Gov. Gavin Newsom and his wildfire “strike force” surprised some with the vagueness of its most important recommendation: That it’s time to revise the “inverse condemnation” state law that holds energy utilities can be held fully responsible for fires that were caused by their equipment even if the equipment was properly maintained. The law appears to be an existential threat to Pacific Gas & Electric, the state’s largest investor-owned utility, which filed for bankruptcy protection in January after being blamed for fires that resulted in $30 billion in damages.

Newsom’s pointed deference to state lawmakers – saying he hoped they could hash out a plan by mid-July – is an example of the “leading from behind” management gambit, which has a mixed history. Just as the Obama administration did with aspects of its foreign policy, the Newsom administration is expecting its allies to take the helm. The governor said he believes progress is more likely with him in the background.

“I’m purposely not including my personal opinions because I actually want to accomplish something. And I believe it’s incumbent upon me to create the conditions where we can actually get something done, versus to assert a political frame,” Newsom told Capitol reporters.

The governor may also perceive political risk if he puts out his own specific blueprint for how PG&E, Southern California Edison and San Diego Gas & Electric can survive in a hot, dry era in which massive wildfires are common annual events.

Tactic seen as best for long-range causes

Leadership experts, however, think the “lead from behind” gambit works better for issues with low stakes or for long-term causes – for the most famous example, Nelson Mandela’s decades-long effort to end apartheid in South Africa – and isn’t necessarily right for addressing pressing problems.

Jack Dunigan, a longtime management consultant who runs The Practical Leader website, believes that “it works best in times and places of non-crisis. If a child is running into the street and into traffic, it is not the time to convene a focus group to discuss the threats of playing in the street. It is the time for action. Leading from behind, as [Harvard business professor Linda] Hill describes it, works best in non-threatening, non-urgent conditions.”

Given that PG&E emerged in 2004 after three years in bankruptcy and returned to regular operations, that may suggest that there is no urgent reason for Newsom to take a bolder approach. But the idea that the Legislature will be able to come up with a plan in three months or less is difficult to square with its recent history – and the intense dislike that many state lawmakers and Northern California residents have for scandal-scarred PG&E.

In January, after PG&E’s bankruptcy filing, state Sen. Bob Hertzberg told a Sacramento TV station, “Nobody in the Capitol wants to bail out PG&E, period, exclamation mark, end of story, full stop. They just don’t.”

While lawmakers don’t hold Southern California Edison and SDG&E in such contempt, any attempt to help them deal with wildfire liabilities that also protects PG&E would face tough sledding.

This background is why Newsom’s predecessor, Jerry Brown, got nowhere last year with his proposal to give state judges the flexibility to limit the amount of liability a utility has for wildfire damages based on circumstances – including consideration of the importance of a utility being able to continue to provide power to millions of customers.

Further complicating the prospects for relatively quick approval is that “inverse condemnation” is written into the California Constitution. Changing it would appear to require a vote of the public as well as two-thirds approval of both the state Assembly and Senate.

How much of wildfire costs not covered by insurance should be paid by California’s giant investor-owner utilities has been a significant issue since at least 2007. That’s when wildfires ravaged northern and eastern San Diego County, killing two people and destroying more than 1,300 homes.

San Diego Gas & Electric argued that it should be allowed to pass on $379 million in related costs. But the California Public Utilities Commission and state courts – noting the evidence that poorly maintained equipment had been blamed for much of the damage in two state investigations – have rebuffed SDG&E. The utility’s most recent setback came just last week when the state 4th District Court of Appeal in San Diego rejected a call to overturn previous rulings.

But during SDG&E’s long fight for a utility-favorable interpretation of liability laws, the debate has become far more high-profile. With six of California’s all-time 10 worst wildfires occurring since September 2015 in areas served by Pacific Gas & Electric and Southern California Edison, the question of what to do to keep the state’s two largest investor-owned utilities in business has emerged as one of the thorniest, most contentious issues in Sacramento.

Now, with Northern California reeling from its deadliest fire ever in Butte County, and with a large area of Ventura County and northwest Los Angeles County ravaged in the past two weeks, PG&E and Edison are confronted with a perverse twist on their successful efforts to get the Legislature to give them relief from huge wildfire costs.

Law protecting utilities doesn’t take effect until Jan. 1

Senate Bill 901 – the main measure passed in late summer to insulate utilities from the extreme costs of fires – doesn’t take effect until Jan. 1. That means its provisions to limit utilities’ liabilities if it could be shown they properly maintained their equipment in fire-prone wilderness areas won’t help PG&E or Edison with this fall’s blazes.

