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California, PG&E fighting to control bankrupt utility

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SAN FRANCISCO (AP) — California's largest utility argued in bankruptcy court Friday that a federal judge should shift its power plants and transmission systems out of the state's control, a move that could free Pacific Gas and Electric Co. to raise rates.

Nine months after PG&E's $13.2 billion bankruptcy, U.S. Bankruptcy Judge Dennis Montali soon will determine who will oversee the utility's activities and how much it charges for energy in California.

Bankruptcy experts say Montali's decision will make or break PG&E's plan to emerge from bankruptcy, because the plan relies on overriding dozens of state laws and regulations that govern its operations.

The state Public Utilities Commission and the attorney general vehemently oppose PG&E's plan, in part because PG&E is asking Montali to relieve it from buying electricity for its 4.5 million customers beyond what the state buys and its own power plants provide.

"Under state law, PG&E has an obligation to provide safe and reliable service to all the customers in its service area," said Gary Cohen, PUC counsel. "PG&E's basically saying, 'It's not our problem, it's the state's problem.' "

The bankruptcy's resolution will have broader consequences beyond whether customers pay more for energy or thousands of creditors get paid:

Farmers, environmental groups and campers worry that a post-bankruptcy PG&E might sell some of the nearly 140,000 acres it owns. That could block grazing and public recreation in the wilderness due to logging, and compromise access to irrigation and drinking water that pours through the utility's dams in the Sierra Nevada.

Shareholders wonder if PG&E is a solid investment, and whether shares of the nearly 100-year-old utility will return to pre-bankruptcy heights.

Consumer advocates fear a federally regulated PG&E would control much of California's power market and use the advantage to drive up prices, just as officials allege out-of-state power companies forced prices skyward last year.

On Friday, PG&E told Montali that legal precedent indicates the transfer of multibillion-dollar lands and assets away from state environmental reviews and regulation is not illegal so long as PG&E obeys the law after it comes out of bankruptcy.

The utility wants to form three new companies to handle transmission, generation and natural gas, borrow against its assets to pay debts, then resume buying electricity for its customers — all without a rate increase.

"We don't think the state has a right to say just because we weren't born this way — in several companies — doesn't mean we can't become this way," said Laurence Tribe, a Harvard law school professor representing PG&E.

The utility says customers won't see rates rise under the proposal because it plans to lock in a price for energy over the next 12 years.

But consumer advocates and state regulators say it'll still be more than customers pay now, and that PG&E is using the bankruptcy court to rejigger itself into a deregulated entity. Instead of transferring away its most valuable assets, it should use its available $4.9 billion and borrow money to pay creditors instead, they say.