The current situation with PG&E, Southern California Edison and others

A few articles that give us the basics of the negotiations between the state and the largest shareholder owned electrical utilities at the moment. --blj



Sacramento Bee

Newsom unveils $24 billion plan to tackle wildfires, PG&E bankruptcy

A coalition of wildfire victims said it supports the proposal

By Dale Kasler and Bryan Anderson | Sacramento Bee

Gov. Gavin Newsom proposed creating a $21 billion fund to pay for future wildfire costs Friday, with the costs split evenly between ratepayers and shareholders of PG&E Corp. and California’s two other major utilities.

The three companies must also spend a combined $3 billion on wildfire safety measures to become eligible for the so-called “insurance fund,” putting the total package at $24 billion.

Newsom called his long-awaited proposal the best and fairest way to deal with rising costs of future mega-fires. His advisers said customers of the big three utilities won’t face rate hikes. But they’ll contribute to the program anyway, through a $2.50 monthly charge they’ve been paying since the early 2000s. The surcharge was due to expire next year, but Newsom’s plan would extend it for 15 years.

As for the catastrophic wildfires from 2017 and 2018, Newsom leaves it to PG&E and the company’s investors to pay for the damages to the thousands of Northern Californians who lost homes, businesses and loved ones — a multibillion-dollar liability that drove PG&E into bankruptcy in January.

Newsom’s advisers said the plan will help stabilize PG&E’s finances by giving all three of the big utilities – PG&E, Southern California Edison and San Diego Gas & Electric – more certainty about whether they can bill ratepayers for the costs of future fires. That would enable PG&E to gather the estimated $30 billion needed to settle claims for victims of last November’s Camp Fire and the 2017 wine country fires. PG&E would have until June 30, 2020, to assemble the financing and get a bankruptcy plan approved in court.

The plan is designed to get money into wildfire victims’ hands relatively quickly, accelerating a process that otherwise could take years. A coalition of wildfire victims said it supports the proposal.

While Newsom’s plan calls on the three companies to spend more on fire safety, it doesn’t include any money to “harden” homes in high-risk areas against wildfires. Nor does it address the rising costs — and diminishing availability — of property insurance in some fire-prone areas of the state.

Newsom said in a statement that his proposal “treats wildfire victims fairly and protects California consumers.”

He added, “The framework we will pursue maximizes shareholder contributions to a solution, minimizes ratepayer exposure to sticker shock rate increases and mandates a culture of safety in our utilities to prevent wildfires.”

The plan was released about an hour after PG&E’s new chief executive officer, Bill Johnson, faced shareholders at the utility’s annual meeting in San Francisco, its first since filing for bankruptcy.

Newsom has been wrestling with the wildfire crisis since taking office, and he engaged in months of behind-the-scenes negotiations with lawmakers, utility executives, wildfire victims’ groups, insurance companies, Wall Street firms and credit ratings agencies. Newsom met privately with three Democratic state senators on Wednesday, and his advisers expect lawmakers to formally introduce a bill sometime next week.

One of the attendees, Sen. Bill Dodd, D-Napa, whose district was ravaged by the 2017 fires, said his primary goal is to prevent rate hikes.

“We look forward to carefully vetting the details of his draft and engaging in a collaborative process to develop a solution,” Dodd said in a statement. “My ultimate focus remains on protecting ratepayers from undue costs, ensuring victims are compensated and on improving safety for all Californians.”

Newsom wants the legislation passed by July 12 — the final day before state lawmakers take a month-long summer recess.

The governor has been quick to scold PG&E over its safety record and other issues and has spoken out against making ratepayers swallow the wildfire damages the utility caused. Yet he also wants to get PG&E back on its feet.

His plan also aims to keep Wall Street’s credit agencies from downgrading Edison and SDG&E to junk-bond status. If the companies reach junk status, they would have extreme difficulty borrowing and might be driven into bankruptcy along with PG&E. Experts warn this would expose the state to billions of dollars in wildfire costs.

In April, Newsom floated the possibility of rewriting the controversial legal doctrine known as “inverse condemnation,” which puts utilities on the hook for fires caused by their equipment, even if they managed the equipment properly. But he and key legislative leaders signaled last month that they weren’t ready to go that far.

“We’re not going to go down that road this year or next year,” Dodd said earlier this week.