Instead, the old standard that led to negative rulings against SDG&E will be used in assessing damages. Given that utilities’ equipment is blamed for helping start the latest round of wildfires, that could be apocalyptic for the finances of PG&E. As of Monday afternoon, the Camp Fire had killed 77, with nearly 1,000 people unaccounted for, and torched 151,000 acres and nearly 13,000 structures.

In the Woolsey fire northeast of Los Angeles, three people have died, while more than 96,000 acres and 1,400-plus structures have burned.

In coming days, the focus is likely to be on how many of the missing in the Camp Fire are dead. It could end up as one of the five deadliest natural disasters in the United States in this century – nearly as lethal as Hurricane Katrina.

But eventually the focus will return to whether PG&E can survive the latest conflagrations even as it deals with potential losses in the billions from previous fires – and how much more state lawmakers and Gov.-elect Gavin Newsom should do to help the utility survive in its present condition.

Its company valuation plunged by more than one-third after the severity of the Camp fire became evident, only to jump somewhat late last week after the president of the state Public Utilities Commission offered supportive comments.

“It’s not good policy to have utilities unable to finance the services and infrastructure the state of California needs,” Michael Picker told Bloomberg News. “They have to have stability and economic support to get the dollars they need right now.”

PG&E has filed for Chapter 11 bankruptcy before, in April 2001, when the utility was squeezed by sky-high energy costs after the blackouts of winter 2000-2001. It emerged from bankruptcy three years later.

Lawmakers have little goodwill for ‘criminal’ PG&E

But a huge scandal since then has left Northern California lawmakers with less goodwill toward the 113-year-old utility, whatever Picker’s views and whatever their willingness to pass SB901.

In 2010, a PG&E transmission line exploded in the San Francisco suburb of San Bruno, leaving eight dead and destroying 38 homes. In 2017, a federal judge found the utility guilty of five felonies for its failings to safely maintain the gas line, and a sixth felony for obstructing the National Transportation Safety Board’s investigation into the disaster.

Sen. Jerry Hill, D-San Mateo, routinely refers to PG&E as a “criminal” institution. Last week, he renewed his call to break up the utility, saying it could no longer be trusted to act in the interest of public safety.

PG&E shares closed at $23.26 in Monday trading. That was down 58 percent from its 52-week high of $55.66.

One of the more embarrassing scandals in the history of the California Public Utilities Commission appears to have finally concluded with a settlement on how to pay for the costs of shuttering the broken San Onofre nuclear plant – one that’s far friendlier to ratepayers and far harder on shareholders than the original deal.

First opened in 1968, the San Onofre plant was long one of most heavily relied on sources of electricity for both Southern California Edison, which owns nearly 80 percent of the plant, and San Diego Gas & Electric, which owns 20 percent. But severe problems with relatively new Mitsubishi steam generators caused a series of radiation leaks in 2011 that led to the plant being shut down soon after and closed for good in 2013.

In 2014, the California Public Utilities Commission decided that about 70 percent of the $4.7 billion cost of San Onofre’s closure should be borne by Edison and SDG&E ratepayers – $3.3 billion. The decision angered some activists because of the view that San Onofre’s failure resulted from poor management of the plant by Edison officials, not anything ratepayers had done.

But attempts to overturn the decision ramped up in early 2015 with the revelation that the framework of the deal had been worked out in 2013 in a Warsaw, Poland, hotel in a private, never disclosed meeting between then-PUC President Michael Peevey and an Edison executive. After more than a year of intense criticism of the state regulators from lawmakers and activists, the PUC agreed to reopen the settlement in 2016.

Last week, commissioners voted unanimously to lop $750 million off the amount assessed ratepayers, meaning they and shareholders roughly split the cost of San Onofre’s closing. The savings will show up immediately in electricity bills of 6 million customers. That’s because fees that have been included in Edison and SDG&E bills since the settlement was approved in 2014 have been immediately cancelled, retroactive to December.

The deal was agreed on by Edison and SDG&E and by Citizens Oversight, a San Diego-based consumer group that sued in federal court over the 2014 settlement. The lawsuit claimed that forcing ratepayers to pay for a power plant that produced no power was an unconstitutional taking of property. The argument was rejected by a U.S. district court judge. But after the 9th U.S. Circuit Court of Appeals agreed to hear an appeal, the utilities began talks for a new settlement.

Probe of PUC president ends with no indictments

The fallout from the covert way the costs were initially divvied up went beyond forcing open the 2014 settlement. It added a new front in a criminal investigation of Peevey over allegations he traded favors with utilities. The probe ended up without any indictments.

The PUC fined Edison $16.7 million for failing to disclose its executive’s meeting with Peevey.

