California government could step in if PG&E bankruptcy efforts fail

Gov. Gavin Newsom on Friday demanded that shareholders and executives of Pacific Gas & Electric, wildfire victims, bondholders and other parties involved in the company’s bankruptcy meet in Sacramento next week to strike a deal – and threatened to devise a government-led plan to restructure the state’s largest public service if a deal is not reached quickly.

“I hope PG&E stakeholders put aside parish interests and come to a negotiated resolution so that we can create this new company and put the old PG&E behind us forever,” Newsom said in a statement. “If the parties cannot reach an agreement quickly to begin this process of transformation, the state will not hesitate to intervene and restructure the public service.

Newsom has hinted at a possible government takeover of PG&E as public anger continues to grow in northern California after consecutive record-breaking power cuts that have left millions of customers in the dark for days . Under mounting pressure to act, Newsom reiterated at a press conference on Friday its pledge to increase state scrutiny over the ailing company. He said state intervention would ensure that the public service emerging from bankruptcy prioritizes safe, reliable and affordable service.

PG&E filed for bankruptcy in January, citing some $ 30 billion in forest fire liability costs related to its equipment. In one of the latest developments in the case, U.S. bankruptcy judge Dennis Montali agreed last month to review a competing plan by bondholders to resolve utility liabilities, raising the possibility that existing shareholders of PG&E can be wiped out when the case is concluded.

The governor’s plans are based on a law approved by the California legislature in the summer, AB 1054, which sets certain conditions for PG&E to come out of bankruptcy in order to access a multibillion-dollar fund created for help utilities pay for the costs of forest fires.

The law includes requirements that PG&E settle claims with wildfire victims, come out of bankruptcy by June 30, 2020, without increasing consumer rates, and tie executive pay to safety. In accordance with the law, Newsom said it had asked its staff to develop “a plan for what a 21st century utility should look like” to serve as a model for the company going forward.

If the parties to the bankruptcy case fail to come up with a hasty deal that addresses California’s security concerns and its plan, a Newsom adviser said the state was preparing to submit a petition to the court asking to present its own reorganization plan. State involvement in the bankruptcy case is largely new territory and it is up to the judge to accept such a proposal, a Newsom adviser said.

“We welcome the governor’s and state’s engagement on these vital issues and share the same goal of equitably resolving wildland fire claims and getting out of the Chapter 11 process as quickly as possible,” said James Noonan, spokesperson for PG&E, in a statement. “PG&E is committed to working with all stakeholders to make the changes necessary to be the business that our customers and communities want and deserve. “

Newsom declined to offer a timetable for resolving the negotiations before the state presents its own proposal.

“PG&E, as we know it, may or may not be able to figure this out,” Newsom said. “If they can’t, we’re not going to sit there and sit back. The last point I want to make is that we put a backup plan in place. If Pacific Gas & Electric is unable to secure its own destiny and future and work through the process of bringing people together and working to meet the needs of debt and equity bondholders and lawyers and victims and subrogation requests, then the state will prepare as a safeguard for a scenario where we do this work for them.

Newsom said the state was just beginning to define its alternative restructuring proposal and declined to say whether a plan submitted to the court would give the state control over the public service.

“The framing process is complex and there is no point going through this rabbit hole at this point,” Newsom said. “You will see that there are a lot of different paths, a lot of doors, and we are evaluating all of that and we haven’t made any decisions. It’s the back-up plan if these guys can’t pull themselves together. But I would say broadly if you were to look at an ISO-like structure, that would be a good place to start. “

Established in 1996 as a not-for-profit public benefit corporation, the California Independent System Operator manages much of the state’s electricity grid. The Governor appoints five members who serve staggered terms on the CAISO Board of Directors, overseeing the budgets, policies and planning of the network.

State Senator Jerry Hill, Democrat from San Mateo and longtime PG&E critic, praised Newsom.

“California has repeatedly told PG&E, in many ways, that the way it does business is unacceptable and that it needs to change,” Hill said in a statement. “Today Governor Newsom told PG&E to continue or to step aside.”

The governor called on his cabinet secretary, Ana Matosantos, to lead a new team tasked with focusing on exiting PG&E from bankruptcy so as to ensure that fire victims are fairly compensated for their losses. The team would also develop a plan for a new utility that makes safety a priority.

Matosantos has served as budget manager for former governors. Arnold Schwarzenegger and Jerry Brown, winning praise for overseeing the two governors’ efforts to pull the state out of its deep fiscal crisis following the Great Recession.

Prior to joining the Newsom administration, she worked on the federal commission created by former President Obama to monitor Puerto Rico’s budget crisis. As secretary to the governor’s cabinet, she was involved in nearly every political effort at Newsom during her first year in office, a councilor with perhaps the most experience in operating Sacramento.

Newsom’s announcement on Friday comes after he hammered on PG&E during a visit to areas of the state affected by wildfires and blackouts. The governor has repeatedly criticized the company for not investing in security improvements and for applying intentional blackouts too widely.

Times editors Phil Willon and John Myers contributed to this report.

Bernard P. Love