A coalition of wildfire victims called Up from the Ashes, which represents residents from across Northern California and has been consulting with Newsom’s advisers, hailed the proposal as “a plan we can back.”

“It’s complicated and politically difficult, but Newsom’s come out with a proposal for future victims,” said the coalition’s leader, Patrick McCallum, a lobbyist who lost his home in the 2017 Tubbs Fire. “Yes, we’d like to include some funds for 2017-2018 victims and 2015 Butte Fire victims. But we’re going to strongly support this package while continuing to look for solutions for these victims.”

At the center of the plan is a $21 billion insurance fund to pay claims to victims of future wildfires that are caused by faulty utility equipment.

Half the money would come from PG&E, Edison and SDG&E’s shareholders. The other half would come from their ratepayers, although their rates wouldn’t actually go up. Rather, the money would come from an existing surcharge included on customers’ current monthly bills – roughly $2.50 a month.

California imposed the surcharge when the state Department of Water Resources began buying electricity on behalf of the three utilities during the 2001 energy crisis. The charge was scheduled to expire next year, but instead it would be extended through 2035.

Consumer advocate Mark Toney, of The Utility Reform Network in San Francisco, complained that the charge should be taken off ratepayer bills next year, as promised. Customers already get billed for the money utilities spend to reduce fire risk, he said.

“Ratepayers are paying 100 percent for wildfire mitigation … billions for tree trimming, system hardening,” Toney said.

The three utilities can tap into the fund after big fires caused by their equipment. If the state Public Utilities Commission decides the utilities acted “prudently,” they can tap into the fund without having to pay it back, even though their equipment caused the fire. If the commission decides the utilities behaved recklessly, company shareholders would have to reimburse the fund.

The PUC’s decisions would be guided by a new “prudent manager” standard that assumes the utilities behaved properly unless proven otherwise.

Newsom’s advisers said this standard is designed to give utilities a clearer idea about whether ratepayers will have to bear some of the financial burden of big wildfires, which they believe will enhance the companies’ ability to draw investors. In that way, PG&E is expected to be able to pay its obligations to the 2017-18 fire victims.

Newsom’s plan does carry an odd wrinkle: Utilities can choose not to create the $21 billion insurance fund and instead opt for a $10.5 billion “liquidity fund” financed solely from the $2.50-a-month charge on existing utility bills. But if the companies tap into that fund, they would have to reimburse it dollar for dollar. The reimbursement would come from ratepayers if the utilities commission determines the companies behaved prudently, and from shareholders if they didn’t.

In another twist, Newsom didn’t give lawmakers discretion on which fund to choose. Instead, he left the decision up to Edison and SDG&E. PG&E would have to go along with whatever the two Southern California utilities choose, according to the governor’s advisers. Newsom’s staff expects the utilities will choose the larger insurance fund because it provides more security.

The governor’s plan sets aside two rival plans floated in the past few weeks by hedge funds that own much of PG&E’s stock and bonds. Although those plans called for Wall Street to inject billions of new dollars into the bankrupt utility to pay fire claims and other debts, Newsom’s advisers said the governor’s proposal does a better job of buffering ratepayers and gives the state more control over the process.

There’s an entry fee of sorts before utilities are eligible to tap into the insurance fund. The three companies would have to spend an additional $3 billion combined on wildfire-safety measures, with PG&E paying the largest share, followed by Edison and SDG&E. The dollars can be billed to ratepayers, although the companies wouldn’t be allowed to tack on a profit margin — unlike most utility expenditures.

They would also have to tie executive pay to the companies’ safety performance, create safety committees on their boards of directors and conduct annual “safety culture reviews.”

PG&E would have to go a step further. It would need to have the U.S. bankruptcy judge approve a reorganization plan by the end of June 2020. The plan would have to pay for all court-approved wildfire claims from 2018 and before, and do so without charging ratepayers a dime. Advisers to Newsom say this is a big improvement over last year’s wildfire legislation Dodd authored, Senate Bill 901, which opened the door to allowing ratepayers to be billed for some of the costs of the 2017 fires.

McCallum said this timeline adds clarity for past wildfire victims to know when they might get their money from PG&E.

“It adds pressure for PG&E to get to a quicker settlement, and that’s good for victims,” McCallum said.