Meanwhile, Edison and SDG&E’s $7.6 billion lawsuit against Mitsubishi Heavy Industries over its allegedly defective equipment ended in 2017 with a result that deeply disappointed the utilities. The International Chamber of Commerce in San Francisco awarded them $125 million – but also required they cover $58 million of Mitsubishi’s legal fees, leaving them with a net $67 million.

Edison and SDG&E could also face staggering new bills because of San Onofre. That’s because they’re under huge pressure to find a new site to store the 3.55 million pounds of nuclear waste now kept at the San Onofre site. A report in March about basic problems emerging with the canisters storing the waste only added to concerns about the wisdom of having so much highly radioactive material in a heavily populated area.

Unless plans to open a huge federal nuclear waste repository in Yucca Mountain, Nevada, are revived, the utilities could be forced to set up their own remote storage site.

California’s three giant investor-owned utilities haven’t given up on hopes that state leaders and regulators may give their shareholders the financial protection they want in an era of frequent massive wildfires linked to climate change – and their hopes don’t seem as dim as they used to be.

In late November, the California Public Utilities Commission issued what syndicated columnist Thomas Elias called “perhaps its most consumer-friendly decision in several decades.” Affirming staff recommendations made in August, the CPUC board unanimously rejected a bid by San Diego Gas & Electric to pass along $379 million in unrecovered costs stemming from three blazes in 2007 that ravaged San Diego’s northeast suburbs, the city of Poway and unincorporated county areas, torching over 1,300 homes. The CPUC board noted that two independent investigations had concluded the fires were SDG&E’s fault because of poor maintenance practices in high-risk fire areas, and that utility shareholders – not ratepayers – should pay the bill.

But as the bureaucratic decision-making process played out in the San Diego case, the CPUC’s decision in the matter came to have immense importance to Pacific Gas & Electric because of what happened in its own back yard – the brutal October 2017 Wine Country wildfires (pictured). The cost of those Northern California blazes – about $10 billion – dwarfs the cost of San Diego County’s 2007 fires. PG&E’s liability exposure is also expected to be much higher than SDG&E’s – likely in the billions of dollars, according to reports that have regularly blamed PG&E wildfire management practices for the conflagrations, which left more than 40 dead.

PG&E, SDG&E and Southern California Edison officials see the CPUC ruling as a potential existential threat in a hotter, drier era and weren’t ready to let it stand as the final word. This led to what seemed like a long-shot January appeal by the three utilities seeking a new CPUC hearing for SDG&E’s bid for $379 million in relief.

It may not be as long a shot any longer. Gov. Jerry Brown issued a pronouncement March 13 mostly devoted to new efforts to minimize wildfire risk. But its passing reference to the governor’s interest in new legislation that would “update liability rules and regulations for utility services in light of changing climate” conditions caught the eye of Wall Street, at least.

PG&E stock price jumps on report from governor’s office

Barron’s gave PG&E its “hot stock” appellation after the utility’s stock price jumped 6.3 percent on March 13, to $45.10. As of the end of trading Friday, the price was down to $43.08. But that was still up more than 20 percent from its mid-February low.

Ultimately, the question of whether the utilities will get help from the California Legislature and the CPUC seems certain to become a huge political football. The governor has long been seen as close to the three utilities, vetoing reform bills related to recent scandals that have easily passed the Assembly and Senate in recent years.

But Brown is termed out and in his final eight-plus months on the job. With California Democratic politics seeming to have entered an intensely populist phase, leading candidates to replace Brown such as Lt. Gov. Gavin Newsom and former Los Angeles Mayor Antonio Villaraigosa may hesitate to back rule changes that can be depicted as insulating the utilities from the costs of their poor practices in addressing wildfire risks.

Several state legislators are determined to head off any lessening of utilities’ liabilities for their mistakes. In January, Sen. Jerry Hill, D-San Mateo, and seven co-sponsors in the Senate and Assembly introduced Senate Bill 819. Hill called it an “outrage” that state utilities wanted to make their customers pay for damages that “result from negligent practices.”

An April 17 hearing has been scheduled for the legislation.

Fueled by a dated system that does not always respond to market incentives or pressure, costs and surpluses of energy have both grown in California, raising pointed questions about what residents should expect from rates and regulations alike.

“California has a big — and growing — glut of power,” as the Los Angeles Times announced in a detailed report. “The state’s power plants are on track to be able to produce at least 21 percent more electricity than it needs by 2020, based on official estimates. And that doesn’t even count the soaring production of electricity by rooftop solar panels that has added to the surplus.”

“To cover the expense of new plants whose power isn’t needed […] Californians are paying a higher premium to switch on lights or turn on electric stoves. In recent years, the gap between what Californians pay versus the rest of the country has nearly doubled to about 50 percent.”

