Potential break-up of PG&E looking less likely

Eight months after the head of the California Public Utilities Commission suggested it was time for a radical shake-up of Pacific Gas & Electric, the state’s largest power utility appears to be at much less risk of a hostile takeover or being broken up into smaller utilities.

While Gov. Gavin Newsom has been sharply critical of PG&E for years for fires and disasters blamed on its lax practices, the former San Francisco mayor has offered no encouragement to London Breed, the city’s current mayor, who is interested in taking over some PG&E assets and using them in a municipal power utility.

The bill passed by the state Legislature this month at Newsom’s behest to create a $21 billion account jointly funded by utilities and ratepayers to help deal with the high cost of wildfires included provisions that gave the CPUC more power to control the fate of PG&E assets. It also specified that any new owner of a utility cannot reduce the number of employees for three years, which analysts saw as an attempt to discourage a takeover.

Mayors blast part of wildfire legislation

Breed, San Jose Mayor Sam Liccardo, and Oakland Mayor Libby Schaaf sharply criticized these provisions in a letter to Newsom and legislative leaders. They “set a dangerous precedent by limiting local government autonomy over its own employee relationships,” the mayors wrote.

Newsom also effectively sided with PG&E in opposing the attempt by utility bondholders to force the utility to change its present plan to emerge from the Chapter 11 bankruptcy it filed for in January because of $30 billion in expected claims over wildfires blamed on the utility’s equipment. PG&E wants to use a portion of its earnings and cost savings to issue tax-exempt bonds to pay for wildfire costs. Bondholders back a complex alternative plan that would sharply reduce the equity of shareholders.

PG&E, which has 16 million customers, must finalize and file its reorganization plan with federal bankruptcy court by Sept. 29. To qualify for assistance from the $21 billion state wildfire relief fund, it must be out of bankruptcy by June 30, 2020.

Meanwhile, the CPUC president who blasted PG&E in December is likely in his final weeks on the job. Michael Picker announced in May that he would retire this summer but would stay on until Newsom chose his replacement.

Picker has long faced criticism for the perception that the utilities commission was too protective of the state’s three giant investor-owned utilities – PG&E, Southern California Edison and San Diego Gas & Electric.

New scandal was last straw for CPUC chief

But a turning point came in December when the CPUC staff presented evidence that PG&E knowingly followed unsafe practices in maintaining and inspecting natural gas lines for five years after a natural gas explosion killed eight people in San Bruno in 2010.

“This process will be like repairing a jetliner while it’s in flight,” he said. “The keystone question is would, compared to PG&E and PG&E Corp. as presently constituted, any of the proposals provide Northern Californians with safer natural gas and electric service at just and reasonable rates.”

Picker subsequently said the CPUC and state leaders should consider a state takeover or having the utility broken up into smaller components. 

The new scandal and Picker’s remarks helped drop PG&E’s stock price from over $23 a share in mid-December to under $7 a month later. The share price had rebounded to $18.70 as of the close of the market on Friday, reflecting analysts’ confidence that PG&E will survive Chapter 11.