Much of Newsom’s proposal is still being fleshed out. Among other things, Newsom’s team is figuring out exactly how much each of the three utilities would contribute to the $21 billion insurance fund and $3 billion buy-in, though PG&E would likely pay the most.

“In the coming days, I will continue working with the Legislature to turn this framework into a package of bills that make the changes we need,” Newsom said in a statement. “Our goal remains passing this legislative package by July 12, in time to have solutions for this season’s wildfires.”



Sacramento  Bee

PG&E faces more financial woes over wine country wildfires that killed 44 people

By Dale Kasler

Trying to dig its way out of bankruptcy, PG&E Corp. is likely to take another financial hit as the California Public Utilities Commission opens a formal “penalty case” over the utility’s role in the 2017 wine country wildfires.

The fines could be considerable. The commission fined PG&E about $1.6 billion following the 2010 San Bruno natural gas pipeline explosion that killed eight people. The October 2017 fires killed 44 people, destroyed nearly 9,000 buildings and burned a total of 245,000 acres.

In an order released late Thursday, the PUC said its safety division has already concluded that PG&E failed to operate its electrical equipment properly and had “various deficiencies” in its tree-trimming program, contributing to the 2017 fires.

“PG&E’s violations during the 2017 fire siege are extensive and disturbing, and go to basic requirements, such as the failure to maintain adequate records,” PUC Commissioner Clifford Rechtschaffen said in a prepared statement.

Cal Fire blamed PG&E’s power lines and other equipment for a dozen of the fires, although it exonerated the utility in connection with the deadliest fire, the Tubbs Fire. That fire killed 22 people and burned much of the Coffey Park neighborhood in Santa Rosa.

PG&E filed for bankruptcy in January, estimating it was facing $30 billion in liabilities from the 2017 fires and last November’s Camp Fire, which killed 85 people and destroyed much of the town of Paradise.

The PUC’s penalty case doesn’t cover the Camp Fire because the commission’s safety division hasn’t finished its Paradise investigation yet, said PUC spokeswoman Terrie Prosper. Cal Fire has said a faulty high-voltage transmission tower owned by PG&E was responsible for the deadliest fire in California history.

In its order, the utilities commission directed PG&E to create a smartphone app that enables the public to report problems with utility poles.

“The app is our way of crowdsourcing public safety and helping reduce the risk of wildfires,” said PUC President Michael Picker in a prepared statement.

In a statement, PG&E said it will “fully cooperate” with the PUC’s investigation and pointed to the work it’s done since 2017 to reduce wildfire risk. The company’s stock price fell $1.03, to $22.92, on the New York Stock Exchange.

The PUC order came as legislative language began circulating on Gov. Gavin Newsom’s proposal for a $21 billion insurance fund to help pay claims to victims of wildfires caused by utilities’ equipment.

The fund is to be financed by utility shareholders and ratepayers; it would only be used to pay claims for future wildfires and wouldn’t cover any of PG&E’s costs from previous fires. However, the bill, AB 1054, would give utilities greater assurance that they could charge ratepayers for wildfire liabilities, and Newsom’s advisers believe this would enable PG&E to borrow the billions it needs to pay its existing claims.

PG&E hasn’t yet submitted a plan to the bankruptcy court for dealing with the 2017 and 2018 claims. But PG&E’s major bondholders have offered to inject up to $30 billion in new money to lift the ailing utility out of bankruptcy.

Up to $18 billion would go for paying victims of the previous fires. The bondholders would wind up owning a sizable portion of the company, although it’s unclear just how much.



Sacramento Bee

Capitol Alert

Newsom’s wildfire plan for PG&E, other utilities, needs two-thirds vote in Legislature

By Dale Kasler and Bryan Anderson

Potentially complicating Gov. Gavin Newsom’s effort to pay for future wildfires and lift PG&E Corp. out of bankruptcy, his legislation will require a two-thirds supermajority to pass the Legislature.

Newsom’s fellow Democrats captured a supermajority in last November’s election. And a Republican assemblyman has signed on as a co-author of the wildfire legislation.

But the finding by the legislative counsel’s office that Assembly Bill 1054 requires a two-thirds vote could reduce the margin for error as the governor tries to steer the bill toward passage before the main legislative session ends July 12.

