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Calif. is scoping plan for PG&E, including possible publicly owned option: Newsom

California Gov. Gavin Newsom is calling on various stakeholders to meet the week of Nov. 4 to accelerate a consensual resolution to PG&E’s bankruptcy cases that will lead to the creation of a new entity.

At the same time, Newsom warned on Nov. 1 that if the parties fail to reach an agreement quickly “to begin this process of transformation, the state will not hesitate to step in and restructure the utility” and said that “all options are on the table.”

He said that the state is “leaning in on scoping a state backup strategy and plan and we are committed to doing that concurrently as we encourage these parties to move forward with their own transformational efforts to get PG&E out of bankruptcy.”

The governor outlined his plans for PG&E in a Medium post and a news conference held on Nov. 1. Newsom’s call for action comes against the backdrop of a series of major power shutoffs implemented by PG&E in recent weeks aimed at mitigating the risk of wildfires. PG&E’s most recent Public Safety Power Shutoff (PSPS) was initiated on Oct. 29.

In his Medium post, Newsom noted that the major wildfire safety bill he signed into law earlier this year (AB 1054) requires PG&E to make fundamental changes. “It forces PG&E to make massive investments in safety, ties executive compensation to the utility’s safety record and demands that every year the utility earn a safety certification from the state,” he wrote.

“But achieving a permanently transformed utility requires PG&E to exit bankruptcy as quickly as possible. The State of California is developing the blueprint for a transformed utility. Consistent with AB 1054, PG&E must incorporate that blueprint into its bankruptcy plan,” the governor said.

To expedite the exit from bankruptcy and facilitate implementation of this transformation, Newsom is convening current executives and shareholders of PG&E, wildfire victims, and PG&E’s other creditors in Sacramento, California’s state capitol during the week of Nov. 4 “in an effort to accelerate a consensual resolution to the bankruptcy cases that creates a new entity – one that better reflects our California values and will advance massive safety transformations beginning before next fire season.”

The governor went on to say in the Medium post that the creativity “that so many people desire for PG&E to be a new company that prioritizes safety, understands the communities it serves, and is responsive to the needs of customers can only happen if we first get out of bankruptcy court.”

Newsom’s hope is that the stakeholders in PG&E “will put parochial interests aside and reach a negotiated resolution so that we can create this new company and forever put the old PG&E behind us.”

But if the parties fail to reach an agreement quickly “to begin this process of transformation, the state will not hesitate to step in and restructure the utility.”

At the press conference, Newsom noted that there is a legislative mandate to get PG&E out of bankruptcy by June 30, 2020.

“We are concerned about that process. We’re concerned that it’s been stubborn,” the governor said. Along with safety improvements, there are a number of things that PG&E needs to do including settling with the victims of the 2018 Camp Fire “and other victims of fires of which they’re culpable and responsible. That has been slow going and that needs to be advanced,” Newsom said.

He noted that U.S. Bankruptcy Judge Dennis Montali, who is overseeing the utility’s bankruptcy proceedings, recently appointed a mediator.

State wants to broker mediation, Newsom says

Montali “has acknowledged that the parties need to mediate and move forward expeditiously, so much so that we want to broker that mediation and are calling on all the parties to come in…to jumpstart those negotiations in concert and support of the mediation,” Newsom said.

“This process needs to take shape with a deep sense of urgency. We cannot wait until June 30 of next year. We need to get these cases settled. We need to address these concerns in real time and we need to prepare for the next wildfire season as we’re concurrently addressing the PSPS protocols.”

A new strike team will be formed

“In order to get to this next level that we need to go to, we are putting together a new strike team” that will be led Ana Matosantos, Newsom’s Cabinet Secretary.

She will serve as the state’s energy czar and lead a team responsible for working collaboratively with the California Public Utilities Commission on new PSPS protocols and to work with the new mediator and the bankruptcy judge to advance the efforts to jumpstart the negotiations to conclude the PG&E bankruptcy.

In his Medium post, Newsom said that the team led by Matosantoswill work closely with other senior leadership in my office, outside legal, financial and energy advisors, and leadership across state government to game out every option and prepare a plan should the state need to intervene. All options are on the table.”

Newsom formed a strike team earlier this year to develop a comprehensive strategy to address the destabilizing effect of catastrophic wildfires on the state’s electric utilities.

Meanwhile, the state wants “to scope a vision, a blueprint for what a 21st Century utility should look like,” Newsom said.

The governor noted that the state has hired Filsinger, an energy consulting firm, which will be technical advisors “on an innovative look at the 21st Century utility. We are going to scope and design what that blueprint will look like.”

Newsom said that in the next few weeks, “we will have a broad strokes frame that we will be presenting not just to the utilities, but the public utilities commission and the public about what that system looks like.”

Newsom says there cannot be a repeat of recent PSPS events

“We cannot afford the kind of PSPS’ we’ve experienced over the course of the last week,” Newsom said. “We had people out in some circumstances for one full week without power.”

He said that it “is crystal clear to any objective observer that the PSPS protocol cannot just be about fire mitigation. You’ve got to consider the life impacts, the economic and social impacts of these power cutoffs that in some cases put lives at risk, perhaps arguably in even more significant ways than a sparked line.”

