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Federal judge to decide who oversees the energy utility and handles its rates 

SAN FRANCISCO — California’s largest utility argued in bankruptcy court Friday that a federal judge should shift its power plants and transmission systems out of the state’s control, a move that could free Pacific Gas and Electric Co. to raise rates. 

Nine months after PG&E’s $13.2 billion bankruptcy, U.S. Bankruptcy Judge Dennis Montali soon will determine who will oversee the utility’s activities and how much it charges for energy in California. 

Bankruptcy experts say Montali’s decision will make or break PG&E’s plan to emerge from bankruptcy, because the plan relies on overriding dozens of state laws and regulations that govern its operations. 

The state Public Utilities Commission and the attorney general vehemently oppose PG&E’s plan, in part because PG&E is asking Montali to relieve it from buying electricity for its 4.5 million customers beyond what the state buys and its own power plants provide. 

“Under state law, PG&E has an obligation to provide safe and reliable service to all the customers in its service area,” said Gary Cohen, PUC counsel. “PG&E’s basically saying, ‘It’s not our problem, it’s the state’s problem.”’ 

The bankruptcy’s resolution will have broader consequences beyond whether customers pay more for energy or thousands of creditors get paid: 

— Farmers, environmental groups and campers worry that a post-bankruptcy PG&E might sell some of the nearly 140,000 acres it owns. That could block grazing and public recreation in the wilderness due to logging, and compromise access to irrigation and drinking water that pours through the utility’s dams in the Sierra Nevada. 

— Shareholders wonder if PG&E is a solid investment, and whether shares of the nearly 100-year-old utility will return to pre-bankruptcy heights. 

— Consumer advocates fear a federally regulated PG&E would control much of California’s power market and use the advantage to drive up prices, just as officials allege out-of-state power companies forced prices skyward last year. 

In the hearing Friday, PG&E told Montali that legal precedent indicates the transfer of multibillion-dollar lands and assets away from state environmental reviews and regulation is not illegal so long as PG&E obeys the law after it comes out of bankruptcy. 

The utility wants to form three new companies to handle transmission, generation and natural gas, borrow against its assets to pay debts, then resume buying electricity for its customers — all without a rate increase. 

“We don’t think the state has a right to say just because we weren’t born this way — in several companies — doesn’t mean we can’t become this way,” said Laurence Tribe, a Harvard law school professor representing PG&E. 

The utility says customers won’t see rates rise under the plan because it plans to lock in a price for energy over the next 12 years. 

But consumer advocates and state regulators say it’ll still be more than customers pay now, and that PG&E is using the bankruptcy court to rejigger itself into a deregulated entity. Instead of transferring away its most valuable assets, it should use its available $4.9 billion and borrow money to pay creditors instead, they say. 

The Utility Reform Network says PG&E’s plan would cost ratepayers $20 billion extra over the next 12 years, based on its analysis of PG&E’s bankruptcy plan and financial figures. PG&E disputes that assertion. 

No one’s sure of the outcome, but Lynn LoPucki, a UCLA bankruptcy professor, said he doubts Montali would let PG&E bypass so many state laws because it would set a precedent for future utility bankruptcies. 

It would prove “that a debtor in bankruptcy can sell anything regardless of what state law might say about it or why state law says it. Imagine a debtor saying they want to sell alcohol to minors?” LoPucki said. 

Before PG&E can emerge from bankruptcy, it must win support for its reorganization plan from the Federal Energy Regulatory Commission, the Nuclear Regulatory Commission, the Securities and Exchange Commission, Judge Montali, and a majority of its thousands of creditors, which have included America’s largest banks, as well as ice cream shops, home builders, power sellers and the state. 

So far, the official creditors committee backs the plan. Other agencies have not yet responded. 

Most creditors are just waiting and watching. 

“We’re all hoping for the best, that we do get all our money back,” said Aline Varanese, an accountant with Oakland-based Bay Rubber Company, which is owed nearly $4,000 for items such as gaskets and fittings.