Growing outrage

The disparity has drawn steady fire from free market analysts. “In an open marketplace, gluts of products or services lead firms to slash their prices dramatically. If, say, car manufacturers produce too many vehicles, they will provide rebates or be stuck with lots full of unsold inventory,” Reason recently observed. “With California’s regulated utility system, by contrast, gluts in electricity actually raise prices for consumers because of the way utilities are paid for their investments. They need only get the approval from the Public Utilities Commission to build new plants and pass on costs to ratepayers.”

The gap between power and cost has grown to nationwide highs. November 2016 data from the U.S. Energy Information Administration, “showed California households paying 17.97 cents per kilowatt hour for electricity, or 40.9 percent more than the national average of 12.75 cents,” CNBC reported. “New England states also have high electricity costs. But out West, only Alaska and Hawaii have higher average electricity costs.”

Although controversy has swirled around the prospect of regulators approving new plants amid an energy glut, “experts say growing interest in energy storage — including battery energy storage technology — could have an additional impact on the electricity market in the nation’s most populous state,” CNBC continued. Michael Ferguson, U.S. energy infrastructure group director at S&P Global Ratings, told the network that new battery technology would help by storing surplus energy without having to produce more of it. 

Big plans

In fact, Edison and Tesla recently cut the ribbon on just such a storage system, moving from concept to execution in what utilities officials characterized as unprecedented time. “The facility at the utility’s Mira Loma substation in Ontario contains nearly 400 Tesla PowerPack units on a 1.5-acre site, which can store enough energy to power 2,500 homes for a day or 15,000 homes for four hours,” the Los Angeles Times reported. “The utility will use the collection of lithium-ion batteries, which look like big white refrigerators, to gather electricity at night and other off-peak hours so that the electrons can be injected back into the grid when power use jumps.

“Tesla and Edison sealed the deal on the project in September as part of a state-mandated effort to compensate for the hobbled Aliso Canyon natural gas storage facility. They fired up the batteries in December.”

Unless the utilities rejigger rates and storage, they could find pressure mounting to scale back their plans for a big outlay for electric transportation investment. “Southern California Edison would spend $19.45 million on six ‘priority review’ pilots and $553.8 million on a five-year charging infrastructure buildout,” according to the plan, UtilityDive noted. “San Diego Gas and Electric wants $18.19 million for six priority review pilots and $225.9 million for residential charging. And Pacific Gas and Electric has proposed $20 million for priority reviews and $233.2 million for two five-year charger buildouts. In all, it comes to $1.07 billion for a wide-ranging list of programs from heavy-duty transport electrification to incentives for Uber and Lyft drivers.”

The deal requires 70 percent of shutdown costs to be borne by ratepayers. It has drawn intense questions in the past year as evidence amassed of a you-scratch-my-back-I’ll-scratch-yours relationship between longtime California Public Utilities Commission President Michael Peevey and Edison, SDG&E and the state’s third investor-owned utility, Pacific Gas & Electric. Emails obtained from the PUC show Peevey frequently linking beneficial regulatory actions with the utilities taking actions he approved, including donating money to fight a 2010 initiative that would have scrapped AB32, the state’s landmark 2006 law forcing a shift to cleaner but costlier energy.

Peevey left the PUC board in December but has remained in the news ever since because of federal and state criminal investigations of his actions as the state’s top utility regulator. The most damning revelation came in February, when documents were discovered that showed the framework for the San Onofre bailout was established in an improper, never-disclosed 2013 meeting in a Warsaw, Poland, hotel room between Peevey and an Edison executive.

This meeting and other undisclosed communications between PUC officials and utility executives led Administrative Law Judge Melanie Darling last week to order a $16.7 million fine against Edison. The edict needs to be approved by the PUC — Darling works for the PUC, an example of the tidy way that regulators and utilities operate in California — but that is considered pro forma.

The fine is seen by some observers as a confirmation of the seriousness of the ethical failings on display in the Edison-PUC back-room relationship. It is certain to trigger fresh interest in the Legislature in adopting PUC reforms.

Six were approved in the most recent session, only to be vetoed three weeks ago by Gov. Jerry Brown on the grounds that they were an “unworkable” mish-mash of changes. The vetoes irked Assemblyman Anthony Rendon, the Lakewood Democrat who is slated to become speaker later this year and who has expressed extreme dismay over how the PUC has acted.

But the fine is considered irrelevant by the consumer advocates and trial lawyers who are the PUC’s loudest critics, given how much Edison will save because ratepayers will have to pay $3.3 billion of the $4.7 billion needed to safely shutter San Onofre.

Mike Aguirre, the former San Diego city attorney, suggested the administrative law judge’s recent hearings on Edison’s relationship with Peevey and the PUC were kabuki — a staged show to prop up the status quo.