He said that PG&E “as we know it, may or may not be able to figure this out. If they cannot we are not going to sit around and be passive.” Therefore, the state is “gaming out a backup plan. If Pacific Gas and Electric is unable to secure its own fate and future and work through the process of getting people together and working to address the needs of debt and equity and bondholders, lawyers and victims, subrogation claims, then the state will prepare itself as backup for a scenario where we do that job for them.” The state is “gaming a state plan to address the scale of this moment,” which is being done in real time. This work will be overseen by Matosantos.

“This planning is complex because we don’t want to put the [state] general fund at risk. We’re not naïve about what a corpus, an entity would look like --  how one manages it, how one operates a system like that, the impact it would have on creditors, the impact it would have on the victims if the victims are not made whole in the settlement, the impact it would have on the other investor-owned utilities, for that matter, even the POUs [publicly-owned utilities] and some of the CCAs [community choice aggregators],” Newsom said.

“PG&E as we know it cannot persist and continue. Everybody objectively acknowledges and agrees with that. It has to be completely transformed – culturally transformed, operationally transformed with a safety culture first and foremost as part of that fundamental transformation,” the governor said.

“There will be a new entity. It will be reimagined and rescoped. It will be supported by a new blueprint and vision that we will advance and secure in partnership with the team that we’ve assembled. We will advance new requirements on protocols related to the PSPS and we will with urgency focus on sequentially addressing these strategies on a three-month, six month and nine-month basis because this is not the new normal and this does not take ten years to solve for.”

At an Oct. 18 emergency hearing convened by the California Public Utilities Commission, CPUC Commissioner Liane Randolph asked PG&E CEO William Johnson when he expects the utility can get to the point where it doesn’t need to implement widespread shutoffs.

Johnson said that “some of the answers are, in the shorter term, more sectionalizing equipment, particularly on sub-transmission so that you can take out smaller sections of line. I think there’s a definite need to move towards some form of microgrid sectionalization.” He also mentioned the use of different materials like covered wire and increased vegetation management.

“I think there’s probably a ten-year timeline to get to a point where” the threat of a widespread shutoff is “really ratcheted down significantly. I think it will be better every year. I think everybody gets better at it every year and with every event and we learn a lot from each other, but the risk is significant.”

In the wake of another recent round of PSPS by California investor-owned utilities aimed at mitigating the threat of wildfires, the California Public Utilities Commission on Oct. 28 said that it was taking additional actions including an immediate re-examination of how utilities are using PSPS and directing utilities to expand wildfire mitigation plans.

A reporter asked Newsom whether a state backup plan was referring to the state purchasing all of PG&E.

“We’re scoping all of that,” Newsom said, but noted that “it’s more complicated than that. It’s not writing a check.” He said, “This is not Plan A,” but at the same time “we would be irresponsible not to scope that plan and so we’re not going to sit back and hope in expectation that everything else works out. But you would broadly be looking at a series of options.”

He noted that PG&E’s service territory encompasses 48 counties one of which is San Francisco. “I don’t imagine San Francisco looks to operate the system for all 47 other counties. They’re interested in their county and the assets.” PG&E recently rejected a $2.5 billion offer from the City of San Francisco to purchase substantially all of PG&E’s distribution and transmission assets needed to provide retail electric service to all electricity customers in the city.

Meanwhile, Sam Liccardo, the mayor of San Jose, Calif., in October issued a memo in response to a recent power shutoff by Pacific Gas and Electric that calls for an exploration of creating a municipal utility, among other things.

Liccardo “has been exceptional in terms of leaning into this moment” and is “also supportive of some consideration around benefit corporations and other strategies that are interesting that also can be scoped,” Newsom said.

“Those are different but not completely separate from a statewide strategy. A statewide strategy can take many different looks and could have components that are consistent with some of those localized efforts but the totality requires a different approach and an assessment of the strengths and weaknesses of the state and of the consequences on the other investor-owned utilities if we pursue that track.”

Another reporter asked whether the backup plan means that there would be a government-run entity.

“We’re scoping that. You have private managed government entities. You have entities that have components that are managed by existing entities but operated by new entities. What I am saying is exactly what the scoping process is all about,” the governor said.

“I would say in broad strokes if you look at an ISO [independent system operator] like structure that would be a good place to start, but I wouldn’t end there and that would give the people some, I think, frame of reference and some confidence of a structure that exists already.”

Los Angeles Times editorial calls for public ownership to be actively explored

In an editorial posted on Nov. 3, the Los Angeles Times said that “We’ve reached a point where public ownership of PG&E shouldn’t just be on the table, it should be actively explored by state and local officials.”

There are several different routes to public ownership of a utility, the editorial noted. “One is for cities to buy out the electrical infrastructure within their borders. ‘Municipalization,’ as it is called, has gained traction in northern California as the public’s simmering anger toward PG&E spiked with its wide-scale pre-emptive power shutoffs this month. Other ideas that have been floated involve breaking the company into regional utilities or, alternately, creating one big public utility district that would subsume PG&E completely. All of the ideas are worth consideration.”

PG&E and its parent, PGE Corp., filed for bankruptcy Jan. 29 in the face of about $30 billion in estimated wildfire-related liabilities.  

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