The California Public Utilities Commission on April 22 unanimously approved Pacific Gas & Electric's application to finance $7.5 billion in costs related to a series of deadly wildfires in Northern California in 2017. Customer advocates called the decision a "bailout."
The wildfire costs will be financed through recovery bonds that will create a cost-efficient approach to retire billions of dollars in PG&E debt, the decision says. The decision will help ensure a safe and financially sound PG&E, utility spokesperson James Noonan said in an email to California Energy Markets.
As part of the decision, PG&E will create a "Customer Credit Trust" that will be funded by shareholders and dispersed to ratepayers as bill credits for their recovery bond payments. Shareholders plan to deposit $1 billion into the trust as an initial contribution after the first issuance of recovery bonds in 2021, the decision says.
But utility customer advocates said the decision will require PG&E's ratepayers to take out what is essentially a 30-year mortgage for $7.5 billion in wildfire costs. The Utility Reform Network asked the commission to require PG&E to guarantee that ratepayers will be repaid in full by shareholders over the entire 30-year period of the loan.
"PG&E was sentenced for 84 counts of manslaughter for the Camp Fire and now ratepayers will be sentenced to 30 years of paying for wildfire damages," TURN Executive Director Mark Toney said in a phone interview with CEM.
If PG&E declares bankruptcy for a third time, or is found guilty of causing another disaster, shareholders might not be responsible for refunding customers for the bond payments, but customers will continue to pay off the bonds no matter what, Toney said.
"Customers would be required to pay the principal and interest for these bonds," TURN representatives said in a public response. "PG&E says it intends to avoid rate hikes by providing offsetting credits on customer bills, but those credits depend on PG&E reaping high profits at ratepayer expense for the next 30 years."
The CPUC said the bond deal with PG&E will be neutral, on average, to ratepayers. The commission also said the recovery bonds will accelerate improvement in PG&E's credit ratings.
"We determine that without the securitization proposed in this application, ratepayer costs will be higher as it will take PG&E longer to achieve investment grade credit ratings," the commission said in the decision.
TURN contested the CPUC's statement that the recovery bonds will improve PG&E's credit rating: Almost all of the credit-ratings agencies found that securitization would have no impact on PG&E's ratings, TURN said. The position that PG&E's credit rating will improve is based solely on the opinion of a Citigroup executive with a $41-million conflict of interest, since Citigroup could be the bank that contracts with PG&E for the recovery bonds, Toney said.
When asked if PG&E had contracted with Citigroup for the bonds, the utility did not respond directly to CEM.
PG&E in April 2020 submitted an application to the commission to apply a "stress test methodology," which allows for recovery of wildfire costs that exceed the maximum amount a utility can pay without harming customers (see CEM No. 1636). The stress test follows these steps: A utility requests to apply the stress test to determine if disallowed wildfire costs should be allocated to ratepayers; the commission calculates the maximum amount the utility can pay, called the "customer harm threshold"; and then the commission considers ratepayer-protection measures to mitigate ratepayer impacts, the decision says.