California Bar Journal
OFFICIAL PUBLICATION OF THE STATE BAR OF CALIFORNIA - MARCH 2002
spacer.gif (810 bytes)
spacer.gif (810 bytes)

California Bar Journal

The State Bar of California


REGULARS

spacer.gif (810 bytes)
Front Page - March 2002
spacer.gif (810 bytes)
News / News Briefs
Midyear meeting will focus on fairness
E-briefs offer bar updates
Three strikes supporter has a change of heart, now wants the law restricted
ABA seeks nominations for three awards
Rule change proposed to protect government whistleblowers
More pamphlets added, translated
Innovation garners awards for 11 courts
spacer.gif (810 bytes)
Trials Digest
spacer.gif (810 bytes)
Public Comment
spacer.gif (810 bytes)
Opinion
From the President - New era of bar-conference cooperation
Conference of Delegates: A valuable ally
PG&E's plan: A power play
Letters to the Editor
spacer.gif (810 bytes)
You Need to Know
spacer.gif (810 bytes)
Discipline
Ethics Byte - Twilight zone cases can make practice tricky
Former deputy DA, convicted of grand theft, is suspended
Attorney Discipline
spacer.gif (810 bytes)
MCLE Self-Study
At tax time, modify debt with caution
Self-Assessment Test
MCLE Calendar of Events

OPINION

spacer.gif (810 bytes)
PG&E's plan: A power play
spacer.gif (810 bytes)
By BARBARA GORDON
spacer.gif (810 bytes)

Rolling blackouts of a year ago seem all but forgotten as the Bankruptcy Court for the Northern District of California grapples with issues raised by the Chapter 11 plan proposed by PG&E. On Feb. 7, 2002, in a lengthy Memorandum Decision, Bankruptcy Judge Dennis Montali rejected the legal basis supporting the debtor's plan. The court also considered objections to the plan filed by creditor groups and the California Public Utility Commission (PUC).

The PUC objected to the plan, claiming that by seeking preemption of some 37 state laws, PG&E is attempting to use the Bankruptcy Code to escape state regulation and shift regulatory control to the Federal Energy Regulatory Commission (FERC). FERC is arguably less consumer friendly and a more lenient regulatory authority for PG&E.

Seizing upon the language of 11 U.S.C. 1123(a) of the Bankruptcy Code, the debtor's plan seeks, among other things, to employ the bankruptcy reorganization to extricate itself from much of the oversight of the PUC. PG&E, in a bold interpretation of bankruptcy law, contends that Chapter 11 grants the debtor express preemption from a myriad of state laws. Section 1123(a) provides in part, "Notwithstanding any otherwise applicable non-bankruptcy law, a plan shall . . . ."

Judge Montali rejected the debtor's theory of express preemption which would "eviscerate state laws" and "obliterate whole areas of jurisdiction and authority traditionally left to state law."

Judge Montali cites the lack of legislative history regarding the "notwithstanding" clause as support for the conclusion that 1123(a) is "directive not empowering." Had Congress considered the language as "revolutionary" as PG&E contends, a richer Congressional record would have accompanied the amendment. A wholesale disregard for state law was not the intention of the 1978 code and 1980 amendment to 1123(a).

In the decision, the court proceeds to balance the overreaching interpretation of the debtor with evidence of the intent of Congress to loosen the absolute power of regulators over public utilities. Interest-ingly, prior to the Bankruptcy Reform Act of 1978, public utilities were required to obtain the approval of state regulatory commissions of plans of reorganization.

Congress later considered amending the code to require approval by regulatory commissions of plans of public utilities but no amendment was passed. State regulators therefore no longer have absolute veto power of a plan.

The court recognized that some measure of preemption of state laws may be required for effective restructuring, and thus some preemptive intent can reasonably be implied in the code. Judge Montali insisted, however, that the nature of any preempted law ought to be economic in nature rather than relating to public safety or a non-economic concern. Secondly, the law must impede the purposes and objectives of Congress and the Bankruptcy Code.

Before the court will apply federal preemption, PG&E must show that the state law prohibition effectively nullifies the bankruptcy process. Compromise and cooperation will be necessary to confirm a plan because, clearly, this court will not allow PG&E or the regulators to monopolize all the power.

Barbara Gordon is a northern California bankruptcy attorney.