The June 30, 2020, deadline for Pacific Gas & Electric to emerge from bankruptcy if the giant utility wants to be eligible for a $21 billion wildfire relief fund set up by Gov. Gavin Newsom and the Legislature earlier this year may end up an unofficial deadline of another sort: for the parties interested in taking over all or part of PG&E to put forward their best plans to win over Newsom, the Legislature, Wall Street and the public.

That’s because Newsom’s announcement of his opposition to PG&E’s plan to come out of bankruptcy contains such fundamental objections that it is hard to see a possible compromise. While the governor cannot single-handedly prevent the plan from being approved by regulators and a U.S. bankruptcy judge, his opinion is sure to carry weight. Without his support, PG&E’s path out of bankruptcy is sharply complicated.

Newsom described PG&E’s proposal as being “woefully short” of the commitments needs to ensure the scandal-plagued utility is able “to provide safe, reliable and affordable service to its customers.” His critique included what seemed akin to one of the “poison pills” that the corporate world uses to make sure deals are rejected: a demand that the utility replace every member of its board of directors.

The governor’s position appears encouraging to the coalition of Northern California cities that announced in early November that they were working together to craft a plan take over PG&E operations. Those cities: San Jose, Oakland, Berkeley, Sacramento, Hayward, Sunnyvale, Richmond, Redwood City, Petaluma, Sonoma, Windsor, Cotati, Elk Grove, Clovis, Chico, Redding, Davis, Santa Cruz, Scotts Valley and San Luis Obispo. Supervisors from San Mateo, Santa Cruz, Marin, Yolo and San Benito counties also endorsed the effort. The coalition includes local governments with about one-third of PG&E’s 16 million customers in the utility’s 70,000-square-mile service area.

Cities push for power provider run like credit union

San Jose Mayor Sam Liccardo – de facto leader of the coalition – told the San Francisco Chronicle that he envisioned a electricity supplier run more like a nonprofit credit union than a government-run utility. Backers cited the Georgia Electric Membership Corp., a 501(c)(6) nonprofit that distributes energy from three power providers to 41 not-for-profit local utilities with a total of 4.4 million customers.

But another approach has the strong backing of one of the richest cities in America: San Francisco. Mayor London Breed has long been on record as saying local power infrastructure should be under local control and in September joined with City Attorney Dennis Herrera to offer PG&E $2.5 billion to buy local power lines. 

The measure was quickly rejected by PG&E and appears to have little support beyond city limits. In October, the editorial page of the San Francisco Chronicle called the plan unlikely to be approved by state regulators for a basic reason: Utilities use big-city profits to keep power affordable in rural communities, and any break-up of PG&E means “the state would almost certainly have to help provide power to rural areas — likely at taxpayer expense.”

Newsom has not explained his view of what a PG&E takeover might look like, but he appears to agree with the Chronicle about the need to keep intact the basic framework of a large utility. 

Gov. Newsom wants Warren Buffett to buy utility

In October, he made headlines when he said he hoped that Warren Buffett’s Berkshire Hathaway holding group considered buying the utility.

“We would love to see that interest materialize, in a more proactive, public effort,” Newsom told Bloomberg News.

While Buffett has shown no public interest in the idea of acquiring a controlling interest in California’s largest power utility, several hedge funds have been plain with their interest in taking over PG&E for nearly a year. They have drawn little support from lawmakers because of the perception they would be as indifferent to safety as the owners they hope to replace.

PG&E entered into bankruptcy in January, citing potential liabilities of $30 billion because of massive recent wildfires in recent years that have often been blamed on the utility’s poorly maintained infrastructure. 

The utility believed it had crossed a huge hurdle to emerging from bankruptcy on Dec. 6 when it announced a $13.5 billion settlement of damage claims from four of the largest blazes, sending its stock price higher. Seven days later, Newsom announced his opposition to the utility’s overall plan to emerge from bankruptcy, sending the stock price down to near 52-week lows.

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. 

Gov. Gavin Newsom wants the Legislature to agree to sweeping reforms in wildfire liability rules by July 12, before lawmakers start a one-month recess.

After first calling on legislative leaders to shape new policies to help investor-owned utilities deal with a hotter, drier, more fire-prone era in April, Newsom put forward his own plan last week. It’s most significant change is an end to the state’s unusual “inverse condemnation” law that requires utilities be held liable for damages if their equipment sparks wildfires whatever the circumstances. Like predecessor Jerry Brown, Newsom thinks a more reasonable rule is to allow utilities to escape liability if there is evidence that their equipment was properly maintained – a standard used in most other states.

