APPA News

by Paul Ciampoli
APPA News Director
Posted November 6, 2019

In a Nov. 4 letter to California utility regulators, a large group of California mayors and county officials say that are several compelling reasons for transforming Pacific Gas & Electric into a customer-owned utility including being able to raise capital from a broad pool of debt financing in amounts substantially greater than can an investor-owned PG&E, and at much lower cost.

“As local leaders across Northern and Central California, collectively representing more than 5 million residents, we write to you about a matter vital to the safety and quality of life of the communities we serve,” the mayors and county officials wrote to members of the California Public Utilities Commission.

“While our immediate attention focuses on the recovery of our neighbors and communities from recent tragic fires and power shut-offs, we have serious concerns about whatever emerges from the bankruptcy of Pacific Gas and Electric Company and its parent, PG&E Corporation,” the mayors and county officials said.

“We write in our individual capacities as elected and appointed leaders, but as our coalition of local leaders grows in the weeks ahead, we will advocate these positions with our boards and councils as well and seek their support.”

In October, PG&E instituted a series of series of major power shutoffs aimed at mitigating the risk of wildfires.

The letter notes that both the federal bankruptcy code and state law invest the CPUC with a responsibility for approving any plan of reorganization for PG&E and PG&E Corporation. The bankruptcy court may not confirm such a plan “if it involves any rate change (as is the likely case) without this Commission’s assent, while recently-enacted state law establishes your approval as a necessary predicate for the emergent entity to have access to the Wildfire Fund,” the mayors and county officials said.

The CPUC “now plays an essential part in the restoration of Northern California’s incumbent utility to a position where it can provide safe, reliable, and affordable power to our citizens.”

CPUC considering scope of its review

The letter said that the Commission is considering the scope of its review and is focusing primarily on the two plans before it, developed in the Chapter 11 proceeding by competing financial interests.

“One, from the companies themselves, reflects the current driving forces that govern PG&E, namely financial entities that purchased controlling equity interests as the crisis unfolded. The other is the product of distressed asset bondholders. Both vie for ultimate control, and both reflect a short-term desire to maximize financial gain for their proponents,” the mayors and county officials said.

They argued that neither plan addresses the three key matters that they believe are of utmost importance.

First, the discussions so far “have been almost entirely devoid of any consideration of whether PG&E can emerge under either plan as a viable, credit-worthy entity,” the letter said.

The proceedings “appear dominated so far by a pitched battle between Wall Street titans for control of the bankruptcy process, control of the company, and the ability to control exit financing. This is merely spectacle, without regard for what will be left behind when the financial players inevitably leave the scene,” the mayors and county officials wrote.

Second, the officials argued that the scope of review must include consideration of whether the reorganization plans before the PUC address any of the organic operational issues “that have plagued this company to the great detriment of its customers. The public interest cannot be swept aside in the name of merely addressing the bankruptcy exit.”

The plan of reorganization “must substantially improve the company’s operational footing — boosting its capacity to deliver electricity and gas that meets its customers’ reasonable expectations for reliable service, while remaining solvent. This requires aligning the financial interest of the company with the public interest — for focused investment in safe, resilient, well-maintained, and sustainable infrastructure.”

So far, neither plan before the CPUC “posits a vision for a reorganized PG&E that will address those operational issues,” the mayors and county officials wrote.

Third, the Commission has indicated that as part of its review, it will examine “structural” issues involving PG&E’s governance. “We urge you to embrace this aspect of your review broadly and incisively.”

Letter outlines advantages of a customer-owned utility

“In a growing coalition of local community leaders, we are developing a proposed structural change for PG&E that addresses all three of these key elements. Based on a foundation currently in the Public Utilities Code, we will propose transforming PG&E into a mutual benefit corporation,” the officials told the PUC.

The mayors and county officials are proposing a customer-owned utility for three primary reasons.

“The most compelling rationale is that PG&E correctly estimates it must invest tens of billions of dollars over the next decade for system hardening, wildfire protection and cyber-security,” they wrote. “A mutualized PG&E can raise capital from a broad pool of debt financing in amounts substantially greater than can an investor-owned PG&E, and at much lower cost. A customer-owned utility can operate without the burdens of paying dividends to shareholders, and exempt from federal taxation.” Ratepayers will save “many billions of dollars in financing costs over this next decade.”

A customer-owned PG&E “will better focus its scarce dollars on long-neglected maintenance, repairs, and capital upgrade, and mitigating some part of the substantial upward pressure on rates.”

Second, a customer-owned utility structure can be accomplished through a Chapter 11 plan, “with results far superior to those that would be seen from the two plans currently under consideration.”

Third, the customer-owned utility structure would “allow PG&E to begin the process of restoring public confidence, in part by allowing the public to have greater role in determining decisions that increasingly have come to define matters of life and death.”

The letter was signed by San Jose Mayor Sam Liccardo, as well as mayors of the following cities: Sacramento, Oakland, Stockton, Modesto, Elk Grove, Hayward, Sunnyvale, Berkeley, Richmond, Clovis, Chico, Redding, Redwood, Davis and Santa Cruz. Liccardo in October issued a memo in response to a recent power shutoff by PG&E that calls for an exploration of creating a municipal utility, among other things.

California county officials signing the letter to the PUC were: President Carole Groom, San Mateo County Board of Supervisors; Chair Ryan Coonerty, Santa Cruz County Board of Supervisors; Chair Kate Sears, Marin County Board of Supervisors; Chair Don Saylor, Yolo County Board of Supervisors; and Chair Mark Medina, San Benito County Board of Supervisors.

“While I think it’s great to move this solution in the direction of a customer-owned utility, we don’t see any guarantees, or even a single mention, that the proposal would have transparency, open records, open meetings, and other vital elements of a true publicly owned utility. Before forming an opinion, we’ll wait for more details to emerge,” said Barry Moline, executive director, California Municipal Utilities Association.

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

California Gov. Gavin Newsom recently called 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.”

On Nov. 5, Newsom called William Johnson, the CEO of PG&E, to his office “for a closed-door meeting as the company struggles to emerge from a high-profile bankruptcy while facing criticism for its practice of shutting off power for millions of people to prevent wildfires,” the AP reported.

A spokesman for Newsom “says the first-term governor ‘spelled out in vivid detail’ how the blackouts have prevented people from ‘refilling lifesaving prescriptions and power breathing machines’ and how small businesses and schools were closed for days,” the AP reported.

“Newsom also reiterated the state would consider a potential takeover of the utility if the bankruptcy is not resolved by June 30,” the AP reported.

According to the AP story, Johnson defended the company, telling reporters after the meeting that the power shutoffs have been "well planned and executed."

CPUC takes additional actions

In the wake of another recent round of PSPS by California investor-owned utilities aimed at mitigating the threat of wildfires, the CPUC 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.