“With one hand the CPUC is giving Edison $3.3 billion, with the other hand they’re taking back some extra change,” Aguirre told the Los Angeles Times. “This is all cosmetic.”

Brown said the six bills had several worthwhile ideas. “Unfortunately, taken together there are various technical and conflicting issues that make the over 50 proposed reforms unworkable. Some prudent prioritization is needed,” he wrote.

Sen. Mark Leno, D-San Francisco, and Sen. Ben Hueso, D-San Diego, who co-sponsored Senate Bill 660, the most sweeping reform measure, expressed disappointment and dismay. So did Assemblyman Anthony Rendon, the Lakewood Democrat who will take over as speaker in coming months.

The measures were intended to limit back-room dealings in which PUC officials and board members met surreptitiously with representatives of the state’s powerful investor-owned utilities. The most notorious example was a 2013 meeting in a Warsaw, Poland, hotel between then-PUC President Michael Peevey and a Southern California Edison executive at which the parameters were set for a later-approved deal in which ratepayers bore 70 percent of the $4.7 billion cost of the shutdown of the San Onofre nuclear plant. Southern California Edison is San Onofre’s majority owner and San Diego Gas & Electric is the minority owner. The meeting and its central role in the bailout approved by the PUC wasn’t disclosed until February of this year.

Ex-PUC president’s home searched by investigators

Peevey is the subject of state and federal criminal investigations over the San Onofre deal and other PUC decisions. He left the PUC under pressure in late 2014. Soon after, his La Canada Flintridge home was searched by investigators looking for evidence of improper relationships with the utilities he used to govern.

Within weeks after the raid, the PUC released emails that raised troubling questions about the cozy ties between Peevey and top officials at Pacific Gas & Electric, the giant Northern California utility. This is from a February CalWatchdog account:

Emails show Peevey pressured PG&E to give money to oppose Proposition 23, the failed 2010 ballot measure opposing AB32; appeared to link his support for rate hikes to PG&E actions on unrelated issues; and was open to PG&E efforts to influence inquiries into a San Pedro pipeline explosion that killed eight people. … He sought to prop up a project by the Hydrogen Energy California (HECA) firm by constantly reminding PG&E how much he had done for it.

The Brown administration promised to work with lawmakers on a more streamlined reform proposal in coming months. But in the meantime, as Hueso told the Union-Tribune, the PUC has “little incentive to work toward a culture of openness and accountability.”

The agency has been accused of being excruciatingly slow in releasing crucial documents, whether to criminal investigators, the Legislature or journalists. It also appears to be shrugging off growing calls to scrap the deal on how to cover the $4.7 billion cost of closing San Onofre.

Michael Aguirre, the San Diego attorney who led testimony against the San Onofre plan last fall, had the sharpest reaction to the governor’s decision. He told the Union-Tribune that “Jerry Brown’s vetoes show he is helping — not stopping– the dishonest practices known to the people of California.”

Brown chose aide to replace Peevey, not outsider

A previous decision by the governor already suggested he doesn’t share the prevailing view in Sacramento that the PUC is badly in need of a culture change. When Peevey was forced out in December of last year, Brown could have appointed an outside energy expert with a history of independence. Instead, he named PUC board member Michael Picker as president. Though Picker has only been on the board since January 2014, he is an energy establishment insider, working for Brown — and with the utilities  — from 2009 as a senior energy adviser until joining PUC management.

Despite continued criticism of PUC secretiveness, Picker’s selection as board president was ratified by the state Senate a month ago.

Jason Hickey / flickr

California’s powerful, politically connected giant electricity utilities are used to getting their way and to getting help when things go wrong.

When an ineptly designed state power “deregulation” law exposed Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric to catastrophic losses in early 2001, Gov. Gray Davis and the state Legislature jumped in with controversial state-dictated emergency deals that stabilized the companies. Earlier this year, the Public Utilities Commission approved a deal in which PG&E’s $1.6 billion fine for the 2010 San Bruno natural-gas disaster included $850 million for transmission-line safety upgrades and improvements the utility intended to make anyways.

But in San Diego County, there’s been slowly building opposition to the PUC’s November approval of a plan in which $3.3 billion of the $4.7 billion cost of closing both the reactors at the San Onofre nuclear power plant is borne by ratepayers. Edison is 80 percent owner of the plant, while SDG&E owns the remaining 20 percent. As part of the plan, there has been no formal PUC investigation into the problems that led to the plant being shuttered.

The PUC, Edison and SDG&E maintain that the deal was in keeping with established practices in the utility industry and that there is nothing unusual or onerous about how the costs were divvied up. They note that the initial proposal from the PUC staff was modified to make it more friendly to ratepayers.

