California Regulator Seeks PG&E Bankruptcy Plan Changes, Proposes $2 Billion Wildfire Fine

The California Public Utilities Commission on April 20 proposed to approve Pacific Gas & Electric Company’s bankruptcy reorganization plan with conditions, including changes to the company’s governance structure, enhanced oversight, and creation of local operating regions. The commission also proposed $1.937 billion in penalties for the utility’s role in causing the catastrophic wildfires in its service territory in 2017 and 2018. The record fine is an increase of about $262 million from a settlement announced in December. The penalty includes a $200 million fine payable to the state’s general fund, but the company’s obligation to pay that amount is permanently suspended, so that the payment does not reduce the funds available to satisfy wildfire victims’ claims.

The new oversight tools and changes to the reorganization plan are designed to ensure that PG&E will emerge from bankruptcy as a fundamentally changed company that has a commitment and ability to provide safe and reliable service while improving measures to mitigate wildfire risk and achieve the state’s climate goals. The oversight provisions would establish a process under which PG&E could lose its license in the event of future safety violations; re-orient the governance structure to create further safety accountability and better representation of customers; and require local operating regions to bring management closer to customers. The proposal will be on the commission’s May 21 voting meeting agenda.

The penalties include more than $1.82 billion in disallowances for wildfire-related expenditures, an increase of $198 million over the amount contained in the settlement. Therefore, PG&E shareholders will bear those expenditures which the company would otherwise seek to recover from customers. PG&E would have to pay $114 million in “system enhancement initiatives” and corrective actions, about $64 million higher than the settlement amount. In addition, any tax savings associated with the shareholder payments would be returned to the benefit of ratepayers. The proposal will be considered in the commission’s May 7 meeting.

PG&E must emerge from bankruptcy by June 30, the deadline set forth by legislation enacted in July, for participation in a newly-established wildfire fund. The fund is designed to facilitate prompt payments to future wildfire victims and benefit ratepayers by reducing the utilities’ cost of financing for future investments in safety and other infrastructure improvements. If confirmed by the Bankruptcy Court, PG&E’s reorganization plan will establish a $13.5 billion trust fund to pay wildfire victims.

Last January, PG&E filed to reorganize under Chapter 11 of the U.S. bankruptcy code to deal with billions of dollars in potential liability arising from the 2017 and 2018 Northern California wildfires.