Capitol With Crane

Legislation that would have allowed PG&E to issue "wildfire victim recovery bonds" is dead for this year.

Legislation that would have allowed bankrupt utility Pacific Gas & Electric to sell "wildfire victim recovery bonds" is on hold for now, but its backers promise it will return next year.

Recent amendments to AB 235, sponsored by Assm. Chad Mayes (R-Yucca Valley) would have allowed the utility to sell billions of dollars in bonds, a proposal that was panned as a "bailout" of the utility by groups such as The Utility Reform Network (see CEM No. 1553).

"We are pleased that the bill will be in print, but the timing was simply not right to pass this legislation with just days left in the session," Steven Maviglio, a spokesman for hedge funds holding PG&E stock that crafted the proposal, said in a Sept. 6 email. "During the interim, we will continue to work to resolve the bankruptcy case and help PG&E fulfill its commitments." Maviglio said the effort will resume in January, when lawmakers return after the final day of this year's session, Sept. 13.

A group of PG&E's current bondholders and the Agricultural Energy Consumers Association had launched a public campaign against the bill, along with TURN.

Separately, the judge overseeing PG&E's bankruptcy reorganization process rejected the company's request to pay out as much as $16 million in incentive awards to its executives.

PG&E on June 19 filed a motion with the court requesting approval of its "key employee incentive program," under which 12 senior executives would receive half-cash, half-stock unit performance-based payouts for 2019. The program loosely mirrored the short-term incentive program previously approved by the bankruptcy court.

In his Aug. 30 order, however, U.S. Bankruptcy Judge Dennis Montali questioned whether the cost of the program is reasonable given the "suffocating pressures" PG&E is facing from creditors, regulatory agencies, government agencies and the public to improve its safety record. This "laundry list of pressures" should be sufficient motivation for PG&E executives to perform their jobs without additional promises of compensation, he added.

"There is simply no justification for diverting additional estate funds to incentivize them to do what they should already be doing," Montali wrote.

However, he allowed PG&E to file another motion if it were to reform the program in such a way that the only compensation metric is safety, and the only payments are equity.

Also, PG&E said in a Sept. 4 filing that it is appealing Montali's decision to allow victims of the 2017 Tubbs Fire to pursue litigation against the utility in a state trial court.

In August, Montali approved two motions—filed by the official committee of tort claimants and a group of insurance carriers that hold wildfire claims against the utility—that requested that the automatic stay be lifted to allow them to move forward with claims against the utility in San Francisco Superior Court.

The Tubbs Fire, which caused 22 deaths in Napa and Sonoma counties, could add $18 billion to the company's total liabilities. Although the California Department of Forestry and Fire Protection released a report absolving PG&E of any blame in causing the fire, lawyers for the fire victims contend that the utility could still be held accountable.

Montali's ruling caused PG&E's stock to dip sharply. Since then, proceedings to estimate PG&E's wildfire liabilities have been assigned to U.S. District Court Judge James Donato.

In its Sept. 4 filing, PG&E argued that Donato's involvement has changed the circumstances of the case, and that the district court is the best entity to determine whether the automatic stay should be lifted.

Meanwhile, in PG&E's probation case, attorneys in a Sept. 3 court filing attempted to explain a series of issues with the utility's vegetation-management program identified in a July report from its court-appointed monitor, saying the program goes beyond state and federal regulations.

The report, filed by former U.S. Department of Justice Acting Attorney General Mark Filip—who is serving as PG&E's compliance and ethics monitor—found that the utility's contractors were failing to identify trees that could pose a threat to its power lines, potentially sparking wildfires. In addition, it questioned the quality of the vegetation-management work that had been completed, and concluded that PG&E's record-keeping and tracking systems are unreliable and inconsistent.

A team assembled by the monitor inspected more than 53 circuit miles of PG&E power lines this summer and found an average of more than 61 "exceptions"—that is, trees that PG&E contractors had failed to identify and address—per mile.

In its response, PG&E said the enhanced vegetation-management program—aimed at reducing the likelihood that its overhead infrastructure will cause wildfires in high-risk areas—requires a lot of work beyond complying with existing regulations, especially since the utility's service territory includes heavily forested areas and a large proportion of high-fire-risk zones. According to the utility, its own internal checks have found issues similar to those outlined by the monitor, and it has already begun to address them.

"In short, PG&E recognizes that the current potential exception rate, identified by PG&E's own processes and the monitor's work, needs to be addressed, and PG&E is committed to significantly improving upon the rate of properly prescribed and performed tree work and to properly record that work," the utility said.

PG&E also addressed individual issues raised in the monitor's report, including the assertion that its contractors are missing trees that require action. According to PG&E's attorneys, most of these trees fall under the more stringent standards set by its own programs, rather than government regulations. The attorneys also pointed out that the enhanced vegetation-management program was rolled out on an expedited basis, which—coupled with changes made to the program due to regulatory action—caused "contractor confusion."

PG&E outlined some of the measures it is implementing to address the issues identified in the report. They include a three-day training program for inspectors and contractors involved with verifying work after it has been completed. The utility has also implemented more controls to ensure that problem trees are properly identified, including two phases of inspection.

Kavya Balaraman covers the California Public Utilities Commission and PG&E Corp. for California Energy Markets. She has reported on climate policy and science in Washington, D.C. and graduated from Columbia University's Graduate of Journalism.