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.

The giant investor-owned utility’s proposal revealed last month to provide at least $235 million in bonuses to its employees drew incredulity both from attorneys for wildfire victims suing PG&E and from those closely monitoring its Chapter 11 bankruptcy. A decision on the request could come Tuesday from U.S. Bankruptcy Judge Dennis Montali.

Gov. Gavin Newsom also again made clear that he would not be nearly as accommodating as predecessor Jerry Brown, who said little about the utility even as its scandals mounted in recent years. Newsom took strong exception to a proposal by PG&E to fill some vacancies on its board of directors with hedge-fund executives, which goes against his demand that the board focus on safety, not protecting PG&E’s bottom line. PG&E proceeded with the plan last week despite the governor’s criticisms.

Bankruptcy judge: Will probation be revoked?

But this criticism didn’t keep the utility from scoring a court victory that’s crucial to its plan of using Chapter 11 proceedings to reorganize its assets, adequately compensate creditors, then emerge at some future date with relative fiscal and management stability. That’s what happened in 2004 after PG&E went through three years of Chapter 11 proceedings triggered by its inability to pay $9 billion in debt stemming from the winter 2000-01 state energy crisis, in which utilities were forced to pay far more on the spot energy market than they were allowed to charge customers because of a flawed 1996 energy deregulation law.

Montali recently decided to allow PG&E to access all the $5.5 billion in financing it had lined up from major banks to give it liquidity as it pursued bankruptcy. The decision normalized the Chapter 11 process – crucial to PG&E’s stock price and to its hope for a return to status-quo operations.

As recently as a month ago, this seemed far from a sure thing.

At a March 13 hearing on PG&E’s request to gain full use of the financing it had lined up in January, the bankruptcy judge noted that the utility also faced the possibility of severe sanction from another judge in San Francisco’s federal courthouse. U.S. District Judge William Alsup is serving as PG&E’s de facto probation officer, overseeing the utility’s actions after its 2016 conviction on six federal felonies for its lax oversight and stonewalling of investigators after a 2010 gas pipeline explosion (pictured) in San Bruno killed eight people. PG&E has admitted to new problems with gas-line safety inspections – including records being falsified – since the 2010 disaster.

Montali raised the prospect that Alsup would appoint a trustee to run the utility. The observation raised the hopes of lawyers for wildfire victims, who believe that the circumstances of PG&E’s recent behavior require that it not get the usual Chapter 11 treatment. One key argument: Would JP Morgan Chase, Bank of America, Barclays and Citigroup ever have agreed to the loans had the banks known PG&E would lose effective control of its management?

Banks agree to go slow if trustee takes over utility

But after meeting with lawyers for those suing PG&E for a long variety of claims, the bankruptcy judge concluded that for now, PG&E’s Chapter 11 proceedings could unfold on the conventional track.

According to the Chronicle, a key to Montali’s decision was the reassurance offered by lenders that the appointment of a trustee by a federal judge would not trigger the banks to declare a default within seven days, as they could have done under the previous agreement. Instead, they will wait at least 21 days. This would give more breathing room for the loans to be renegotiated on terms more favorable to the banks.

PG&E stock closed at $19.37 a share on Friday. That’s down nearly 60 percent from November.