THIRD READING  

Bill No: ACR 78

Author: Holden (D), et al.

Introduced: 4/24/19

Vote: 21

SENATE ENERGY, U. & C. COMMITTEE: 12-0, 7/10/19

AYES: Hueso, Moorlach, Bradford, Chang, Dodd, Hertzberg, Hill, McGuire, Rubio, Stern, Stone, Wiener

NO VOTE RECORDED: Skinner

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

ASSEMBLY FLOOR: 74-0, 5/13/19 (Consent) - See last page for vote

SUBJECT: Public utilities: Pacific Gas and Electric Company: bankruptcy

SOURCE: Author

DIGEST:

This resolution expresses the will of the Legislature that the California Public Utilities Commission (CPUC), in filings with the federal court overseeing the bankruptcy of Pacific, Gas & Electric Company and Corporation (PG&E), take specified actions and promote certain policies in filings made to the bankruptcy court.

ANALYSIS:

Existing law:

1. Establishes the CPUC has regulatory authority over public utilities, including electrical corporations and gas corporations. (California Constitution, Article XII)
2. Authorizes the CPUC to fix the rates and charges for every public utility and requires that those rates and charges be just and reasonable. (Public Utilities Code §451)
3. Authorizes, via the Public Utilities Act, the CPUC to supervise and regulate every public utility, including electrical corporations, and to do all things that are necessary and convenient in the exercise of such power and jurisdiction. (Public Utilities Code §701)
4. Prohibits a person or corporation from merging, acquiring, or controlling, either directly or indirectly, any public utility organized and doing business in this state without first securing authorization to do so from the CPUC. Requires that any merger, acquisition, or control without that prior authorization is void and of no effect. (Public Utilities Code §851)
5. Requires the CPUC to consider specified criteria and to find that the merger, acquisition, or control proposal meets certain requirements and is in the public interest, as specified, before authorizing the merger, acquisition, or control of any electrical, gas, or telephone corporation organized and doing business in this state, where any of the entities that are parties to the proposed transaction has gross annual California revenues exceeding $500 million, existing law. (Public Utilities Code §854)
6. Requires that any governmental regulatory commission with jurisdiction, after confirmation of the reorganization plan of a debtor in bankruptcy protection, over the rates of the debtor has approved any rate change provided for in the plan, or such rate change is expressly conditioned on such approval. (U.S. Bankruptcy Code §1129)

This resolution:

1. Makes specified findings relative to the history and size of, and services provided by, PG&E to electric ratepayers in California.
2. Recognizes the catastrophic loss of life and property as a result of wildfires in 2015, 2017, and 2018, which in some situations, were caused by failures in the electric grid.
3. Notes that the filing for bankruptcy under Chapter 11 by PG&E, in the United States Bankruptcy Court for the Northern District of California, could adversely impact the safety and reliability of the grid and achievement of climate change goals.
4. Resolves that resolution of the PG&E bankruptcy must protect the citizens of California from climate change and further catastrophic wildfires caused by electric utility infrastructure.
5. Resolves that it is the will of the Legislature that filings to, or communications with, the bankruptcy court by the CPUC or other state agencies:
   1. Must ensure that claims for wildfire damages for which PG&E is responsible should be resolved promptly and equitably;
   2. Support PG&E’s rank and file employees;
   3. Communicate the bankruptcy’s profound and direct impacts on the people of California and the need for stable electricity markets; and
   4. Ensure that the safety and reliability of the electrical and gas systems are paramount, the rates for electrical and gas service remain stable and reasonable, and the deployment and use of energy resources are consistent with the goal of achieving California’s environmental mandates and goals.
6. Resolves that it is the will of the Legislature that PG&E:
   1. Be prohibited from recovering executive compensation from ratepayers according to the requirements of SB 901 (Dodd, Chapter 626, Statutes of 2018); and
   2. Reconstitute its board with a majority of Californians who have experience as regulators, safety experts, and clean energy leaders, and that any new board member should be resolved to change the culture of the company, understand the concerns of ratepayers, and demonstrate a commitment to the fair treatment of wildfire victims and employees.

