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(SACRAMENTO) – Attorney General Bill Lockyer today asked the federal Securities and Exchange Commission to closely scrutinize Pacific Gas & Electric Corp. for potential holding company abuses in the transfer of billions of dollars from its now bankrupt California subsidiary, Pacific Gas & Electric Co.
"SEC scrutiny is essential to protect the public interest, ratepayers and the people of the State of California," Lockyer said. "Pacific Gas & Electric Co. upstreamed billions of dollars to its holding company before filing for bankruptcy. Without meaningful review by the SEC, it cannot be determined what impact the transfer of assets to the holding company operating in a dozen other states may have on the financial condition of the bankrupt utility or other public utilities in California."
The Attorney General's petition filed in Washington, D.C., urges the SEC to apply federal regulatory oversight to PG&E Corp. under the Public Utility Holding Company Act (PUHCA) because the corporation no longer is a primarily California-only operation. The SEC currently exempts PG&E Corp. from almost all requirements and review under PUHCA, based on PG&E Corp.'s contention that it is an "intrastate" entity. The Attorney General's petition noted that PG&E Corp. controls over $13 billion in assets outside California and is pursuing business activities in at least a dozen other states.
Under PUHCA, the SEC can review stock and security transactions, inter-affiliate loans and sales of goods and issuance of securities by holding companies and utilities. The law is aimed at preventing abuses in transactions between a holding company and a utility subsidiary which can result in defrauding investors and higher prices for services for the subsidiary. The SEC has not reviewed PG&E Corp.s holdings and asset movements because of the exemption.
The petition noted that cash in recent years has flowed in one direction – from PG&E Co. to PG&E Corp., then to unregulated PG&E Corp. affiliates. From 1997 to 1999, over $4 billion was sent by PG&E Co. to PG&E Corp., representing 69 percent of the cash flow to the holding company during this period. The SEC has not scrutinized these cash movements.
"All the primary evils addressed by PUHCA are relevant to PG&E Corp., including movement of capital and assets from its utilities to the holding company and affiliated, wholly-owned subsidiaries as well as massive investments in out-of-state non-utility activities and properties," the Attorney General's petition said.
"PG&E Corp. ‘ringfenced' its assets and now asserts those billions of dollars are unavailable to PG&E Co., which is in bankruptcy," the petition added. "In the absence of PUHCA exemption, the Commission would have been charged with evaluating and regulating all of these transactions and would have reviewed and determined the propriety of PG&E Corp.'s various holdings. Here the ringfencing involved assets of companies in numerous states, reflecting the complex nature of the transactions, the difficulty of single state regulation and the need for SEC review under PUHCA."
The petition said the potential harm that should be subject to SEC jurisdiction and review include:
*PG&E Corp's investments in numerous non-utility businesses have created an incentive and an appearance of an incentive, to draw cash out of the utility subsidiaries. In fact, PG&E Corp. has drawn cash from PG&E Co., possibly to the detriment of the California company, the consumers, ratepayers and taxpayers in the state. PG&E Corp. also moved assets from its utility subsidiaries into non-utility businesses, which PUHCA was designed to address.
*PG&E Corp. has used inter-affiliate transactions to draw cash from the utility subsidiaries, including $12 million loan payments from PG&E Co. to Alberta and Southern Gas Company. By moving assets from utilities to other entities, PG&E Corp. has potentially undermined the financial position of PG&E Co. The Commission through application of PUHCA to PG&E Corp. can establish rules that limit or eliminate such activity and protect the utility and consumers.
*PG&E Corp. and bankrupt PG&E Co. may have very different interests. PG&E Corp. argues it is not subject to the jurisdiction of the California Public Utilities Commission (PUC) in any respect, not even with regard to the conditions imposed by the PUC when it approved the formation of the holding company. The petition suggested that SEC can order PG&E Corp to cooperate fully with state regulatory requirements.
According to the petition, if the SEC had reviewed PG&E Corp.'s actions, the public would know if PG&E Corp. treated PG&E Co.–and ratepayers and consumers–fairly or if it contributed to the utility's bankruptcy.