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California

Gov. Gavin Newsom hints at government control of PG&E if bankruptcy effort fizzles

Bonin, Newsom, Garcetti
Los Angeles City Councilman Mike Bonin, left, Gov. Gavin Newsom and L.A. Mayor Eric Garcetti look at fire devastation in Brentwood.
(Wally Skalij / Los Angeles Times)

Gov. Gavin Newsom demanded Friday that Pacific Gas & Electric shareholders and executives, wildfire victims, bondholders and other parties involved in the company’s bankruptcy convene in Sacramento next week to work out a deal — and threatened to craft a government-led plan to restructure the state’s largest utility if an agreement isn’t reached quickly.

“It is my hope that the stakeholders in PG&E will put parochial interests aside and reach a negotiated resolution so that we can create this new company and forever put the old PG&E behind us,” Newsom said in a statement. “If the parties fail to reach an agreement quickly to begin this process of transformation, the state will not hesitate to step in and restructure the utility.”

Newsom hinted at a possible government takeover of PG&E as public anger continues to grow in Northern California after back-to-back record-setting power shut-offs that left millions of customers in the dark for days on end. Under mounting pressure to take action, Newsom repeated at a news conference Friday a pledge to increase state oversight of the troubled company. He said the state’s intervention would ensure the utility that emerges from bankruptcy prioritizes safe, reliable and affordable service.

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PG&E filed for bankruptcy in January, citing some $30 billion in liability costs from wildfires linked to its equipment. In one of the latest developments in the case, U.S. Bankruptcy Judge Dennis Montali agreed last month to consider a competing plan from bondholders to resolve the utility’s liabilities, raising the possibility that existing PG&E shareholders could be wiped out at the conclusion of the case.

The governor’s plans build on a law the California Legislature approved over the summer, AB 1054, that set certain conditions for PG&E to exit bankruptcy in order to access a multibillion-dollar fund established to help the utilities pay wildfire costs.

The law includes requirements that PG&E settles claims with wildfire victims, exits bankruptcy by June 30, 2020, without raising rates on consumers and ties executive compensation to safety. In accordance with the law, Newsom said that he has instructed his staff to develop “a blueprint for what a 21st century utility should look like” to serve as a model for the company going forward.

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If the parties in the bankruptcy case fail to reach a hasty agreement that addresses California’s safety concerns and its blueprint, an advisor to Newsom said the state is preparing to submit a motion to the court requesting to introduce its own reorganization plan. The state’s involvement in the bankruptcy case is largely novel territory and it’s up to the judge to accept such a proposal, an advisor to Newsom said.

“We welcome the governor’s and the state’s engagement on these vital matters and share the same goal of fairly resolving the wildfire claims and exiting the Chapter 11 process as quickly as possible,” James Noonan, a spokesman for PG&E, said in a statement. “PG&E is committed to working with all stakeholders to make the necessary changes moving forward to be the company our customers and communities want and deserve.”

Newsom declined to offer a timeline to resolve the negotiations before the state would introduce its own proposal.

“PG&E, as we know it, may or may not be able to figure this out,” Newsom said. “If they cannot, we are not going to sit around and be passive. The final point I want to make is, we are gaming out a backup plan. If Pacific Gas & Electric is unable to secure its own fate and future and work through the process of getting people together and working to address the needs of debt and equity bondholders and lawyers and victims and subrogation claims, then the state will prepare itself as backup for a scenario where we do that job for them.”

Newsom said the state is just beginning to scope out its alternative restructuring proposal and declined to say whether a plan submitted to the court would give the state control over the utility.

“The scoping process is complex and it is not helpful at this stage to run down that rabbit hole,” Newsom said. “You’ll see that there are many many different pathways, many doors, down that and we’re scoping all of that and we’ve made no determination. This is the backup plan if these guys can’t get their act together. But I would say in broad strokes if you looked at an ISO-like structure, that would be a good place to start.”

Created in 1996 as a nonprofit public benefit corporation, the California Independent System Operator runs much of the state’s electric grid. The governor appoints five members that serve staggered terms on the CAISO board of governors, overseeing budgets, policies and grid planning.

State Sen. Jerry Hill, a San Mateo Democrat and longtime critic of PG&E, commended Newsom.

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“California has told PG&E many times, in many ways, that the way it does business is unacceptable and it must change,” Hill said in a statement. “Today, Gov. Newsom told PG&E to get on with it or get out of the way.”

The governor tapped his cabinet secretary, Ana Matosantos, to lead a new team to focus on pulling PG&E out of bankruptcy in a way that ensures fire victims are justly compensated for their loses. The team would also develop a plan for a new utility that makes safety paramount.

Matosantos served as a budget director to former Govs. Arnold Schwarzenegger and Jerry Brown, winning praise for overseeing efforts by both governors to dig the state out of its deep fiscal crisis in the wake of the Great Recession.

Before joining Newsom’s administration, she worked on the federal commission former President Obama created to monitor the fiscal crisis of Puerto Rico. As the governor’s cabinet secretary, she has had a hand in almost every one of Newsom’s policy efforts during his first year in office, an advisor with perhaps the most experience in how Sacramento works.

Newsom’s announcement Friday comes after he hammered PG&E during a tour of areas of the state affected by wildfires and power shutoffs. The governor has repeatedly criticized the company for failing to invest in safety upgrades and for applying the intentional power outages too broadly.

Times staff writers Phil Willon and John Myers contributed to this report.


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