Background

PG&E files for bankruptcy. On January 29, 2019, Pacific Gas & Electric Corporation (PG&E Corp.), the holding company of the state’s largest utility, voluntarily filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. PG&E filed their case in the Northern California District Court San Francisco Division (Case No. 19-30088-DM). The case has been assigned to the same judge, Honorable Dennis Montali, who handled the utility’s previous reorganization bankruptcy case in connection with the 2001 energy crisis. According to the company’s first day filings, in a declaration filed by the company’s Senior Vice President and Chief Financial Officer Jason Wells, PG&E’s decision to seek relief under Chapter 11 “were necessitated by a confluence of factors resulting from the catastrophic and tragic wildfires that occurred in Northern California in 2017 and 2018, and PG&E’s potential liabilities arising therefrom.” The declaration specifically cites the company’s potential liability related to the fires could exceed $30 billion. The company’s decision to voluntarily file for bankruptcy protection has raised numerous questions about the process entailed under a Chapter 11 reorganization and the potential implications for the numerous stakeholders that could be affected, including wildfire victims, ratepayers, the utility workforce, energy and other suppliers, local governments, and many others.

About PG&E. PG&E Corporation is an energy-based holding company, headquartered in San Francisco. PG&E Corporation is the parent company of PG&E Company, an investor-owned public utility providing gas and electric service to about two-thirds of California, from Bakersfield to the Oregon border. The utility serves about 16 million customers across a 70,000 square-mile service area in Northern and Central California. PG&E has a workforce of about 24,000 regular employees, 20 of whom are employed by PG&E Corp., 15,000 are covered by collective bargaining agreements with local chapters of three labor unions: the International Brotherhood of Electrical Workers (IBEW), the Engineers and Scientists of California, and the Service Employees International Union. According to the company’s bankruptcy filing, as of September 30, 2018, the company had reported approximately $71.4 billion in assets and approximately $51.7 billion in liabilities, and $370 million of cash on hand for the PG&E Corporation and $240 million of cash on hand, net of $250 million of customer deposits, for PG&E Company (the utility). As noted above, this is the company’s second Chapter 11 bankruptcy filing in less than twenty years. The previous bankruptcy was filed in 2001 as a reaction to the restructuring of the energy markets towards deregulated markets, authorized by the CPUC and the Legislature in 1996, which resulted in an energy crisis involving market manipulation of participants such as Enron.

In PG&E’s first day bankruptcy filings, the declaration of the Senior Vice President and CFO Jason Wells cites four principal objectives of the Chapter 11 filings:

• Establish a process for PG&E to fully address and resolve its liabilities resulting from the 2017 and 2018 Northern California wildfires and to provide compensation to those entitled to compensation fairly and expeditiously – more quickly and more equitably than those liabilities could be addressed and resolved in the state court system.
• Restore PG&E’s financial stability and assure that PG&E has access to the capital and resources necessary to sustain and support its ongoing operations and to enable PG&E to continue investing in its systems infrastructure and critical safety and wildfire prevention initiatives.
• Work with State regulators and policy makers to address safety and operational and structural reforms, determine the most effective way for PG&E to provide safe and reliable electric and natural gas service to its customers and communities for the long term; and address the significant increase in wildfire risk.
• Enable PG&E to continue its extensive restoration and rebuilding efforts to assist the communities affected by the 2017 and 2018 Northern California wildfires.

Key events leading up to the bankruptcy filing:

Wildfires. A number of deadly wildfires spread throughout the state in 2017 and 2018. CalFire determined the causes of 18 of the 2017 Northern California wildfires, with 17 of those fires caused by utility infrastructure coming into contact with trees, or failure of power poles, or utility infrastructure coming into contact with another part of the infrastructure. Based on its first day bankruptcy filings, as of January 11, 2019, PG&E was aware of “approximately 700 complaints on behalf of at least 3,600 plaintiffs related to the Northern California wildfires, five of which seek to be certified as class actions.” On November 8, 2018, a wildfire began near the Town of Paradise in Butte County, which demolished most of the town, known as the Camp Fire. According to CalFire, the fire resulted in 86 fatalities and the destruction of 13,972 residences, 528 commercial structures and 4,293 other buildings. The cause of the Camp Fire has been determined to be caused by PG&E utility infrastructure. Based on PG&E’s first day filings, as of January 11, 2019, the utility is aware of “approximately 46 complaints on behalf of the at least 2,000 plaintiffs related to the Camp Fire, six of which seek to be certified as class actions.” In addition to these cases, there are at least 41 subrogation complaints filed by insurance companies who have made payments to their insureds for property damage stemming from the 2017 fires.