However, the circumstances of the initial negotiations — in which key decisions were made on March 26, 2013, in a secret meeting between then-PUC president Michael Peevey and an Edison executive named Stephen Pickett in a hotel room in Warsaw, Poland — continue to produce headlines and ongoing civil and criminal investigations. Peevey’s home was raided by FBI agents early this year.

The PUC’s resistance to independent investigators is also adding to the fire. Utility officials have long resisted releasing basic information about the San Onofre decision-making process.

But beyond the veneer of scandal, many San Diego County ratepayers keep returning to the circumstances that led to San Onofre’s closure.

Both reactor units [went offline in] January 2012, after a small leak of radioactive gas prompted shutdown of one unit; the other was already offline for routine maintenance.

 

Unexpected wear was found in the metal tubes that carry radioactive water in all four of the plant’s steam generators, two generators for each reactor.

 

The steam generators were installed between 2009 and early 2011 in a $670 million operation.

That’s from the O.C. Register.

‘Where do we find accountability?’

Dozens of letter-writers and online commentators argue that Mitsubishi, the Japanese conglomerate that made the defective generators, should be forced to pay damages beyond refunds it has already agreed to do in litigation.

These critics also wonder how Edison and SDG&E can only be socked with 30 percent of the San Onofre closure costs when their management of the plant’s upkeep was so poor that huge, costly, essential new machinery started faltering almost immediately.

A reporter for Northern California’s KQED caught the public’s mood in a visit to San Diego this spring:

Sorrentino’s Pizza owner Patrick Quinn is tired of watching the energy bill at his San Diego restaurant go up each month [as a result of SDG&E’s big rate hikes] …

 

Quinn calls [the $4.7 billion] settlement illegitimate because the Public Utilities Commission allowed it without a full investigation of who was responsible for the plant’s failure and who should be held accountable.

 

“Where do we find accountability?” Quinn said. “The steam generators — why did they fail? These are simple questions that should be asked.”

‘I’m not here to answer your goddamned questions’

The San Diego trial lawyer who is targeting the PUC and utilities in a lawsuit — former City Attorney Mike Aguirre — opposed the San Onofre deal from the start. As the Union-Tribune reported, this led to an ugly turn at a May 2014 PUC board meeting.

The president of the California Public Utilities Commission swore and angrily refused to answer questions last week at an unusual hearing at which he was asked about communication with his former employer, Southern California Edison.

 

The president, Michael Peevey, was questioned by former San Diego City Attorney Mike Aguirre about his role if any in reaching a proposed settlement between utility companies and consumer advocacy groups regarding $4.7 billion of shutdown costs for the San Onofre nuclear power plant.

 

Aguirre asked Peevey if he had any meetings with Edison, the company he once headed, regarding the settlement.

 

Such contact would be inappropriate because Peevey and the commission are supposed to be impartial arbiters at public proceedings regarding whether the settlement is fair to all parties.

 

Aguirre is making the case that it’s a bad deal for utility customers to cover $3.3 billion of the shutdown costs, as proposed in the settlement.

 

“I’m not here to answer your goddamned questions,” Peevey told Aguirre. “Now shut up — shut up!”

Eight months later, emails obtained by the Union-Tribune revealed that Aguirre’s speculation was correct: Peevey had met with the Edison executive in Poland in 2013 to talk about San Onofre’s closing and who would pay for it.

Last week, another lawsuit was filed in San Diego federal court, the U-T reported.

A federal lawsuit filed this week accuses two top Edison International executives of harming shareholders by failing to disclose secret meetings with California regulators regarding a $4.7 billion settlement of costs for the failure of the San Onofre nuclear plant.

 

The lawsuit alleges that Edison CEO Ted Craver and Chief Financial Officer Jim Scilacci failed to disclose private communication with decision makers at the California Public Utilities Commission, including a March 2013 meeting at a luxury hotel in Poland.

Meanwhile, civil and criminal investigations of the PUC continue. There are no indications, however, that indictments or fines will be announced anytime soon. The PUC is still deciding which documents to provide investigators, and utilities have also balked at some requests for information.

This cloud over the PUC comes at a particularly delicate point. California’s embrace of renewable energy is forcing the regulator to rethink how the state’s electricity grid can be maintained and kept healthy going forward. As the San Jose Mercury News reported last month, it wasn’t built with the idea that it would receive energy from so many different sources.

Nearly 23 percent of California’s energy now comes from renewable sources such as wind and solar, and the state is on track to reach its goal of generating one-third of its energy from renewables by 2020. But feeding all that green energy into the Golden State’s grid — without overloading it — has become a major challenge.