The bill, whose language was released late Thursday, dovetails with the plan outlined by Newsom’s advisers a week ago. It revolves around a $21 billion insurance fund, largely financed by shareholders and ratepayers of PG&E and the other two major utilities, to pay claims for future fires that are caused by utility equipment. A pile of wildfire liabilities estimated at $30 billion prompted PG&E to file for bankruptcy in January.

Utility rates won’t go up to help pay for the governor’s fund, which will be run by a new panel called the California Catastrophe Council.

But ratepayers of the big three utilities will contribute anyway: A $2.50-a-month charge they’ve been paying on their bills since the 2001 energy crisis will be extended for another 15 years. Otherwise the charge was scheduled to disappear next year.

“This will help ratepayers in the long run. If don’t do this, their rates would go up for greater than $2.50 a month. I bet they’d rather be paying the extra $2.50 to protect their rates,” said Sen. Bill Dodd, D-Napa.

The bill would take effect immediately, making it an “urgency statute” that requires a two-thirds vote instead of a simple majority.

Newsom spokesman Nathan Click said: “We’re working closely with the Legislature on this .... Everyone agrees that there’s a sense of urgency around this issue.”

The bill’s co-authors are two Democrats, Chris Holden of Pasadena and Autumn Burke of Inglewood, and Republican Chad Mayes of Rancho Mirage.

Some lawmakers wanted to see more in the deal. Nine lawmakers from both parties wrote a letter to Newsom asking that the package incorporate more funding for wildfire prevention.

“We need to protect ratepayers, make sure victims of the 2017-18 fires are compensated and stabilize the utility market, but we cannot ignore the other side of the equation and that’s prevention and preparedness, which is not addressed,” Assemblyman Jim Wood, D-Santa Rosa, said in a written statement.

Utility shareholders would pay for half of the new wildfire fund, with PG&E, the largest utility in the state, paying the most.

The fund is designed to put money into wildfire victims’ hands relatively quickly while shoring up utilities’ finances. The utilities would have to reimburse the fund — but only if the Public Utilities Commission finds that they act “imprudently.”

Even then, the amount they’d have to reimburse would be capped at 20 percent of their “rate base” — the total value of their electrical equipment.

In PG&E’s case, it would effectively cap the troubled utility’s reimbursement at about $4.8 billion for future fires, said Michael Wara, a Stanford University law professor who has been advising the governor.

AB 1054 also makes a subtle but important change in determining whether utilities can bill ratepayers for wildfire liabilities. Under the current system, the companies have to prove they manage their equipment properly. The proposal would shift the burden of proof on to others to show the utilities acted recklessly.

Newsom’s plan doesn’t set aside any money to pay the billions of dollars PG&E will owe to victims of the 2017 wine country fires and last November’s Camp Fire, the deadliest wildfire in California history.

But by changing the rules governing shareholders’ responsibility for future fires, the governor’s advisers believe the plan will enable PG&E to borrow the money it needs to satisfy existing claims. Newsom’s administration also believes the rule changes will keep Wall Street’s credit rating agencies from putting the other big companies, Southern California Edison and San Diego Gas & Electric, into junk bond status and hampering their ability to do business.

The plan “will help to stabilize the situation for utilities but also for ratepayers and for victims,” Wara said. “Ratepayers aren’t better off having utilities in bankruptcy or near bankruptcy. Victims aren’t better off trying to recover their losses from bankrupt companies.”

The bill requires PG&E to pay wildfire victims and exit bankruptcy by next June. The utility is still working on a bankruptcy plan, although a group of its bondholders just submitted a plan that would pay fire victims up to $18 billion for their claims.

Smaller regional utilities would be allowed to contribute to — and pull money from — the wildfire fund along with the big investor-owned companies. The fund itself could purchase reinsurance — a mega-policy with a huge deductible, designed to cover the worst fires — as a means of increasing the fund’s ability to pay claims well beyond the $21 billion figure.

Before they can participate in the fund, utilities would have to spend a combined $5 billion over three years to reduce wildfire risks. That figure is over and above they’re already spending. An earlier version of Newsom’s plan put the buy-in fee at $3 billion.

The utilities would be allowed to bill ratepayers for those expenditures. But unlike most utility costs, they wouldn’t be able to earn a rate of return — their profit — on that spending.