California’s largest utility remains under intense pressure from lawmakers across the state, as the threat of a statewide takeover and transition to a customer-owned utility looms over its head if it doesn’t get its finances back on track.
As PG&E struggles to detangle itself from a web of scandals and financial woes, leaders at the local level have been calling for more drastic measures — transitioning the company to a customer-owned utility. The ambitious proposal, spearheaded by San Jose Mayor Sam Liccardo, would make the company a cooperative that would run like a credit union or mutual insurance corporation, making it exempt from taxes and not have to pay dividends to shareholders. Its nonprofit status would mean it could focus putting dollars into badly needed electrical grid upgrades and infrastructure maintenance.
But a plan on meeting that goal is not immediately clear.
The troubled company has a little less than a year to get out of bankruptcy and develop a safety plan, ahead of next fall’s wildfire season, or else it faces a statewide takeover. Gov. Gavin Newsom threatened the utility with state control earlier this month, after the company cut off power to millions of residents in California, frustrating local leaders, and leaving customers and businesses disgruntled with the company’s poor handling of its operations during the blackouts.
“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,” said Newsom in a press release. “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.”
Before the June 30 deadline, the company needs to pay off nearly $30 billion in debt acquired from the Paradise fire in 2018, which was started from one of the utility’s power lines. The claims increased by more than $6 billion from the original amount owed to several actors that include wildfire victims, creditors, government agencies and insurance companies.
Despite the ongoing drama PG&E is wrapped up in, the utility won’t budge on changing its status. PG&E has made it clear it does not intend on transitioning to a customer-owned utility, and plans on paying off all its debt in full before next year’s imminent deadline. In September, San Francisco offered to buy $2.5 billion of the utility’s electrical grid in the city. But the company shot down the offer, claiming they didn’t believe municipalization was in the “best interest” of its customers.
Still, Liccardo isn’t going down without a fight. In a news conference earlier this month, the mayor said that while the utility claims that it’s “not for sale,” it might not have much of a choice as hedge funds compete for the company’s “carcass.” The public deserves better, he added, as a customer-owned utility would align “the financial interests of the company with the public interest,” instead of relying on actors that have a “desire for financial gain.”
“We know that there are two hedge fund companies today that are competing for PG&E assets in bankruptcy court and neither of those options offers the public the confidence they need that they’ll have a utility that will deliver reliable and safe service,” said Liccardo. “We cannot have a junk bond utility emerge from this process.”
And Liccardo isn’t alone. In a signed letter to the California Public Utilities Commission (CPUC) and the governor, more than 20 mayors across the state endorsed the San Jose mayor’s plan. While a bankruptcy court ultimately decides the utility’s future, the CPUC will decide on approving a final reorganization plan and determine if the utility qualifies for a $21 billion wildfire insurance fund.
“There’s not much secret anymore about the fact that ultimately, we are all responsible for putting this utility back on its feet,” Liccardo added. “If we’re going to be paying for it at higher rates — we better own the company.”
The utility has been rocked by a series of scandals following last year’s destructive wildfire season that devoured large swaths of the state — a result of soaring temperatures and the utility’s outdated infrastructure. Then, the utility faced intense criticism for forcing massive power shutoffs that affected millions of Californians during this year’s fire season, in an attempt to prevent another blaze sparked by its faulty power lines.
The company continues to encounter ongoing scrutiny for its poor management and operational decisions that resulted in leaving more than 850,000 customers across 36 counties in California without power. In San Jose alone, more than 60,000 residents were affected. As of this past week, several parts of California were still enduring blackouts.
Until PG&E repairs its infrastructure by putting its power lines underground — estimated to cost $243 billion — the company said blackouts would be more frequent during wildfire season. This year alone, the company claimed it would cost them $150 billion to implement the court mandated safety plan to prevent wildfires. But the timeline to fix the broken infrastructure, which PG&E said could take between 10 to 15 years, may still not completely prevent fires from breaking out in areas where dry brush, gusty winds and hot temperatures set the stage for a perfect blaze.
Still, while Liccardo acknowledged that the transition to a customer utility may take years, and won’t be an easy feat, more than 900 customer utilities already exist in the United States, serving at least 19 million customers.
“This is a model that has been established for many years. It’s certainly not my idea,” said Liccardo. “The obstacles are the same — this is a company that needs to invest billions in infrastructure and maintenance. Certainly, those obstacles are daunting, but there is greater opportunity to overcome them with an entity that has lower cost of capital.”