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California Energy Markets / Bottom Lines

[February 1, 2019 / No. 1524]

An Ugly Fight Quickly Takes Shape Over PG&E, California's Energy Future

The swirl around Pacific Gas & Electric's bankruptcy filing quickly turned into a predictable effort by various stakeholders to protect themselves, as the future of not only California's energy suppliers, but a much wider group unfolds in the latest round of the wildfire crisis.

"I still have the boxing gloves," U.S. Bankruptcy Judge Dennis Montali, who handled PG&E's previous bankruptcy reorganization in 2001, said on the first day of the utility's hearing in San Francisco on Jan. 31. And the combatants—PG&E, its energy suppliers, wildfire victims, and others—are suiting up for what surely will be a titanic slugfest with an uncertain outcome.

'It is a crazy
situation on all
sides. It seems to be
a dispute between
the utility industry
and the insurance

This week saw a dizzying squall of hearings—on PG&E's bankruptcy; on its previously existing felony probation; at the state Capitol; and at the California Public Utilities Commission—as the furor over the bankruptcy mushroomed. The bankruptcy filing made PG&E's future the pre-eminent topic in the media, regulatory, legislative and financial worlds—again.

As the bankruptcy proceeding opens, PG&E contract holders are elbowing their way to the front of the line. At the first hearing, an attorney for wildfire victims urged the judge not to prioritize vendor payments over settlements to his clients. But a PG&E attorney said it wouldn't be prudent to risk the utility's operations right now.

PG&E's bankruptcy documents include some staggering initial numbers regarding the scope of the company's commitments, many of which were signed under state mandates to move forward California's aggressive clean-energy goals. PG&E says it has 387 supply contracts representing $42 billion in commitments, 298 of which are resources eligible for the renewables portfolio standard.

At the hearing, a PG&E attorney said the utility has not attempted to reject any of its power-purchase agreements or other contracts, "despite what's been written in the newspapers." Those will be evaluated as the case proceeds, he said.

A satellite photograph showing smoke from wildfires in Northern California in October 2017

A satellite photograph showing smoke from wildfires in Northern California in October 2017. Photo: Wikimedia Commons

The court discussed PG&E's motion to pay the claims of certain vendors that it says are essential to public health, such as nuclear facility-related vendors. Six vendors filed objections, essentially wanting confirmation that they are covered by this motion, according to a PG&E attorney. Attorneys lined up to ask PG&E to reveal the list of vendors that are covered by the motion. One criticized the selection process as being "shrouded in secrecy."

Almost simultaneously with the bankruptcy filing, the issue of jurisdiction arose, with the Federal Energy Regulatory Commission issuing decisions finding it shares jurisdiction with the bankruptcy court on PG&E's $42 billion in PPAs. PG&E fought the FERC action in a court filing (see story at [12]).

Travis Kavulla, a former Montana utility regulator and current member of the Western Energy Imbalance Market Governing Body, framed the issue as one of risk allocation that has been put on investor-owned utilities.

Contacted for this column, Kavulla said the situation can be viewed in the context of "California really treating the IOUs as a bank or a balance sheet to implement their energy policies." IOUs have risks associated with them that some government-supported entities do not, he said, and "making an IOU your bank for public policy is not a risk-free proposition."

When asked if the filing puts California's energy future into the hands of a bankruptcy judge, Kavulla said it is very unlikely the court would make major changes to state energy policies such as renewables portfolio standards. But the proceeding could have an impact on how those polices are implemented.

The IOUs were "the dumping ground of these out-of-market mandates." Kavulla said. Because of the way inverse condemnation is handled in California, IOUs are held to strict liability even without negligence.

"It is a crazy situation on all sides," Kavulla said. "It seems to be a dispute between the utility industry and the insurance industry." He added that "if it isn't fixed, the regulatory paradigm of these utilities needs to change," including an overall return on revenue that is significantly larger.

Gov. Gavin Newsom appears to be backing away from the near-crisis-level situation, issuing a generic, broad statement on the day of the PG&E bankruptcy filing: "My administration will continue working to ensure that Californians have access to safe, reliable and affordable service, that victims and employees are treated fairly, and that California continues to make forward progress on our climate change goals."

In a Feb 1 attorney-authored letter, Newsom asked U.S. Trustee James Snyder to ensure that wildfire victims, PG&E employees and energy customers have "substantial representation in these cases," including on any creditors' committees.

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"PG&E's financial creditors certainly deserve representation in the chapter 11 cases, but most are sophisticated entities with substantial experience and resources at their disposal. The same cannot be said for the wildfire victims, PG&E employees, ratepayers and other impacted residents," the letter said. It noted that PG&E stopped making settlement payments to victims right before filing for bankruptcy, with the utility saying it intends to resolve claims through an expedited process.

Assm. Chris Holden (D-Pasadena) in recent weeks has focused on wildfire victims and energy consumers, not PG&E. His communications director, Garo Manjikian, in a Jan. 31 email said: "It's still early in the process. Assemblymember Holden will be working with the governor's office and his colleagues in the Legislature to assess the best path forward."

Within the worlds of business and media coverage, awash in court and regulatory filings and with billions of dollars at stake, it is easy to forget that human beings—innocent wildfire victims and energy consumers, who are usually one and the same—need competency and leadership in order to obtain safe and reliable energy supply.

At this point, that oft-cited promise of safe, affordable and reliable energy seems to be in serious peril in California.
Jason Fordney, with reporting by Kavya Balaraman

Bottom Lines is excerpted from NewsData's California Energy Markets publication. If you aren't a current subscriber, see for yourself how NewsData reporters put events in an accurate and meaningful context—request a sample of California Energy Markets.

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