Newsom says this rule and the establishment of a $21 billion fund to help cover the cost of future blazes – paid for equally by shareholders and ratepayers of Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric – would go a long way toward stabilizing the state’s power grid and helping PG&E out of bankruptcy.

Thanks to a quirk, ratepayers might not even notice their share of the tab. That’s because a $2.50 monthly surcharge first imposed on utilities’ customers in 2002 to deal with heavy costs from the 2000-2001 energy crisis that is supposed to end next year would be renewed through 2035 to pay ratepayers’ share of the wildfire fund.

Brown’s call for weaker liability rules was rejected

But Brown got nowhere with his call last year to end “inverse condemnation.” And Newsom will face the same obstacles – and a new one. That’s the fact that many lawmakers may be ambivalent at best about helping PG&E come out of the bankruptcy process it initiated in January over at least $30 billion in claims from harsh wildfires in Northern California in recent years. 

The reputation of the state’s largest utility has been in a free-fall since a 2010 gas pipeline explosion in San Bruno that killed eight people and led to PG&E’s conviction of six federal felonies for shoddy maintenance and interfering with federal investigators. 

Yet after the utility promised it would do a far better job in inspecting and maintaining gas transmission lines, in December, the California Public Utilities Commission revealed that it had found that PG&E managers pressured workers to falsify “tens of thousands” gas safety inspections from 2012-2017.

The revelations stunned CPUC President Michael Picker – leading him to suggest for the first time that PG&E be taken over by the state, be broken up into smaller parts or otherwise go through a radical overhaul. 

The view that PG&E status quo must end has been highly popular among Bay Area politicians, who cite the fact that Sacramento started up its own municipal utility nearly a century ago in response to poor, costly service from PG&E.

In May, San Francisco Mayor London Breed said the city was preparing a formal, multibillion-dollar offer for some of PG&E’s key assets. Breed said her city had a “unique opportunity” to bolster its “long-term interest.”

Help PG&E with bankruptcy? Or break it up?

State lawmakers from the Bay Area include some of PG&E’s most forceful critics, starting with Sen. Jerry Hill, D-San Mateo. Even before the revelation in December about PG&E’s years of falsifying gas inspection records, Hill had already called for the utility to be taken over by a public agency or coalition of agencies.

Hill and other lawmakers are unlikely to accept changes in “inverse condemnation” until PG&E is overhauled. One of the main reasons previous calls to change the rule have been opposed was because of concerns that letting up pressure on PG&E to meet safety standards would lead the utility to be reactive instead of proactive in maintaining its equipment.

Against this backdrop, Newsom’s push to get his fire relief plan approved by July 12 doesn’t appear realistic.

That could wipe out half the $30 billion in liabilities that the state’s largest power utility feared it faces because of brutal wildfires linked to its power lines and transmission facilities over the past three years.

PG&E’s stock went up 75 percent after the Cal Fire report on Thursday before slipping 16 percent on Friday.

Former CPUC leader: Bankruptcy a ploy to win bailout

The ruling was cited in a Los Angeles Times analysis that questioned whether PG&E really needed to go into bankruptcy on Tuesday, as it had previously announced it would. Former California Public Utilities Commission President Loretta Lynch told the newspaper that the utility had “created this crisis” as part of a corporate strategy to scare the state Legislature into approving a sweeping bailout to minimize disruptions for its 16 million customers.

Yet Lynn’s view was at odds with several recent developments. Credit rating agencies only continued to see PG&E as in near-deathbed condition and last week, S&P Global Ratings downgraded the state’s other two investor-owned utilities – Southern California Edison Co. and San Diego Gas & Electric Co.

S&P said PG&E’s travails showed the risks that California utilities face because of “inverse condemnation” – a state law which says utilities are financially liable for damages from fires caused by their equipment even if the utilities had not been found negligent.

Meanwhile, PG&E’s contentious relationship with the federal judge overseeing its probation stemming from its six felony convictions in the 2010 natural gas pipeline disaster that killed eight people in San Bruno (pictured) took a sharp turn for the worse. There is relatively little precedent for federal judges to play such oversight roles in complex cases. This had led to speculation that San Francisco-based U.S. District Judge William Alsup might be cautious in drawing conclusions after announcing in late November that he was reviewing PG&E’s role in recent wildfires in Northern California. Alsup was seen as lacking the background and experience of agencies like the CPUC and Cal Fire to evaluate the utility’s claims and evidence from wildfire sites.