Credit ratings downgraded. With some exceptions, regulated utilities, those who are provided the opportunity to earn a rate of return through rates regulated by the CPUC, generally enjoy high investment grade credit ratings. The investment grade credit ratings allow the utility to access less expensive capital in the market than might otherwise be the case. However, PG&E and other California regulated utilities have seen their credit ratings decline. The utilities began to experience these reduced credits ratings after the 2017 California wildfires. The fires occurred just before a November 2017 CPUC decision to disallow cost recovery in an application filed by San Diego Gas & Electric stemming from costs of damages from three wildfires in 2007 which were ignited by utility infrastructure.

San Bruno PG&E Pipeline Explosion. There is continued fallout from the 2010 PG&E San Bruno natural gas pipeline explosion that eviscerated a neighborhood, injured over 50 individuals, and killed eight residents. A National Transportation Safety Board (NTSB) investigation found that PG&E’s inadequate maintenance and flawed record keeping led to the disaster in San Bruno. As a result, in April 2015, the CPUC imposed a $1.6 billion penalty on PG&E for causing the explosion, characterized as the largest such punishment ever levied on an American public utility. Additionally, a federal jury convicted PG&E on five charges of violating federal pipeline safety regulations and one charge of obstructing an official NTSB investigation. The federal sentencing issued in January 2017 requires the company to pay a $3 million fine, ordered the company to submit to court-ordered supervision of its natural gas pipelines, and instituted five years of criminal probation. Under the terms of the probation, PG&E must not commit another federal, state, or local crime. The federal case is now under the supervision of federal Judge William Alsup of the United States District Court for the Northern District of California who has taken the utility to task for not doing enough to reduce wildfire risk of its operations. Judge Alsup has also ruled that PG&E violated the terms of its probation by not reporting a potential district attorney’s investigation in a timely manner into one of the 2017 Northern California fires ignited by the utility’s equipment (Docket Number 0971 3:14CR00175-001 WHA).

CPUC alleges gas safety violations. In December 2018, the CPUC opened a formal investigation into PG&E alleging that the utility may have violated safety standards and falsified gas records. State law requires that utilities must mark underground gas infrastructure before excavators begin digging. The CPUC Safety and Enforcement Division issued a report that claims PG&E lacked staff to complete locator work, and management allegedly pressured staff to file late tickets as completed on time. PG&E might have undercounted tens of thousands of late tickets between 2012 and 2017.

Straw that broke the camel’s back. Following the alleged gas safety violations, earlier this year, PG&E’s credit ratings was further downgraded by the credit ratings agencies to a point characterized as “junk status.” Such a downgrade would greatly diminish the utility’s ability to access capital, a bedrock of the regulated utility business model. As such, nearly a week after the downgrade, PG&E notified its workforce that it intended to file for Chapter 11 bankruptcy protection on or around January 29, 2019. The notice by the company was in compliance with a provision of SB 901, which required a minimum 15-day notice to the utility workforce of any such action.

