Metropolitan News-Enterprise


Friday, May 16, 2003


Page 1


Ninth Circuit Rejects State’s Challenge to Reorganization of PG&E


By a MetNews Staff Writer


A challenge by Attorney General Bill Lockyer and several local agencies to the restructuring of Pacific Gas & Electric Company was rejected yesterday by the Ninth U.S. Circuit Court of Appeals.

A three-judge panel upheld the Federal Energy Regulatory Commission’s approval of the reorganization of several subsidiaries of the Northern California utility. The judges rejected the state’s argument that FERC acted hastily and failed to consider the impact of the restructuring on local governments and other creditors of the utility, which was heading towards bankruptcy at the time.

“The Commission considered the reorganization’s effects on energy markets and creditors and decided, on balance, that the reorganization was consistent with the public interest, based on the relevant factors,” Judge Ronald Gould wrote. “Balancing potentially conflicting factors relevant to the public’s energy needs is a task for the Commission’s discretion that we hesitate to second-guess.”

PG&E Corp., the utility’s parent, proposed the restructuring in the summer of 2000, as wholesale electricity prices soared and retailers went into multi-billion dollar debt, unable to pass the increased costs on to customers protected by the rate freeze adopted by the Legislature as part of deregulation.

Under the plan, two PG&E subsidiaries reincorporated as Delaware corporations and a new company, PG&E National Energy Group, LLC—also known as NEG—was created as an umbrella for nationwide generation activities.

By creating NEG, PG&E explained to regulators, it could improve its credit rating and continue to obtain financing for new power plants.

FERC initially approved the restructuring in January 2001, eight days after notice of the proposals appeared in the Federal Register. A week later, however, the state moved to intervene, saying it had been unaware of the notice, which allowed only four days for comment.

The commission denied the motion in February 2001, then denied rehearing petitions by the state and other entities, including the Northern California Power Authority and the city of Santa Clara.

In appealing to the Ninth Circuit, the intervenors claimed that the Federal Register notice was inadequate, under the Fifth Amendment Due Process Clause and the Federal Power Act, because it failed to advise the public as to what the underlying purpose of the reorganization was.

Gould disagreed.

“Any interested member of the public—and especially a public utility [such as the Northern California Power Authority] that participates in a heavily regulated industry and claims to be a substantial creditor of an obviously financially troubled applicant—should have understood that NEG’s ‘intra-corporate reorganization,’ involving a change in ‘upstream ownership,’ might have implications for creditors,” the judge wrote.

The judge also rejected the claim that the four-day comment period was too short. Given the substantial private interests involved, he said, FERC was justified in expediting the process.

Besides, Gould wrote, the petitioners were given a full and complete opportunity to have their arguments considered on the merits in connection with their petition for rehearing.

Judge Barry G. Silverman and Senior U.S. District Judge Charles R. Weiner of the Eastern District of Pennsylvania, sitting by designation, concurred in the opinion.

The case is State of California ex rel. Lockyer v. Federal Energy Regulatory Commission, 02-70336.


Copyright 2003, Metropolitan News Company