In January 2002, with California recovering from an energy crisis that caused rolling blackouts across the state, Attorney General Bill Lockyer announced that he was suing PG&E Corporation, the parent company of Pacific Gas & Electric, for allegedly siphoning off more than $4 billion from its subsidiary as the utility slowly went bankrupt.
"The parent was healthy while the child was starving,” said Lockyer, according to a Jan. 11 article in the Alameda Times-Star. "We want the money back.”
So we wonder how Lockyer, now the state’s treasurer, feels in the wake of this week’s news that current AG Jerry Brown has agreed to dismiss the 2002 lawsuit. According to a Tuesday filing by PG&E with the Securities and Exchange Commission, Brown and PG&E “jointly requested” the dismissal from San Francisco Superior Court. The dismissal occurred on Tuesday.
San Francisco City Attorney Dennis Herrera followed Lockyer with his own suit (still pending) against PG&E in 2002, and on Friday his office jumped on Brown’s decision.
Oh, yes, they did ...
“The attorney general has his own case. They didn’t ask for our blessing in dismissing it and we didn’t offer it,” said spokesman Matt Dorsey. “We’re disappointed with the dismissal because it slams the door shut on all unfair competition claims on behalf of PG&E ratepayers.”
Dorsey said that while Herrera and the attorney general had separate cases, both brought under the state’s Unfair Competition Law, Brown’s decision to drop the suit means that the city “effectively has no claim that can stand on its own. … San Francisco’s only remaining claim would require proving direct damages to itself, which is very difficult and may not even be cost effective.” Herrera will still review his options, Dorsey said.
Brown’s office pinned its decision to dismiss on an Aug. 26, 2008, “neutral evaluation memorandum” written by former state Supreme Court Justice Joseph Grodin, who works at private mediation and arbitration firm ADR Services. In 2007, state lawyers agreed to pause the litigation with PG&E and take the case before Grodin, according to the memo (.pdf), a copy of which the AG’s office provided to Legal Pad. In August, Grodin concluded that while discovery remained unfinished, the facts presented thus far by the AG wouldn’t prove the case against PG&E.
“It is plausible that, with additional facts and perhaps expert testimony, and the elimination of unsustainable contentions, the [attorney general] could be successful in constructing a coherent narrative [that PG&E violated the law],” he wrote. “But suspicions are not facts, and it is my opinion that on the record presented to me the [attorney general’s office] has not carried its burden.”
Scott Gerber, Brown’s spokesman, said that “the Department of Justice decided to drop the case after one of our nation’s most eminent jurists … provided a neutral evaluation of the case and concluded that we would not prevail.” Dorsey declined to comment on the “evaluation memo.” Legal Pad reached Tom Dressler, Lockyer’s communications director, in a meeting on Friday afternoon, and he said he would return our call later.
Both Herrera and the AG’s office contended in their suits that financial transactions between PG&E and its parent company, continuing from the late 1990s and into 2000, violated conditions that the state’s Public Utilities Commission set when PG&E was created in 1997. Among other things, the AG claimed it was illegal for PG&E to pay out a dividend in September 2000, when the company was $2.9 billion in the red, according to Grodin’s memo.
Grodin wrote that while PG&E’s prediction that energy costs would drop in early 2001 turned out to be “dramatically wrong,” there wasn’t enough proof to show that the company had acted unlawfully. PG&E went bankrupt in January 2001.
— Evan Hill