AB 1054 (Holden, Burke, Mayes, Chapter 79, Statutes of 2019). AB 1054 included numerous provisions related to addressing wildfires caused by electric utility infrastructure, including: bolstering safety oversight and processes, recasting recovery of costs from damages to third-parties, including the authorization for an electrical corporation and ratepayer jointly funded Wildfire Fund to address future damages, and changes to provisions concerning the workforce of a change of ownership of a full or portion of an electrical or gas corporation. This resolution also includes conditions that must be met by an electrical corporation in the midst of bankruptcy proceedings – namely PG&E – by June 30, 2020 in order to access a Wildfire Fund, as established by this resolution. These conditions include the following requirements:

• The electrical corporation’s insolvency proceeding has been resolved pursuant to a reorganization plan that is not subject to a stay.
• The bankruptcy court has determined that the resolution of the insolvency proceeding provides for satisfying any prepetition wildfire claims asserted against the electrical corporation in the solvency proceeding in the amounts settled upon pre-bankruptcy filing and post-bankruptcy filing.
• The CPUC has approved the reorganization plan and other documents to resolve the insolvency proceeding, including the governance structure in light of safety and criminal probation.
• The CPUC has determined the reorganization plan and other documents resolving the insolvency proceeding are: (1) consistent with the state’s climate goals (including the Renewable Portfolio Standard Program) and (2) neutral, on average, to the ratepayers of the electrical corporation.

AB 1054 also required other conditions addressing corporate accountability tied to executive compensation. The conditions to address corporate accountability include requirements of the electrical corporation to: agree to implement the findings of its most recent safety culture assessment, if applicable; the establishment of a safety committee of its board of directors composed of members with relevant safety experience; establishment of an executive incentive compensation structure structured with performance metrics, including for all executive officers, that promote safety as a priority; and establishment of board-of-director-level reporting to the CPUC on safety issues.

Related/Prior Legislation

AB 1054 (Holden, Burke, Mayes, Chapter 79, Statutes of 2019) includes numerous provisions related to addressing wildfires caused by electric utility infrastructure, including: bolstering safety oversight and processes, recasting recovery of costs from damages to third-parties, including the authorization for an electrical corporation and ratepayer jointly funded Wildfire Fund to address future damages, and changes to provisions concerning the workforce of a change of ownership of a full or portion of an electrical or gas corporation. The bill also includes conditions that must be met by PG&E in order to access a Wildfire Fund, as established by the bill, including: settling wildfire victims claims in whole as approved by the court, ensuring the plan of reorganization is neutral on average to customers, and other conditions addressing corporate accountability tied to executive compensation.

SB 550 (Hill, 2019) requires specified safety-related actions before the CPUC authorizes a merger or sale of an investor-owned utility (IOU). The bill is pending consideration by the Assembly Committee on Appropriations.

SB 549 (Hill, 2019) requires the Legislature to approve a capital change structure or increase in rates for the energy utility, PG&E Company. The bill was held in the Senate Committee on Appropriations.

SB 901 (Dodd, Chapter 626, Statutes of 2018) addressed numerous issues concerning wildfire prevention, response and recovery, including funding for mutual aid, fuel reduction and forestry policies, wildfire mitigation plans by electric utilities, and cost recovery by electric corporations of wildfire-related damages. The bill also included provisions related to limitations on executive compensation.

SB 52 (Rosenthal, Chapter 484, Statutes of 1989) established criteria that the CPUC must consider in reviewing a merger, acquisition, or change of control related to an IOU.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

SUPPORT: (Verified 8/12/19)

None received

OPPOSITION: (Verified 8/12/19)

None received

ARGUMENTS IN SUPPORT: The author states:

We ended last session with the passage of the Wildfire Protection Act – SB 901. That measure set into motion a series of critical actions that the CPUC has been mandated to undertake. Tragically, after the passage of that legislation a devastating and deadly fire consumed the town of Paradise and other nearby communities leaving a path of death and destruction.

On January 29, 2019, PG&E filed for Chapter 11 bankruptcy causing uncertainty around the future of the utility and the ability of wildfire survivors to recover their losses. The CPUC is currently working closely with other state entities representing the state’s interest throughout the bankruptcy process. This measure helps to ensure that the CPUC promotes the priorities of the Legislature throughout the bankruptcy process. ACR 78 provides guidance to the commission to ensure that survivors are treated fairly, ratepayers are not overly burdened, and efforts to reduce future devastating wildfires are not deterred.

