​CPUC Approves PG&E Bankruptcy

The California Public Utilities Commission (CPUC) approved Pacific Gas and Electric Company’s (PG&E’s) bankruptcy Plan of Reorganization on May 28, 2020. Decision 20-05-053 marks a critical step toward obtaining final Bankruptcy Court approval of the Chapter 11 petition filed on January 29, 2019 by PG&E and its parent holding company, PG&E Corporation.

The PG&E bankruptcy came after a series of major wildfires in 2017 and 2018 where the ignition points are attributed to PG&E infrastructure. In 2019 the California Legislature enacted Assembly Bill 1054, which established a Wildfire Fund funded by utility ratepayers and shareholders to pay victims for eligible claims caused by utility infrastructure. To participate in the Wildfire Fund, PG&E must resolve its bankruptcy no later than June 30, 2020 and meet other requirements including CPUC approval of the reorganization plan. The CPUC’s decision was timed to coordinate with the Bankruptcy Court proceedings and meet the aggressive AB 1054 deadline. The CPUC emphasized that, while the decision resolves some issues critical for AB 1054 compliance, it can only take “initial steps” on other issues and direct additional work to be done over time as part of the continuous oversight by the CPUC.

Following requirements established by AB 1054, Decision 20-05-053 approves the PG&E Plan of Reorganization (with additional conditions added by the CPUC) including analysis and findings on the following:

• Conditions to establish a stronger safety culture. PG&E will add executive level Chief Risk Officer and Chief Safety Officer, as well as an Independent Safety Advisor who will perform monitoring and report to the CPUC. PG&E’s safety and nuclear oversight board committees will have expanded staffing and oversight over PG&E’s Wildfire Mitigation Plan (WMP), Public Safety Power Shutoff (PSPS) program, compliance with safety and operational metrics, and PG&E’s response to the recommendations of the Independent Safety Advisor. PG&E board members must meet qualifications for skills and experience proposed in PG&E’s plan, and additional criteria prescribed by the CPUC. The CPUC will oversee board director selection for at least seven years. Senior management of PG&E must be approved by the safety and nuclear oversight committees. New safety and operational metrics will be developed in a future proceeding. PG&E will file an application by June 30, 2020 proposing a regional restructuring plan creating local operating regions for additional oversight and accountability. The CPUC will implement an Enhanced Oversight and Enforcement process to monitor PG&E. The CPUC also found, as required by AB 1054, that the reorganization is acceptable in light of PG&E’s current criminal probation (in-state court proceedings initially arising out of the San Bruno gas explosion and now expanded to address wildfire events).
• Consideration of financial issues relating to the Plan of Reorganization. The decision authorizes PG&E to issue new long- and short-term debt and equity. As required by AB 1054, the decision determines that the PG&E plan is “neutral, on average” to PG&E ratepayers, and that there are no ratepayer contributions that need to be compensated as part of the approval process. The decision further finds that PG&E’s proposed recovery of approximately $154 million financing related costs is consistent with the AB 1054 requirement because of projected interest cost savings, with the caveat that approval is conditioned on a future showing at the time that PG&E requests rate recovery. PG&E will not seek recovery for wildfire claims outside of a proposed securitization application that will be considered separately from this AB 1054 review process. The CPUC approved the financial elements of the reorganization plan, but recognizing the uncertainty of predicting PG&E’s future financial condition, granted only a temporary (5 year) waiver from the utility’s authorized capital structure. PG&E will annually update the Commission on its current capital structure and deviation from the authorized capital structure, credit ratings, and an updated forecast for de-leveraging. The CPUC declined to establish a safety-based earnings adjustment mechanism in this decision but indicated its intent to consider doing so in other ongoing proceedings. As required by AB 1054, the decision finds that PG&E’s executive compensation plan “minimally and conditionally” satisfies statutory requirements, with modifications. However, the CPUC will continue monitoring and refining the executive compensation plan in future proceedings. PG&E submitted its application for the “securitization” bonds in A.20-04-023 on April 30, 2020.
• Impact on Climate. The decision finds that since PG&E will maintain its existing renewable energy power purchase agreements and pursue renewable portfolio standard (RPS) obligations, the reorganization plan satisfies the statutory requirement to be consistent with California’s climate goals.
• Quality of service and quality of management. The decision finds that the plan of reorganization has the potential to improve both the quality of service to ratepayers and to improve the quality of management. The CPUC will consider metrics in a future proceeding.
• Effects on employees and communities. The decision finds that the plan of reorganization is fair and reasonable to PG&E employees, and that the regionalization proposal has the potential to benefit local communities.
• Reimbursement of CPUC costs. PG&E will reimburse the CPUC for fees and expenses incurred for outside counsel and financial advisor for services relating to the Chapter 11 case, related proceedings and associated financing.

ESHD attorneys continue to monitor numerous wildfire and bankruptcy related activities at the CPUC, in the courts, and in the California Legislature. For more information contact Andy Brown or Ron Liebert.