Instead, the judge has already issued a preliminary ruling directly asserting that PG&E’s failure to properly insulate power conductors contributed to fire disasters in Northern California over the last two years, including the November blaze in Butte County that killed at least 85 people. A hearing is scheduled in Alsup’s courtroom Wednesday on his ruling, which could lead to the judge ordering PG&E to broadly upgrade its transmission equipment.

PG&E: Rates could go up five-fold

The San Francisco Chronicle reported last week that PG&E officials believed that compliance with a far-reaching Alsup order “could cost between $75 billion and $150 billion, requiring a one-year rate hike – at the low end of the spectrum – of more than five times current rates in typical bills.”

In its formal response to Alsup’s tentative ruling, PG&E indirectly questioned his expertise. The utility wrote that it is “committed to working aggressively and expeditiously with state and federal officials on system maintenance and upgrades and on wildfire mitigation efforts.”

“But the path forward to mitigating wildfire risk is best designed not through probation conditions, but rather through careful coordination with state and federal regulators, after appropriate consultation with other interested parties, based on the best science and engineering advice, with policy analysis that accounts for the full range of important but often conflicting social goals,” PG&E concluded.

State Sen. Jerry Hill, D-San Mateo, told the Bay Area News Group that he welcomed Alsup’s actions.

“A federal judge is actually saying things and hopefully will do something about the lack of maintenance at PG&E,” he said. “No one else has required that.”

Hill, whose district includes San Bruno, has long ripped the state Public Utilities Commission for what he sees as lax oversight of PG&E.

Pacific Gas & Electric – the giant investor-owned utility that serves 16 million Californians – appears to be facing its gravest crisis since its founding in 1905.

The initial indications that PG&E’s equipment may have sparked the Camp Fire that killed at least 88 people in Butte County – the deadliest blaze in state history – initially led at least some state lawmakers to consider new legislation to try to insulate PG&E from potentially devastating liabilities. Earlier this year, the Legislature passed and Gov. Jerry Brown signed into law a measure that lets PG&E spread out the costs from 17 Northern California wildfires in 2017 and have its customers pay some of its bills.

The Bloomberg news service reported that Assemblyman Chris Holden, D-Pasadena, may introduce legislation to help PG&E in coming days.

But a federal judge and the president of the California Public Utilities Commission have shaken PG&E’s hopes that it can avoid crushing new blows.

Judge demands answers on PG&E, Camp Fire

U.S. District Judge William Alsup has ordered PG&E to provide evidence proving its negligence didn’t cause the Camp Fire – raising the prospect that the utility could be found guilty of violating the terms of its five-year criminal probation that began in January 2017.

The probation was imposed then by U.S. District Judge Thelton Henderson – along with the maximum possible fine of $3 million – after PG&E was convicted of six felonies related to the 2010 San Bruno disaster (pictured above). A PG&E natural gas pipeline that was found to have been poorly maintained exploded, killing eight, injuring more than 50 and wiping out 38 homes. The utility was convicted of five felonies for failing to keep the pipeline safe and a sixth felony for impeding investigators.

Judge Alsup was assigned to monitor PG&E’s probation. In a statement, Alsup said his goal was determining what “federal, state or local crimes might be implicated were any wildfire started by reckless operation or abandonment of PG&E power lines” or “inaccurate, slow or failed reporting of information about any wildfire.” If Alsup concludes that PG&E violated its probation, the utility could face unprecedented punishment from the judge.

Two days after Alsup’s announcement, CPUC President Michael Picker said he had concerns about whether PG&E’s “culture” had enough of a commitment to public safety. At a CPUC board meeting in San Francisco, the utility was ordered to implement 60 safety recommendations from a commission consultant.

Picker’s critique came less than two weeks after he stuck up for PG&E, challenging the idea that the Camp fire could or should put the utility into bankruptcy. “It’s just not good policy,” Picker told the San Francisco Chronicle. “It doesn’t work out.” This stabilized PG&E’s stock price.

The new tone from Picker was a departure from the normally close relationship between the CPUC and PG&E.

Those who have called for the CPUC to be reformed and to be much tougher with the utilities it oversees often cite the $1.6 billion “fine” the utility commission levied in 2016 on PG&E for the San Bruno disaster. More than half of the fine – $850 million – was actually a requirement that the utility upgrade its natural gas pipeline system.

Critics said this amounted to likening the improvements that PG&E had to make to a penalty.

Picker joined in the 4-0 CPUC board vote for the “fine.”