ASSEMBLY FLOOR: 74-0, 5/13/19

AYES: Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Friedman, Gabriel, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

NO VOTE RECORDED: Aguiar-Curry, Arambula, Brough, Burke, Frazier, Gloria

Prepared by: Nidia Bautista / E., U., & C. / (916) 651-4107

8/14/19 14:45:58

**** END ****

SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS

Senator Ben Hueso, Chair

2019 - 2020 Regular

Bill No: ACR 78 Hearing Date: 7/10/2019

SUBJECT: Public utilities: Pacific Gas and Electric Company: bankruptcy

DIGEST: This bill expresses the will of the Legislature that the California Public Utilities Commission (CPUC), in filings with the federal court overseeing the bankruptcy of Pacific, Gas & Electric Company and Corporation (PG&E), take specified actions and promote certain policies in filings made to the bankruptcy court.

ANALYSIS:

Existing law:

1. Establishes the CPUC has regulatory authority over public utilities, including electrical corporations and gas corporations. (California Constitution, Article XII)
2. Authorizes the CPUC to fix the rates and charges for every public utility and requires that those rates and charges be just and reasonable. (Public Utilities Code §451)
3. Authorizes, via the Public Utilities Act, the CPUC to supervise and regulate every public utility, including electrical corporations, and to do all things that are necessary and convenient in the exercise of such power and jurisdiction. (Public Utilities Code §701)
4. Prohibits a person or corporation from merging, acquiring, or controlling, either directly or indirectly, any public utility organized and doing business in this state without first securing authorization to do so from the CPUC. Requires that any merger, acquisition, or control without that prior authorization is void and of no effect. (Public Utilities Code §851)
5. Requires the CPUC to consider specified criteria and to find that the merger, acquisition, or control proposal meets certain requirements and is in the public interest, as specified, before authorizing the merger, acquisition, or control of any electrical, gas, or telephone corporation organized and doing business in this state, where any of the entities that are parties to the proposed transaction has gross annual California revenues exceeding $500 million, existing law. (Public Utilities Code §854)
6. Requires that any governmental regulatory commission with jurisdiction, after confirmation of the reorganization plan of a debtor in bankruptcy protection, over the rates of the debtor has approved any rate change provided for in the plan, or such rate change is expressly conditioned on such approval. (U.S. Bankruptcy Code §1129)

This bill:

1. Makes specified findings relative to the history and size of, and services provided by, PG&E to electric ratepayers in California.
2. Recognizes the catastrophic loss of life and property as a result of wildfires in 2015, 2017, and 2018, which in some situations, were caused by failures in the electric grid.
3. Notes that the filing for bankruptcy under Chapter 11 by PG&E, in the United States Bankruptcy Court for the Northern District of California, could adversely impact the safety and reliability of the grid and achievement of climate change goals.
4. Resolves that resolution of the PG&E bankruptcy must protect the citizens of California from climate change and further catastrophic wildfires caused by electric utility infrastructure.
5. Resolves that it is the will of the Legislature that filings to, or communications with, the bankruptcy court by the CPUC or other state agencies:
   1. Must ensure that claims for wildfire damages for which PG&E is responsible should be resolved promptly and equitably;
   2. Support PG&E’s rank and file employees;
   3. Communicate the bankruptcy’s profound and direct impacts on the people of California and the need for stable electricity markets; and
   4. Ensure that the safety and reliability of the electrical and gas systems are paramount, the rates for electrical and gas service remain stable and reasonable, and the deployment and use of energy resources are consistent with the goal of achieving California’s environmental mandates and goals.
6. Resolves that it is the will of the Legislature that PG&E:
   1. Be prohibited from recovering executive compensation from ratepayers according to the requirements of SB 901 (Dodd, Chapter 626, Statutes of 2018); and
   2. Reconstitute its board with a majority of Californians who have experience as regulators, safety experts, and clean energy leaders, and that any new board member should be resolved to change the culture of the company, understand the concerns of ratepayers, and demonstrate a commitment to the fair treatment of wildfire victims and employees.

