Federal Law Gives Bankruptcy Courts the Ability to Preempt State Law; Utility Seeks to Preempt the Fewest Number of State Laws Necessary to Get Plan Approved

SAN FRANCISCO - As requested by the U.S. Bankruptcy Court, Pacific Gas and Electric Company today filed its response to preemption and Eleventh Amendment immunity objections to its Disclosure Statement submitted by the California Public Utilities Commission (CPUC), the California Attorney General and six other parties. On January 25, the Court is scheduled to hear oral arguments on these issues.

Federal law gives the Bankruptcy Court the authority to preempt applicable state laws in order to confirm a plan of reorganization and allow the debtor to pay creditors and emerge from Chapter 11. The Bankruptcy Code also allows a plan to transfer assets without approval of state agencies.

"Congress has deliberately withheld from state regulators the very veto power over public utility reorganizations that the CPUC seeks to wield in this case: Congress has expressly determined that only a 'rate change provided for in the plan' of reorganization is subject to state regulatory pre-approval," PG&E stated in its filing. "PG&E plan does not call for such a change in rates."

Under PG&E's plan of reorganization, all valid claims would be paid in full by borrowing against the full value of the assets, the utility would regain its creditworthy status and the state could get out of the energy business.

PG&E's plan asks the Court to preempt some 37 CPUC regulations and state laws, out of the thousands of laws and regulations under which the utility operates, in order to complete the transfer of certain assets and establish three new California-based companies. PG&E's plan of reorganization seeks to preempt the minimum amount of laws and regulations necessary to allow it to emerge from bankruptcy.

The plan does not ask the Court to exempt PG&E from the ordinary regulatory oversight of the CPUC and other state agencies. Following the adoption of the plan, all of the businesses will continue to be subject to all applicable federal, state and local public health, safety and environmental laws and regulations.

"Having succeeded in precipitating the bankruptcy, the CPUC now seeks to prevent PG&E from solving its financial problems through the orderly reorganization process established by federal law by arguing at the threshold that the Bankruptcy Court is powerless to confirm the plan of reorganization," the utility said.