Electricity Markets

California bill calls for transforming PG&E into more customer-focused entity

As PG&E Corp. moves closer to exiting bankruptcy, legislation is also moving forward that would lay the groundwork for an alternative path for the company’s Pacific Gas and Electric utility subsidiary in case the bankruptcy plan fails.

Under the proposal, PG&E would be purchased by a new electric cooperative. It would not be a community-owned entity, but rather, a customer-owned entity.

Senate Bill 350, the Golden State Energy Act, which was recently proposed in the state Assembly’s Committee on Utilities and Energy will have its first committee hearing next week.

SB 350 was originally proposed by Democratic Sen. Robert Hertzberg to address resource adequacy concerns related to community choice aggregators. In the Assembly committee, however, the original language was struck and replaced by the current language, which would allow the governor to transform PG&E into “a nonprofit public benefit corporation for the purpose of owning, controlling, operating, or managing electrical and gas services for its ratepayers and for the benefit of all Californians.”

PG&E’s assets would be purchased by a new entity, Golden State Energy, that would be owned by its customers.

“The purpose of the bill is to create an alternative to the PG&E bankruptcy deal if it implodes,” Barry Moline, executive director of the California Municipal Utilities Association, said.

PG&E must emerge from bankruptcy by June 30 in order to access the wildfire insurance fund created by the state legislature last year.

One of the hurdles the utility’s reorganization plan faces is winning the approval of stakeholders seeking compensation for damages caused by PG&E’s role in igniting deadly wildfires in Northern California.

The victims are being paid, in part, in PG&E stock, but there are some concerns that the value of PG&E’s stock will not be sufficient to meet all the claims.

PG&E’s proposed reorganization plan must also be approved by the California Public Utilities Commission (PUC), which is scheduled to vote on a proposed decision regarding the utility’s exit from bankruptcy on May 21.

Concerns about PG&E’s future financial viability also prompted a group of 204 elected officials to send a letter to the PUC last week, asking the commission to reconsider its proposed decision.

The proposed decision “glosses over a critical issue that you cannot ignore: ensuring that the company will emerge from bankruptcy financially sound, and capable of raising tens of billions of dollars for the vitally needed maintenance and system improvements required for the grid’s safety and reliability,” according to the letter sent by the coalition, which represents many of the largest California cities and counties served by PG&E, and is led by San Jose Mayor Sam Liccardo.

“The reorganization plan that PG&E has put forward will leave the company financially unstable and its customers responsible for crushing debt,” Liccardo said in a statement. “We strongly urge the CPUC to consider the financial ramifications of this plan and put the well-being of millions of California’s before those of PG&E’s investors.”

In a letter sent to regulators last November, a group of over a dozen mayors of Northern California cities, including San Jose, proposed turning PG&E into a customer owned utility.

SB 350, meanwhile, puts in place a successor entity should PG&E fail to exit bankruptcy, fail to secure financing or fail in its safety mission, Kellie Smith, chief consultant for the Assembly Utilities and Energy Committee, said.

If the bill becomes law, it would do two things, Moline said. It would create a new entity that would be more customer focused, transparent, and make investments in infrastructure that make sense across the board that benefit all customers, and it would keep the door open for local communities to consider creating a municipal electric utility at some point in the future, he said.

Moline cautioned, however, that the bill should not be seen as a mechanism for the expansion of public power in California. “It is simply one alternative to hold PG&E accountable to the bankruptcy agreement with the governor,” he said.

A separate bill, SB 917, introduced by Democratic Sen. Scott Wiener in February, would have transformed PG&E into a public power utility.

COVID-19, however, reshuffled the legislature’s priorities, and legislators were asked to continue only bills in certain areas and drop bills that had a lower chance of passage. So, Weiner agreed to cease work on it.

“SB 917 was a good bill but would have required a lot of work, and that doesn’t fit into to the legislature’s new criteria,” Moline said.