Background

PG&E files for bankruptcy. On January 29, 2019, Pacific Gas & Electric Corporation (PG&E Corp.), the holding company of the state’s largest utility, voluntarily filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. PG&E filed their case in the Northern California District Court San Francisco Division (Case No. 19-30088-DM). The case has been assigned to the same judge, Honorable Dennis Montali, who handled the utility’s previous reorganization bankruptcy case in connection with the 2001 energy crisis. According to the company’s first day filings, in a declaration filed by the company’s Senior Vice President and Chief Financial Officer Jason Wells, PG&E’s decision to seek relief under Chapter 11 “were necessitated by a confluence of factors resulting from the catastrophic and tragic wildfires that occurred in Northern California in 2017 and 2018, and PG&E’s potential liabilities arising therefrom.” The declaration specifically cites the company’s potential liability related to the fires could exceed $30 billion. The company’s decision to voluntarily file for bankruptcy protection has raised numerous questions about the process entailed under a Chapter 11 reorganization and the potential implications for the numerous stakeholders that could be affected, including wildfire victims, ratepayers, the utility workforce, energy and other suppliers, local governments, and many others.

About PG&E. PG&E Corporation is an energy-based holding company, headquartered in San Francisco. PG&E Corporation is the parent company of PG&E Company, an investor-owned public utility providing gas and electric service to about two-thirds of California, from Bakersfield to the Oregon border. The utility serves about 16 million customers across a 70,000 square-mile service area in Northern and Central California. PG&E has a workforce of about 24,000 regular employees, 20 of whom are employed by PG&E Corp., 15,000 are covered by collective bargaining agreements with local chapters of three labor unions: the International Brotherhood of Electrical Workers (IBEW), the Engineers and Scientists of California, and the Service Employees International Union. According to the company’s bankruptcy filing, as of September 30, 2018, the company had reported approximately $71.4 billion in assets and approximately $51.7 billion in liabilities, and $370 million of cash on hand for the PG&E Corporation and $240 million of cash on hand, net of $250 million of customer deposits, for PG&E Company (the utility). As noted above, this is the company’s second Chapter 11 bankruptcy filing in less than twenty years. The previous bankruptcy was filed in 2001 as a reaction to the restructuring of the energy markets towards deregulated markets, authorized by the CPUC and the Legislature in 1996, which resulted in an energy crisis involving market manipulation of participants such as Enron.

In PG&E’s first day bankruptcy filings, the declaration of the Senior Vice President and CFO Jason Wells cites four principal objectives of the Chapter 11 filings:

• Establish a process for PG&E to fully address and resolve its liabilities resulting from the 2017 and 2018 Northern California wildfires and to provide compensation to those entitled to compensation fairly and expeditiously – more quickly and more equitably than those liabilities could be addressed and resolved in the state court system.
• Restore PG&E’s financial stability and assure that PG&E has access to the capital and resources necessary to sustain and support its ongoing operations and to enable PG&E to continue investing in its systems infrastructure and critical safety and wildfire prevention initiatives.
• Work with State regulators and policy makers to address safety and operational and structural reforms, determine the most effective way for PG&E to provide safe and reliable electric and natural gas service to its customers and communities for the long term; and address the significant increase in wildfire risk.
• Enable PG&E to continue its extensive restoration and rebuilding efforts to assist the communities affected by the 2017 and 2018 Northern California wildfires.

Prior/Related Legislation

SB 550 (Hill, 2019) requires specified safety-related actions before the CPUC authorizes a merger or sale of an investor-owned utility (IOU). The bill is pending consideration by the Assembly Committee Utilities and Energy.

SB 549 (Hill) requires the Legislature to approve a capital change structure or increase in rates for the energy utility, PG&E Company. The bill was held in the Senate Committee on Appropriations.

SB 52 (Rosenthal, Chapter 484, Statutes of 1989) established criteria that the CPUC must consider in reviewing a merger, acquisition, or change of control related to an IOU.

