The attorney general of California, Bill Lockyer, charged Pacific Gas & Electric Corp. (PG&E Corp.) with illegal, unfair and fraudulent business practices that drove its California utility subsidiary into bankruptcy and breached legal agreements with the state to protect California ratepayers.

“PG&E agreed more than five years ago, as a condition of approval to form a massive holding company, to protect California ratepayers and ensure the healthy operation of its California-regulated utility,” said Lockyer. “Instead of keeping its promise, PG&E Corp. drained the assets of its California utility and put billions of dollars into unregulated affiliates in order to achieve its ultimate objective of becoming one of the largest unregulated power-generating companies in the nation.”

A civil suit filed in San Francisco Superior Court sought to have PG&E Corp. pay between US$600 million and US$4 billion plus monetary penalties for the violations.

In November 1996, the California Public Utilities Commission allowed the state-regulated utility to restructure into a holding company with utility and non-utility activities subject to 22 conditions aimed at protecting ratepayers from the potential risks and abuses of a holding company structure. The conditions included protections against non-utility activities being subsidized by PG&E ratepayers and providing priority to the capital needs of the PG&E utility by infusing necessary operating funds if the utility experienced financial distress.

Lockyer said that after the holding-company structure was approved cash flowed away from the utility to the parent corporation then to unregulated PG&E affiliates, violating PG&E's legal agreement to protect California ratepayers from holding-company abuses and to maintain the utility's financial health.

From 1997 through the summer of 2000, PG&E provided more than $4.6 billion in cash to PG&E Corp. in the form of $1.76 billion in shareholder dividends and repurchases of PG&E common stock, representing 60% of the cash inflow to the utility's parent corporation for this period.
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