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.

The political pressure on Gov. Gavin Newsom, the Legislature and the California Public Utilities Commission to break up Pacific Gas & Electric has grown rapidly since PG&E ordered power outages from Oct. 9-12 that affected more than 2 million people in response to the fire threat posed by heavy winds.

The utility began another planned outage Wednesday that affected 178,000 homes and businesses — once again saying it had no choice because gusty winds could cause its infrastructure to spark fast-moving wildfires.

But the idea that one of the great wealth-producing regions in the world can’t keep the lights on infuriated many in Silicon Valley and the Bay Area. San Jose Mayor Sam Liccardo said his city was interested in buying all or part of PG&E and turning it into a municipal utility. “I’ve seen better-organized riots,” Liccardo said of PG&E’s preparations for the Oct. 9-12 outages.

San Francisco has sought parts of PG&E for months. On Oct. 9, Mayor London Breed offered PG&E $2.5 billion for its energy infrastructure serving her city. The utility rejected the offer.

Meanwhile, Newsom’s Oct. 14 call for PG&E to provide residential customers affected by the Oct. 9-12 outage a credit or rebate of $100 and small businesses $250 was rejected Tuesday by the utility. This was seen as an effort by the governor not just to get PG&E to pay for the mass inconvenience it had caused but to create an economic disincentive to the utility imposing outages even when fire risks were only moderate.

Will Newsom drop support for PG&E getting out of bankruptcy?

Newsom is in a difficult situation that could lead him to abandon his support for PG&E emerging from its Chapter 11 bankruptcy, which was declared in January after the utility acknowledged it faced $30 billion or more in wildfire liabilities. The utility must do so by July 2020 to be eligible for a $26 billion wildfire relief fund the Legislature passed this summer to help utilities deal with the massive cost of fires. 

As recently as November 2018, support for PG&E among state lawmakers was significant enough that Assemblyman Chris Holden, D-Pasadena, told reporters he would carry a bill to protect the utility from wildfire liabilities. But such support is no longer evident in the Capitol. Newsom’s recent descriptions of PG&E as greedy, incompetent and untrustworthy resemble the longtime rhetoric of the utility’s harshest critics, such as state Sen. Jerry Hill, D-San Mateo.

Pundits from several state newspapers and news websites have speculated that Newsom’s political future depends on how he handles the PG&E crisis. They noted that Gov. Gray Davis was so hurt by rolling blackouts in the winter of 2000-2001 that a Republican-led effort to replace him in 2003 rapidly caught fire and culminated with Arnold Schwarzenegger replacing Davis.

“I’ve seen this movie before,’’ Garry South, a Democratic strategist and a top aide to Gov. Davis, told Politico California.

But even if Newsom deftly handles the PG&E matter, he could still face blowback over what some experts expect to be a series of big increases in power bills from utilities overwhelmed by the cost of wildfires and of preparing for them in an era of hot, dry conditions. California’s rates are already 50 percent higher than the national average, according to data from August.

As South told Politico, Californians may not have had cause to blame Gov. Davis for the 2000-2001 blackouts. But when bad things happened that affected the basics of modern life, they blamed the person in charge, he said. 

Silicon Valley is the epicenter of the state’s housing crisis, with even run-down older homes routinely selling for nearly $1 million and with apartment rent averaging over $3,400 in communities within a 10-mile radius of Mountain View. With some exceptions, local leaders generally say the right things about the urgent need to add more housing units.

But a new report about the region’s largest city, San Jose, shows the city has made little progress on its goal of adding 10,000 affordable housing units by 2022. According to a new report issued by city housing officials, 64 units were completed in the 2017-18 fiscal year. While 594 units are now being built and 270 are approved for construction, even if these units are counted, that means the city is on track to achieve less than 10 percent of its target by mid-2019.

Adding to this bad news is a recent San Jose Mercury-News report in which city officials expressed frustration on several fronts. Among the complaints:

• While Mayor Sam Liccardo has been consistent in pushing affordable housing, the head of the city’s housing department – Jacky Morales-Ferrand – sees an overall lack of focus at City Hall (pictured). One week, City Council members are touting rent-control ordinances, then they push the “tiny homes” concept, then it’s on to other issues.
• Morales-Ferrand also expressed disappointment that the state government has never provided cities with a new tool and new funding source to replace redevelopment, which Gov. Jerry Brown convinced the Legislature to gut in 2011.
• Councilman Johnny Khamis also has a complaint. He believes that the series of crime-reform initiatives touted by Brown and state lawmakers have complicated San Jose’s efforts to address housing and homeless issues. “I feel that the state just dumped a whole mess of people out of our prison system, and now we’re just having to deal with them,” he said.

Congress ‘0 for 115’ in approving helpful housing bills

Frustration with a lack of progress locally and in the state Legislature has led the influential, well-funded Silicon Valley Leadership Group to look for relief in a new place: Congress. While CEO Carl Guardino said the Silicon Valley and Bay Area congressional delegation had been helpful on major regional issues such as electrifying CalTrain and expanding the Bay Area Rapid Transit (BART) system to San Jose, he told the Mercury-News that there had been little help on housing from Washington.

Housing experts say ultimately, local and state land-use policies, fees, taxes and regulations are most crucial in whether new units can be built. But federal agencies regulate mortgages, enforce fair-housing laws and have provided billions of dollars over the years to develop housing projects and to subsidize low-income housing.

According to the Apartment List group, in its current session, which began in January 2017, Congress is “roughly batting 0 for 115” in approving housing legislation introduced by federal lawmakers. Rep. Barbara Lee, D-Oakland, has by herself introduced 11 bills that focus on creating affordable housing. In a March speech, Rep. Ro Khanna, D-Santa Clara, said, “I don’t want to live in the Silicon Valley that only has Facebook or Google engineers able to live here.”

But the Trump administration and the Republicans who control the House and Senate have shown little enthusiasm not only for bold new plans but for continuing policies that have led to 3 million affordable homes being built since the late 1980s. The Affordable Housing Credit Improvement Act, which would provide developers of low-income housing with a substantial tax credit, has languished in House and Senate committees since it was introduced in March 2017.