That’s because the state’s aging natural gas plants aren’t nimble enough to turn off when the sun starts shining and then quickly switch back on when it gets dark. And while the technology to generate clean energy is growing by leaps and bounds, efforts to store the power haven’t kept up. …

Roughly 140 companies sell to the market, resulting in about 27,000 transactions per day. The [California Independent System Operator, or ISO] makes sure the purchased electricity makes it to the utilities’ substations. …

Solar generation hit record in early March

In the morning, electricity demand rises as people wake up and turn on appliances, lights and electric toothbrushes. And as the day wears on, the state is increasingly dependent on solar plants, especially in the afternoon.

A recent record was set on March 6, when solar peaked at 5,812 megawatts, five times what it was three years ago. All this solar power is allowing California to cut back on natural gas — which now provides about 60 percent of the state’s energy needs — and other traditional sources of electricity.

But this can be a problem because the sun sets at the same time that people are returning home. That causes electricity use to surge, and the power plants that were turned down or even off need to start producing — fast.

The majority of California’s power plants, however, aren’t up for the abrupt on-and-off challenge.

Officials with ISO, the nonprofit that manages the state’s electricity grid, see a need to build new natural-gas plants and retrofit old ones to deal with the headaches the system now faces. Peevey was much less hostile to natural-gas plants than members of the state’s green movement.

But if the PUC, with new president Michael Picker, continues this approach, he is sure to be depicted as being under the thumb of giant utilities.

Another headache: How to deal with solar homeowners and grid?

The PUC faces a related headache with homeowners and companies with solar panels which want to continue favorable rates they get for sending their excess power to the grid. San Diego Gas & Electric says the current approach doesn’t pencil out, as the U-T San Diego reported:

Under current regulations, solar owners get to sell their power into the grid at the full retail price, offsetting their costs at night when they pull electricity into their homes.

Everywhere else in the utility economy, power producers must sell at lower, wholesale prices. In most cases, they even pay for their use of the grid to reach customers.

So the PUC faces explosive questions here as well. Thousands of homeowners and companies with solar technology only made the costly investment because of a long-term expectation of a great deal from utilities. But if this great deal plays havoc with utilities’ bottom lines, they’ll need to transfer costs to their customers who don’t have solar panels.

And every rate change SDG&E, PG&E and Edison seek will be considered with the backdrop of recent scandals in which Peevey appeared to have an extraordinarily chummy relationship with the three utilities.

It appears to be a recipe for distrust and controversy going forward as the PUC reckons with a new era in California power generation.

The report is a serious attempt of the CHSRA to let the California Legislature know the true status of the program. It includes four pages of “Issues” and 13 pages of “Risks.”

The CHSRA highlighted the project’s groundbreaking, which occurred on Jan. 6:

“The event highlighted the work that is already underway in the Central Valley on Construction Package 1 (CP 1), and underscored the Authority’s commitment to advancing the program on multiple project sections concurrently in order to deliver statewide mobility and environmental benefits sooner.”

However, as CalWatchdog.com noted at the time, the groundbreaking was more appearance than reality, as progress on the project continues at a slow pace. 

The report was enthusiastic. “Crucial to the start of heavy construction, 105, or 28 percent, of necessary parcels have been delivered to the DB [Design Build] contractor,” it said. But that also means 72 percent of the parcels still have not been delivered.

The March 3 Los Angeles Times also reported, “The contractor building the first segment of the California bullet train system said Monday it is seeking compensation for delays in the project and is not likely to start any major construction until June or July — months later than state officials said just weeks ago.”

Lawsuits

The report took up the lawsuits against the project:

• “In December 2014, the Authority and the City of Bakersfield announced that they had reached a settlement agreement to dismiss the city’s California Environmental Quality Act (CEQA) lawsuit.”

• “In February 2015, the Authority announced that it had also reached a settlement agreement with Coffee-Brimhall LLC, a developer entity that owns land in Bakersfield.”

• The CHSRA acknowledged the five remaining lawsuits concerning the Fresno to Bakersfield segment: “While the Authority continues to work with its stakeholders and partners through the remaining CEQA lawsuits, the Surface Transportation Board’s approval of the project section’s environmental document in July 2014 allows the Authority to move forward with construction-related activities within the project section up to 7th Standard Road.”

The future of these lawsuits and other CEQA cases may be determined by a case before the California Supreme Court called Friends of Eel River v. North Coast Railroad Authority. The Legislative Report explained:

“A stay is requested to allow time for the California Supreme Court to decide the Friends of Eel River v. North Coast Railroad Authority case which is currently under review. In Eel River the Court will decide whether CEQA is preempted for a publically owned railroad that is under the jurisdiction of the Surface Transportation Board. Eel River will have implications in the CEQA cases filed against the Authority.”

