PG&E Achieves Bankruptcy Milestone as It Fights Probation Conditions

SAN FRANCISCO (CN) – California regulators on Thursday approved Pacific Gas and Electric’s plan for exiting Chapter 11 bankruptcy as the company fought in federal court to block a set of strict new probation terms aimed at preventing wildfires.

The California Public Utilities Commission unanimously approved PG&E’s $57.6 billion reorganization plan with certain modifications that will make the company submit to stricter oversight, change the makeup of its board and create a new regionalized management structure.

“Today’s decision is an important milestone to achieving the completion of the bankruptcy process and the compensation of the wildfire victims impacted by the wildfires of 2017 and 2018,” CPUC president Marybel Batjer said.

The modified plan gives CPUC the power to revoke PG&E’s operating license if it causes another catastrophic wildfire or fails to demonstrate an improved safety record. It also requires that half of the utility’s board of directors be California residents.

It further mandates that PG&E hire an independent safety adviser to serve the same role as a federal court-appointed monitor when its criminal probation term ends in January 2022. The company must also form a new independent safety committee that will report directly to its board of directors.

As part of its plan for exiting bankruptcy, PG&E has agreed to pay $25.5 billion in settlements, including $1 billion for 18 public entities, $11 billion for insurers who covered wildfire losses and $13.5 billion in cash and stock for all other wildfire claims.

The next hurdle will be obtaining approval from a federal bankruptcy court. PG&E must get its bankruptcy plan confirmed by a June 30 deadline to gain access to a state-created insurance fund to protect it from future wildfire liabilities.

Probation Terms

Also on Thursday, PG&E argued in federal court against a set of new probation terms imposed by U.S. District Judge William Alsup, who oversees PG&E’s probation for felony convictions related to the fatal 2010 San Bruno gas pipeline explosion.

During that hearing, PG&E lawyer Kevin Orsini argued the company’s current inspection program is working as intended to prevent catastrophic wildfires. He said the new probation conditions would only serve to undermine the company’s efforts.

“The enhanced inspections are working and are a fundamental sea of change from what PG&E was doing in the past,” Orsini said.

The new conditions imposed on April 30 would force PG&E to hire its own tree inspectors, design a new inspection program that includes tracking the age of all transmission line equipment and video taping inspections and require all contractors carry adequate insurance to cover wildfire losses.

Orsini argued the court lacks evidence to support its theory that such conditions would improve fire safety. He further insisted that the requirements would interfere with the state’s exclusive power to regulate utilities.

Alsup replied that accepting PG&E’s position would mean the court could never enforce probation terms, including prior conditions that require PG&E to comply with state laws and meet all targets in its 2019 wildfire safety plan. PG&E acknowledged in January that it failed to meet every target in the state-mandated plan.

“You promised the U.S. District Court you would comply with that plan,” Alsup said. “What remedy then do I have to make you comply with the conditions of probation? Don’t I have some authority to make you clean up your act?”

On forcing the company to hire its own inspectors to review tree trimming work done by contractors, Orsini said the company would waste resources hiring the same workers already employed by outside companies that have the expertise, manpower and flexibility to provide that labor.

Alsup said he was surprised to hear PG&E object to that condition since the company’s lawyers indicated at a hearing in February that it planned to hire its own in-house pre-inspectors.

“Now you flim-flam me and say, ‘We never got a hearing on that,’” Alsup said. “It was your idea.”

Turning to the requirement that PG&E video tape inspections, Orsini said the company already requires high-resolution photos for inspections that come with GPS location markers and other data to prevent falsification of records.

“We already have a robust system in place through the photography to show whether or not the inspection actually occurred,” Orsini said. “There’s no evidence that videotaping would provide any added value.”

Alsup replied that every time a problem occurs, PG&E produces inspection records and says it did everything properly, but the reports lack necessary information.

“It’s designed to conceal what really happened and what was really tested so you can say, ‘Judge the inspections all said everything was fine. We did our job,’” Alsup said.

Addressing the requirement that PG&E keep records on the age or estimated age of all transmission line equipment, Orsini said that would not help the company identify what components need to be replaced.

“Age can be a poor indicator of condition,” Orsini argued.

On Alsup’s directive that PG&E require all tree trimming contractors carry adequate insurance, Orsini said contractors simply cannot obtain the type of insurance that would cover up to billions of dollars in losses.

“The insurance market for wildfire liability in California just doesn’t really exist anymore,” Orsini said.

Representing the CPUC, attorney Christine Hammond said the commission is concerned Alsup’s probation terms “could be at odds with the commission’s regulation of PG&E” and cause “unanticipated consequences that could be detrimental” to wildfire safety.

Federal prosecutor Noah Stern argued Alsup has authority to impose those probation terms, but he suggested the judge postpone enforcing them until more evidence is submitted on their “feasibility and likely effectiveness.”

Representing two PG&E customers who filed a separate lawsuit over a state-created insurance fund for utility-caused wildfires, attorney Michael Aguirre urged Alsup not to let PG&E or others dissuade him from imposing the new probation conditions.

Aguirre argued that PG&E is “heavily influencing” the CPUC. He asked Alsup to hear testimony from CPUC employees who investigated PG&E’s role in causing wildfires and to review evidence of secret meetings PG&E held with Governor Gavin Newsom before Assembly Bill 1054 was passed in July 2019. Aguirre has argued that law created a $13.5 billion “bailout” for private utilities funded by ratepayers.

“We hope that your honor will keep the pressure on and not allow this misinformation to mislead you,” Aguirre said.

After more than two hours of debate, Alsup ordered all parties to submit follow-up briefs within three weeks on the feasibility of the probation terms and alternate recommendations.

Bankruptcy Court Bench Trial

Also on Thursday, PG&E’s executive vice president and chief financial officer Jason Wells testified on the second day of a bench trial on confirmation of PG&E’s bankruptcy plan.

Santa Rosa resident and Tubbs Fire survivor Will Abrams asked Wells if the company’s ability to comply with laws and prevent wildfires are important to its future financial solvency.

“We’re absolutely committed to adhering to all laws,” Wells said.

PG&E declared bankruptcy on Jan. 29, 2019, as its finances buckled under the weight of a potential $30 billion or more in wildfire-related liabilities. The company was accused of negligent maintenance of equipment and trees near power lines that caused at least 19 wildfires in 2017 and 2018 that killed more than 100 people.