Commission do its regulatory job. California will be watching this case to see if the SEC will stand up for the public interest or special interests."
The Attorney General's petition urges the SEC to reject PG&E Corporation's application for an exemption from regulation under the federal Public Utility Holding Company Act (PUHCA). PG&E has been exempt from the law, but must renew that exemption as part of its request for SEC approval of the bankruptcy reorganization plan for its utility, PG&E Company. The state is challenging the reorganization plan in federal bankruptcy court.
The PUHCA subjects utility holding companies to SEC review of their stock transactions, financial dealings with affiliates and subsidiaries, and how they handle the assets of their utilities. The law's purpose is to prevent corporate abuses that harm investors and utility ratepayers.
California already has witnessed the practical effects of PG&E Corporation's exemption from PUHCA. From 1997 through 1999, the corporation siphoned more than $4 billion from its utility. And from May through December of 2000 -- while the utility accumulated some $6.6 billion in debt caused by skyrocketing wholesale energy prices -- the holding company took another $1 billion from the utility. The SEC did not review those transfers because PG&E Corporation is exempt from PUHCA.
The Attorney General's Office in January of this year sued to force PG&E Corporation to give back between $600 million and $4 billion of the transferred money, and pay civil penalties. The suit, pending in San Francisco Superior Court, alleges the transfers constituted an unlawful business practice and violated conditions imposed by the California Public Utilities Commission when it approved formation of the holding company in 1996. One of those conditions required PG&E Corporation to give first priority to the utility's capital needs.
Lockyer said the SEC petition seeks to protect ratepayers from such transfers in the future. "PG&E Corporation deceived the California Public Utilities Commission and broke its promise to make protection of ratepayers its top priority," said Lockyer. "It drained money from its California utility, even while the utility was getting bled dry by energy company price gougers. The SEC has an opportunity to step in to make sure ratepayers do not suffer that hardship again."
Lockyer noted PG&E Corporation's argument in its SEC petition conflicts with its position in the bankruptcy reorganization litigation. In seeking the PUHCA exemption, PG&E Corporation argues the utility operates solely within California and that the holding company operates largely within the state, a point strongly disputed by the state. But the utility's bankruptcy reorganization plan seeks to circumvent state laws and place the utility's generating assets outside the purview of state regulation.
"The PUHCA exemption exists primarily where state law is sufficient to address the potential abuses that PUHCA seeks to remedy," the Attorney general's petition states. "PG&E now argues that state law does not apply to it. In this vacuum, created by PG&E for the benefit of PG&E, the SEC cannot appropriately issue PG&E an exemption from scrutiny under PUHCA."