AB 1054 (Holden, Burke, Mayes, 2019) includes numerous provisions related to addressing wildfires caused by electric utility infrastructure, including: bolstering safety oversight and processes, recasting recovery of costs from damages to third-parties, including the authorization for an electrical corporation and ratepayer jointly funded Wildfire Fund to address future damages, and changes to provisions concerning the workforce of a change of ownership of a full or portion of an electrical or gas corporation. The bill also includes conditions that must be met by PG&E in order to access an wildfire fund, as established by the bill, including: settling wildfire victims claims in whole as approved by the court, ensuring the plan of reorganization is neutral on average to customers, and other conditions addressing corporate accountability tied to executive compensation. The bill is pending consideration in the Assembly.

SB 901 (Dodd, Chapter 626, Statutes of 2018) addressed numerous issues concerning wildfire prevention, response and recovery, including funding for mutual aid, fuel reduction and forestry policies, wildfire mitigation plans by electric utilities, and cost recovery by electric corporations of wildfire-related damages. The bill also included provisions related to limitations on executive compensation.

FISCAL EFFECT: Appropriation: Fiscal Com.: Yes Local:

SUPPORT:

None received

OPPOSITION:

None received

ARGUMENTS IN SUPPORT: The author states:

We ended last session with the passage of the Wildfire Protection Act – SB 901. That measure set into motion a series of critical actions that the CPUC has been mandated to undertake. Tragically, after the passage of that legislation a devastating and deadly fire consumed the town of Paradise and other nearby communities leaving a path of death and destruction.

On January 29, 2019, PG&E filed for Chapter 11 bankruptcy causing uncertainty around the future of the utility and the ability of wildfire survivors to recover their losses. The CPUC is currently working closely with other state entities representing the state’s interest throughout the bankruptcy process. This measure helps to ensure that the CPUC promotes the priorities of the Legislature throughout the bankruptcy process. ACR 78 provides guidance to the commission to ensure that survivors are treated fairly, ratepayers are not overly burdened, and efforts to reduce future devastating wildfires are not deterred.

-- END --

Date of Hearing: May 8, 2019

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:ACR 78

Author:(Holden) – As Introduced Ver:April 24, 2019

Urgency: State Mandated Local Program: Reimbursable: No

SUMMARY:

This bill expresses the will of the Legislature that the California Public Utilities Commission (CPUC), in filings with the federal court overseeing the bankruptcy of Pacific, Gas & Electric Company and Corporation (PG&E), take specified actions and promote certain policies in filings made to the bankruptcy court.

FISCAL EFFECT:

No state costs. This bill expresses the will of the Legislature that the CPUC and any other representative with the state, in filings with the court regarding the PG&E Chapter 11 bankruptcy, take certain actions. The CPUC, and likely others, will represent the state’s interest in the PG&E bankruptcy proceedings. This bill directs this work, but it does not add to it.

COMMENTS:

On January 29th, 2019, PG&E filed for Chapter 11 protection in the Northern District of California Bankruptcy Court (No.19-30088-DM). In that filing, PG&E claimed $51.7 billion in total debt versus approximately $71 billion in assets. According to the company’s first day filings, in a declaration filed by the company’s Senior Vice President and Chief Financial Officer Jason Wells, PG&E’s decision to seek relief under Chapter 11 was “necessitated by a confluence of factors resulting from the catastrophic and tragic wildfires that occurred in Northern California in 2017 and 2018, and PG&E’s potential liabilities arising therefrom.” The declaration specifically cites the company’s potential liability related to the fires could exceed $30 billion. PG&E asserts that its bond ratings dropped so precipitously that it was unable to maintain the cash flow needed to operate as the markets anticipated that the utility would have to book billions of dollars in liability.

Analysis Prepared by: Jay Dickenson / APPR. / (916) 319-2081

Date of Hearing: May 1, 2019

ASSEMBLY COMMITTEE ON UTILITIES AND ENERGY

Chris Holden, Chair

ABPCA Bill Id:ACR 78 (

Author:Holden) – As Introduced Ver:April 24, 2019

SUBJECT: Public utilities: Pacific Gas and Electric Company: bankruptcy

SUMMARY: Expresses the will of the Legislature that the California Public Utilities Commission (CPUC), in filings with the federal court overseeing the bankruptcy of Pacific, Gas & Electric Company and Corporation (PG&E), take specified actions and promote certain policies in filings made to the bankruptcy court. Specifically, this resolution:

