Abolish PG&E Corp.

The creation of Pacific Gas and Electric Corp. constitutes a legal money-laundering strategy.
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OPINION Pacific Gas and Electric Corp. is a holding company whose only property is Pacific Gas and Electric Co., a regulated utility. The California Public Utilities Commission (CPUC) exercises little regulatory oversight over PG&E Corp. Oversight by federal authorities has been curbed by recent legislation, which abolished most of the consumer protections of the New Deal's Public Utilities Holding Company Act. To protect ratepayers and stockholders, PG&E Corp. should be abolished and its corporate charter revoked.

All of PG&E Corp.'s income comes, in effect, from tax minimization strategies, which allow PG&E Corp. to keep revenue that would otherwise be paid as income taxes. What are the consequences?

• The creation of the holding company constitutes a legal money-laundering strategy that has greatly benefited the holding company. A 2002 brief by California's attorney general says that PG&E Corp. collected $663 million in net revenues from 1997 to 1999 by avoiding payment of income taxes.

• From 2000 to 2004, Mark Bumgardner of the CPUC's Division of Ratepayer Advocates (DRA) wrote in a 2006 report, "PG&E Corporation has been able to save $683 million in Utility taxes.... Since the benefits of being able to write off unprofitable affiliates for tax purposes is [sic] solely for the Holding Company's benefit, DRA allocated 100% of the tax department's costs to PG&E Corporation."

• Top officers at PG&E Corp. made out like bandits: President Robert D. Glynn's total pay skyrocketed from $2 million in 1998 to $34 million in 2003, despite the fact that he led the company into bankruptcy.

• Almost all of PG&E Corp.'s revenues from 2001 to 2004 came from its regulated utility. PG&E Corp. got to keep an extra $1.346 billion from 1997 through 2004 by taking advantage of the tax benefits available to utility holding companies, if the attorney general and the DRA's Bumgardner are correct.

The CPUC and the legislature created the holding company in a series of decisions and laws in the mid-1990s. However, the idea that deregulation California-style would bring competition and lower electric rates has proved to be false. Abolish the holding company, and this lucrative PG&E Corp. tax dodge ceases to exist.

To deal with PG&E's high rates and unresponsive electric service, San Francisco public power activists and public officials tried to take over PG&E's San Francisco grid in 2001 and 2002. In Yolo County, just west of Sacramento, activists and elected officials worked for years to drive out PG&E and replace it with electrical service from the Sacramento Municipal Utility District. The SMUD charges 30 percent less than PG&E and far exceeds PG&E in the use of solar and wind power per customer. PG&E spent a record $50 per customer — at least $15 million, on 300,000 voters in Sacramento and Yolo counties — in November 2006 to turn back the public power challenge.

For others in Northern California, a return to traditional regulation as it functioned before the deregulation disaster may be the best that can be expected. Abolishing the holding company — a step the CPUC has the power to take — would be a good place to start.

Dan Berman

Dan Berman is the author of Who Owns the Sun? and is a longtime public power activist in Northern California. He lives in Davis and can be reached at danmberman@gmail.com.