Bankruptcy Plan Gains Ground, But PG&E Still Facing Possibility of State Takeover

Pacific Gas & Electric won court approval this week for an amended bankruptcy reorganization plan that makes some concessions to California Gov. Gavin Newsom’s demands for greater safety, oversight and accountability. But the plan, which has already won over a competing group of Wall Street bondholders and the vast majority of the victims of the 2017 and 2018 wildfires caused by PG&E’s equipment, still doesn’t meet one of Newsom’s key demands: a structure that could allow the state to take over the utility if it fails to meet future safety commitments.
This kind of “self-destruct” mechanism could present multiple legal quandaries, making it a hard sell for investors and potentially threatening PG&E’s ability to win the financial backing it needs to emerge from bankruptcy by June 30. That’s the deadline it must meet to gain access to the state’s $21 billion wildfire insurance fund, seen as a key condition for its future stability.But Newsom’s demand is backed by a rising chorus of public opinion that the utility responsible for deadly disasters including the 2010 San Bruno gas pipeline explosion and the 2018 Camp Fire, as well as the multimillion-customer power outages last fall, can’t be allowed to continue running as it has in the past.

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The California Public Utilities Commission is probing PG&E’s fire-prevention and outage practices and could block PG&E’s plan as being against the public interest. This could threaten PG&E’s ability to emerge from bankruptcy, however, and thus prevent it from making good on its promised payments of $13.5 billion to wildfire victims and billions of dollars more to insurers and county and local governments. In the meantime, Newsom has also been threatening the even more drastic option of a direct state takeover of the utility if it fails to meet safety demands. “We are pursuing a deal with PG&E. If we are not able to secure that deal, the state is prepared to take it over,” Newsom said at an energy and environmental policy event last week in Sacramento. “It’s not the preferred option, but it’s a necessary option if they can’t do that for themselves.”

A new bill in the mix

On Monday, state Sen. Scott Wiener unveiled the legislative vehicle for carrying out the threat. Senate Bill 917 would authorize the state to use eminent domain to acquire the assets and ownership of a utility if it “has been convicted of one or more felony criminal violations of laws enacted to protect the public safety within 10 years” — language tailored specifically to PG&E’s 2017 conviction on six criminal charges related to the 2010 San Bruno disaster.Under the bill, PG&E’s assets would be transferred to an entity called the Northern California Energy Utility District, with a governing board and operating duties similar to municipal utility districts. The bill would also allow municipal utilities and community-choice aggregators to take over the PG&E equipment within their jurisdictions, something that San Francisco has already proposed, and PG&E rejected.

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Notably, the new Northern California district would not be subject to CPUC approval of its rates and charges, as PG&E, Southern California Edison and San Diego Gas & Electric are today. That will allow community-choice aggregators to maintain control over their rates and tariffs, while leaving the CPUC the same authority “relative to the safe and reliable performance of utility services” that it has over other municipal utilities like Sacramento Municipal Utility District or Los Angeles Department of Water and Power.
Wiener’s proposal is slightly different in this way from a proposal floated last year by San Jose Mayor Sam Liccardo. Beyond calling for community-choice aggregator San Jose Clean Energy to take over PG&E’s grid — something it could pursue under the aegis of SB 917 — Liccardo proposed the “mutualization” of PG&E’s assets in a form similar to an electrical cooperative. Proponents of a public takeover of PG&E’s assets say it would eliminate the need to pay federal and state taxes or shareholder dividends, allowing the reorganized entity to focus more spending on safety improvements and containing rate impacts on customers. This should allow the new entity to provide “safer, more reliable and affordable energy,” Wiener said, with a more transparent and publicly accountable management structure.

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On the other hand, there’s no guarantee that a public utility would succeed where PG&E failed. PG&E responded with a statement saying its “facilities are not for sale” and made the claim that “changing the structure of the company would not create a safer or cleaner operation.”It’s also unclear how a state-owned PG&E would fare in shouldering the utility’s share of responsibility in meeting California's renewable-energy and carbon-reduction goals.PG&E has honored its legacy renewable energy contracts through its bankruptcy, and its latest reorganization plan won accolades from the Natural Resources Defense Council for making commitments to the state’s 100-percent-by-2045 carbon-neutral energy mandate, its transportation and building electrification initiatives, and its commitments to replace the Diablo Canyon nuclear power plant without increasing its greenhouse gas emissions.
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