1. Makes certain findings relative to the history and size of, and services provided by, PG&E to electric ratepayers in California.
2. Recognizes the catastrophic loss of life and property as a result of wildfires in 2015, 2017, and 2018, which in some situations, were caused by failures in the electric grid.
3. Notes that the filing for bankruptcy under Chapter 11 by PG&E, in the United States Bankruptcy Court for the Northern District of California, could adversely impact the safety and reliability of the grid and achievement of climate change goals.
4. Resolves that resolution of the PG&E bankruptcy must protect the citizens of California from climate change and further catastrophic wildfires caused by electric utility infrastructure.
5. Resolves that it is the will of the Legislature that filings to, or communications with, the bankruptcy court by the CPUC or other state agencies:
   1. Must ensure that claims for wildfire damages for which PG&E is responsible should be resolved promptly and equitably;
   2. Support PG&E’s rank and file employees;
   3. Communicate the bankruptcy’s profound and direct impacts on the people of California and the need for stable electricity markets; and
   4. Ensure that the safety and reliability of the electrical and gas systems are paramount, the rates for electrical and gas service remain stable and reasonable, and the deployment and use of energy resources are consistent with the goal of achieving California’s environmental mandates and goals.
6. Resolves that it is the will of the Legislature that PG&E:
   1. Be prohibited from recovering executive compensation from ratepayers according to the requirements of SB 901 (Chapter 626, Statutes of 2018); and
   2. Reconstitute its board with a majority of Californians who have experience as regulators, safety experts, and clean energy leaders, and that any new board member should be resolved to change the culture of the company, understand the concerns of ratepayers, and demonstrate a commitment to the fair treatment of wildfire victims and employees.

FISCAL EFFECT: This resolution is keyed fiscal and will be referred to the Appropriations Committee for the review of its fiscal effect.

BACKGROUND:

On January 29^th, 2019 PG&E filed for Chapter 11 protection in the Northern District of California Bankruptcy Court (No.19-30088-DM). In that filing, PG&E claimed $51.7 billion in total debt versus approximately $71 billion in assets. According to the company’s first day filings, in a declaration filed by the company’s Senior Vice President and Chief Financial Officer Jason Wells, PG&E’s decision to seek relief under Chapter 11 was “necessitated by a confluence of factors resulting from the catastrophic and tragic wildfires that occurred in Northern California in 2017 and 2018, and PG&E’s potential liabilities arising therefrom.” The declaration specifically cites the company’s potential liability related to the fires could exceed $30 billion. PG&E asserts that its bond ratings dropped so precipitously that it was unable to maintain the cash flow needed to operate as the markets anticipated that the utility would have to book billions of dollars in liability.

California has continued to experience devastating death and destruction as a result of catastrophic wildfires, some of which have been ignited by failures of electrical equipment or contact between vegetation and distribution lines. Regardless of negligence, under the judicial doctrine of inverse condemnation, electric utilities stand to be strictly liable for property and personal losses. This risk of financial liability has destabilized electric utilities in the markets and increased the cost of doing business. Bond ratings have fallen, financing costs have risen, and electric ratepayers continue to pay the costs.

COMMENTS:

According to the author, last session ended with the passage of the SB 901 which set into motion a series of critical actions that the CPUC has been mandated to undertake. Tragically, after the passage of that legislation a devastating and deadly fire consumed the town of Paradise and other nearby communities including Concow and Magalia leaving a path of death and destruction.

PG&E’s bankruptcy filing has caused uncertainty around the future of the utility and the ability of wildfire survivors to recover their losses. The CPUC is currently working closely other state entities representing the state’s interest throughout the bankruptcy process. This measure helps to ensure that the CPUC promotes the priorities of the Legislature throughout the bankruptcy process. The resolution provides guidance to the CPUC to ensure that survivors are treated fairly, ratepayers are not overly burdened, and efforts to reduce future devastating wildfires are not deterred.

REGISTERED SUPPORT / OPPOSITION:

Support

None on file.

Opposition

None on file.

Analysis Prepared by: Kellie Smith / U. & E. /