California AB 1054 Says PG&E is TBTF

California is once again divided.  This time it is over state Assembly Bill 1054, which opponents call a bailout of the utility company PG&E and supporters view as necessary if the state is to enjoy stable and increasingly “clean” power.  The bill is presently in committee process and will be heard at the state Senate Appropriations Committee on 07/08/19.

By Way of Background

PGE TruckPacific Gas & Electric is facing liabilities that could exceed $30 billion as a result of law suits arising from California’s devastating 2017 and 2018 fires.  PG&E has been cleared of responsibility for the 2017 Tubbs fire, but residents that suffered losses in that fire can sue PG&E anyway. Conversely, PG&E was found culpable in the 2018 Camp Fire.

As a deep-pocket presence, PG&E is vulnerable when losses of lives and property occur in areas serviced by PG&E; even though other factors today contribute to the intensity and destructiveness of wildfires, mainly, warming due to climate change and housing development increasingly closer to fire-prone areas.

To deal with the onslaught of liabilities, PG&E filed for bankruptcy protection on January 2019.  In June, the bankruptcy judge decided the court has sole jurisdiction over PG&E’s disposition of its contract obligations, including obligations with major clean-power energy suppliers.

Fiscal instability of a major utility company like PG&E places billions of dollars in retirement accounts in jeopardy, individuals and families invested with PG&E stock as part of their savings might see no dividends and maybe no stock, energy suppliers may not get paid, lenders that financed nascent clean power-suppliers might not see repayment.  So, California is facing a too-big-to-fail situation which no doubt was the catalyst for AB 1054.

Highlights of 1054

Assembly Bill 1054 applies to utility companies in California.  Language, however, refers to “certain electrical corporations,” among which PG&E would be included.  The bill is especially convoluted, so here are a few very basic highlights of AB 1054:

*   Creates a California Wildfire Safety Advisory Board consisting of 7 members appointed by the Governor, Speaker of the Assembly and Senate Committee on Rules, who would serve 4 year terms and make recommendations related to wildfire safety.

*   Establishes a Wildfire Fund to pay eligible claims arising from a wildfire.

*   Creates a Department of Water Resources Charge Fund, and requires proceeds and revenues from bonds, which the Department of Water Resources are at present authorized to issue, to be deposited the Charge Fund.  Monies from the Charge Fund can be transferred to the Wildfire Fund.

*   The Wildfire Fund will be replenished by money from the Charge Fund, contributions by PG&E, and charges to ratepayers.

Here is Just Vote No Layperson’s View

PG&E is under bankruptcy protection.  All claims against PG&E will be filed before the general bar date of October 21, 2019.  After that date, the Court will sift and mull over those claims and eventually decide who is entitled to what, based on merit of each claim and funds available for payment.

Meanwhile, pretty much nobody gets paid and PG&E has a chance to build some reserves.  Therefore, AB 1054 would seem an effort to make sure everybody gets paid and contractors are not dropped (think the clean energy folks) by spreading the cost of payments.  Taxpayers will pay for the expanded bureaucracy and for servicing the bonds issued by the Department of Water Resources.  Ratepayers will pay a “nonbypassable charge” intended for the Wildfire Fund.

During the proceedings, the Court will decide whether PG&E is to remain a going concern, able to continue its job of providing energy to its customers, or be mortally hobbled by a Court order that it must sell assets to satisfy creditors.  One might expect significant battles between supporters and opponents of either choice.