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Pacific Gas & Electric Co. is turning to the federal courts to seek approval for a controversial element in its bankruptcy reorganization plan. PG&E of San Francisco has asked a federal judge to decide if U.S. Bankruptcy Judge Dennis Montali erred in March in rejecting the utility’s reorganization plan, which seeks to sidestep 37 state laws and regulations. Montali, of the Northern District of California, likened PG&E’s plan to a “full-scale attack” on state law. U.S. District Judge Vaughn Walker of the Northern District of California will review the case July 11 during a status conference in San Francisco, PG&E said April 3. The bankruptcy court could still allow PG&E to circumvent state law during confirmation hearings later this year. But PG&E, appealing in federal court, wants to increase its chances of getting a favorable ruling. Appeals of bankruptcy court rulings are common, but success is rare, bankruptcy attorneys said. Bankruptcy judges in general rule in favor of debtors, so it could be difficult for PG&E to persuade an appellate judge that Montali’s ruling was in error, said Matthew Gold, a New York-based partner at Wolf, Block, Schorr and Solis-Cohen. While its federal case is pending, PG&E will proceed in bankruptcy court with an amended reorganization plan. In that filing, PG&E asks for permission to pre-empt “only those laws necessary to effectuate the plan.” If allowed to pre-empt certain state laws, PG&E will create three new companies that fall mainly under federal, not state, regulation. The utility says that arrangement will improve its finances, including allowing the company greater flexibility to borrow against its assets. The California Public Utilities Commission said it is preparing a competing reorganization plan for PG&E. The CPUC’s plan, expected to be filed in bankruptcy court by April 15, proposes that PG&E use dividends and cash to pay back creditors. California’s largest utility, PG&E filed for Chapter 11 protection in April 2001, posting $9 billion in losses. The company, a unit of Pacific Gas & Electric Corp., attributed its fiscal distress to buying power at prices higher than state law allowed it to charge customers. Montali has tentatively set June 17 as the date when PG&E and the CPUC may begin soliciting votes for their respective proposals. Copyright (c)2002 TDD, LLC. All rights reserved.

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