Electrical connectivity    

Another issue involved the California Public Utilities Commission. The matter was included in the Legislative Report’s lawsuits section, but not in all aspects. According to the CHSRA:

“On March 21, 2013, the PUC issued the Order Instituting Rulemaking (OIR), at the request of the Authority, which initiated a rulemaking proceeding. The stated goal of the OIR was to ‘determine whether to adopt, amend or repeal regulations governing safety standards for the use of 25kv electric lines to power high-speed trains.’”

Under actions taken, the CHSRA wrote:

“The Authority has reached agreement with all parties to the proceeding on all terms of the General Order. The Authority presented the settlement General Order to the PUC on January 26, 2015. The General Order is currently pending adoption by the PUC, with an anticipated adoption at the March 2015 PUC Commissioners meeting.”

However, the CPUC must conduct an environmental report for electrifying the project, which could in fact have implications for the project.  Permits at the earliest are not expected until 2017.  According to the CPUC Report:

“The Initial Operating Segment of the High Speed Rail line is Madera to Bakersfield with a targeted operation date of 2022. This requires electrical connectivity at least 2 years prior, with permits to construct facilities by 2017. To grant such permits, the Energy Division needs to start work no later than 2014-2015 to complete environmental review (usually takes at least a year) and permit review by mid-2017” 

It is not a simple process. The CPUC report described the required involvement of the CPUC, Pacific Gas & Electric, Southern California Edison and the CHSRA for the purpose of carrying out environmental review.

New lawsuit

Absent from the CHSRA’s Legislative Report is the newest suit, filed on Feb. 9, against CalTrain, the Bay Area commuter system. The suit was filed by the city of Atherton, the Transportation and Education Defense League and the Community Coalition on High-Speed Rail.

Among other things, the lawsuit, as CalWatchdog.com reported at the time:

• Seeks to force the board to acknowledge the impacts CalTrain’s project, and the closely associated high-speed rail project, will have on the San Francisco Peninsula. Specifically, it questions the effect of electrification for the high-speed rail project will have on the peninsula.
• Asserts that, by 2040, CalTrain will not be able to accommodate more passengers. Surplus capacity that would otherwise be available to run more CalTrain trains would instead be committed to the high-speed rail project.

Kit Fox

The CHSRA Legislative Report also did not include its alleged violation of the National Endangered Species Act involving the San Joaquin Kit Fox, at least not directly. As CalWatchdog.com reported last month:

“The environmentalist group Defenders of Wildlife labels it ‘one of the most endangered animals in California.’ 

“On Jan. 26, the Sacramento office of the Fish and Wildlife Service of the U.S. Department of the Interior sent the CHSRA a letter about the kit fox’ habitat in the project’s 29-mile-long Construction Package 1. The letter charged the CHSRA and the Federal Railroad Authority with causing ‘the loss of nine acres of suitable habitat for the San Joaquin kit fox, located outside the project footprint … and the destruction of a potential San Joaquin kit fox den.’”

Although not addressing the Kit Fox directly, the CHSRA’s Legislative Report said as a retroactive response:

“The Authority released an RFP for Habitat Mitigation Services in January 2015. The habitat mitigation services will satisfy environmental approvals and federal and State permit requirements related to habitat for federally and State-listed endangered or threatened wildlife and wetlands and waters of the United States…. With the habitat mitigation services contract in place, anticipated in spring 2015, the federal and state regulatory agencies will have the mitigation assurances needed to issue permits for CP 2-3 and CP 4.” 

Cap-and-trade

Finally, the lawsuit over using $250 million of cap-and-trade money to build the high-speed rail project also was not disclosed in the Legislative Report. As CalWatchdog.com reported:

“TRANSDEF charged that cap-and-trade revenues, according to AB32, only can go to reduce greenhouse-gas emissions. TRANSDEF President David Schonbrunn said in the statement, ‘The claimed GHG [greenhouse gas] emissions reductions are a very expensive fantasy,’ because the California High-Speed Rail Authority depends ‘on $30 billion of project funding that the Authority doesn’t have and can’t get.'” 

In sum, although the CHSRA included a great deal in its latest Legislative Report, it also did not include some important information. However, outside the report, it is lawsuits, the state’s financial position and the facts on the ground that will determine the project’s fate.

Kathy Hamilton is the Ralph Nader of high-speed rail, continually uncovering hidden aspects of the project and revealing them to the public.  She started writing in order to tell local communities how the project affects them and her reach grew statewide.  She has written more than 225 articles on high-speed rail and attended hundreds of state and local meetings. She is a board member of the Community Coalition on High-Speed Rail; has testified at government hearings; has provided public testimony and court declarations on public records act requests; has given public testimony; and has provided transcripts for the validation of court cases.