State of California
M e m o r a n d u m
Date: February 7, 2002
To: Debra Bowen, Chair, Senate Energy, Utilities and Communications Committee
From: Public Utilities Commission—San Francisco–Gary M. Cohen, General Counsel
File No:
Subject: Summary of Pending Utility Energy Litigation
The following is a summary of the pending litigation relating to the energy crisis involving the CPUC and the three investor-owned utilities.
Edison v. Lynch (Filed Rate Doctrine Case)
Settled in October 2001. Settlement provided for SCE to apply surplus in rates over cost of service ("headroom") to recovery of its Procurement-Related Obligations (back debt incurred in connection with costs of purchasing wholesale energy that were not recovered in rates).
SCE’s PROACT account balance will be paid down by May-July 2003. Edison has applied for a substantial rate decrease, to take effect after the PROACT balance is reduced to $0.
TURN challenged the settlement by appealing from the entry of judgment in the United States District Court. A three-judge panel of the Ninth Circuit Court of Appeals issued an opinion on [date] in which it expressed the view that the settlement may violate state law in three respects. The Court declined to decide these issues however; instead, it certified three questions of state law to the California Supreme Court. The Supreme Court accepted the certification and restated the three questions as follows:
- Did the Commissioners of the California Public Utilities Commission have the authority to propose the stipulated judgment in light of the provisions of Assembly Bill No. 1890 (Act of Sept. 23, 1996, 1996 Cal. Legis. Serv. 854, codified in Cal. Pub. Util. Code, §§ 330-398.5)?
- Do the procedures employed in entering the stipulated judgment violate the Bagley-Keene Open Meeting Act (Cal. Gov. Code, §§ 11120-11132.5)?
- Does the stipulated judgment violate section 454 of the Public Utilities Code by altering utility rates without a public hearing and the issuance of findings?
The CPUC and SCE have filed opening briefs in support of the settlement, and TURN has filed its opposition brief. Reply briefs from the CPUC and SCE are due on February 13. There will then be an additional period of 20 days for parties seeking to file briefs as amicus curiae to file their briefs, and another 20 days for briefs in response to the amicus briefs. Thus the briefing will be concluded on March 26.
The Supreme Court has granted this case calendar preference. It is estimated that oral argument will be held in May or June, with a decision expected 30-60 days thereafter.
SDG&E (AB 265 and intermediate-term contracts)
The Commission approved a settlement with SDG&E on December 19, 2002. Applications for rehearing have been filed, by ORA, UNCAN and the City of San Diego. Legal Division staff hopes to have a recommendation for the Commission in time for its April 3, 2003 meeting.
PG&E Bankruptcy—Trial court proceedings
Trial began on the Joint Plan of Reorganization filed by the CPUC and the Official Committee of Unsecured Creditors (OCC) on November 18, and continued for 11 trial days. The CPUC and OCC called 9 witnesses in support of their plan; PG&E called 8 witnesses in opposition and third-party objectors put on 3 witnesses. One witness in support of the Plan remains to be called.
At the close of the CPUC/OCC case, PG&E made a motion to dismiss the Plan. The motion raised three principal grounds: (i) that a prima facie showing that the Plan is financially feasible had not been made; (ii) that the Reorganization Agreement that is an element of the Plan is not lawful as a matter of state law, and would not be binding and enforceable against the Commission; and (iii) that the consideration paid to resolve PG&E’s filed rate doctrine case is inadequate.
U.S. Bankruptcy Judge denied PG&E’s motion. He ruled (i) that the CPUC/OCC had made a prima facie case that the Joint Plan is feasible; (ii) that the Reorganization Agreement, if entered into after confirmation of the Plan, would be valid, binding and enforceable against the Commission; and (iii) that he would defer ruling on the adequacy of the settlement of the filed rate case until the close of all the evidence.
The trial on PG&E’s Plan of Reorganization began on December began on December 16, and has continued for 9 days thus far. PG&E has called 7 witnesses. Judge Montali has scheduled twenty-three additional trial days through the end of March, and it is likely that the trial will not be completed until April or May.
At the conclusion of the trial, Judge Montali will decide whether each plan is confirmable under the Bankruptcy Code. If he concludes that both Plans are confirmable, he must decide which to confirm, as he can only confirm one. Judge Montali has indicated that he thinks it should be a matter of a few months between confirmation and PG&E’s emergence from bankruptcy.
PG&E Bankruptcy—Appeal of Express Preemption Decision
Judge Montali determined that the Bankruptcy Code does not authorize the express preemption of state law contemplated by PG&E’s Plan. PG&E appealed this decision to U.S. District Judge Vaughn Walker, who reversed Judge Montali, holding that express preemption of state law is authorized by the Bankrutpcy Code. The CPUC and a group of state agencies represented by the Attorney General have appealed this decision to the Ninth Circuit Court of Appeals. Briefing is complete, and oral argument should be scheduled soon. The Solicitor General of the United States has filed a brief as amicus curiae in support of the State’s position, as has a group of 14 states.
PG&E v. Lynch (Filed Rate Doctrine case)
PG&E’s filed rate doctrine case is pending before Judge Walker. The CPUC moved to dismiss the case on the grounds that it is barred by the state’s sovereign immunity provided by the Eleventh Amendment, and by the Johnson Act (which precludes suits against state utility regulators brought on federal constitutional grounds). Judge Walker denied the motion, and the CPUC appealed to the Ninth Circuit, which stayed the case pending resolution of the appeal. The briefing is complete and oral argument is scheduled for March 10.
