By Hudson Sangree

SACRAMENTO, Calif. — Gov. Gavin Newsom released an outline of his proposed 2020-2021 budget Friday that included language reiterating his threat to take over Pacific Gas and Electric should the utility fall short of the requirements of Assembly Bill 1054, a landmark measure he signed in July.

“We’ve decided to put it in the budget so there’s no ambiguity,” Newsom told a packed briefing room of reporters at the State Capitol. “We have a break-the-glass scenario. If we have a utility — an investor-owned utility, in this case PG&E — that does not meet the mandates set forth in 1054 … then the state will have no choice but to be in a position to take over that utility in order create a framework for safe, affordable, reliable service for the state of California.”

The governor’s January budget proposal is an outline that will get fleshed out in the coming months, prior to the traditional “May revise” that the State Legislature acts upon. It did not include specific figures for any PG&E takeover, though the potential amount would likely be tens of billions of dollars.

The company’s market capitalization now is $5.4 billion, but some think it is undervalued considering its assets, including 106,681 circuit miles of electric distribution lines and 18,466 circuit miles of transmission. PG&E stock, which closed Friday at $10.20/share, was as high as $70/share before the fires of Oct. 2017. PG&E’s territory encompasses 70,000 square miles of Northern and Central California.

Whether the state would truly want to assume the responsibility for PG&E’s aging transmission and distribution systems remains in doubt. The legislature would need to appropriate the money for any takeover and, under AB 1054, the Public Utilities Commission would need to approve the transfer of utility assets. And some critics have questioned whether Newsom would seek to follow through on his threat or is merely seeking to score political points now that the utility has become so unpopular.

$700,000 in Support

A Washington Post investigation in November found Newsom and his wife had accepted more than $700,000 from PG&E, its foundation and employees during his political career as mayor of San Francisco, lieutenant governor and governor. The utility and its employees helped fund Newsom’s political campaigns, ballot initiatives and inauguration festivities while also supporting his wife’s foundation and film projects.

Newsom told reporters Friday he wasn’t grandstanding.

“Make no mistake that I included it in the budget because I’m serious about it,” the governor said Friday. “And if you think it was just words on paper, I can assure you … my time off during the holidays was time [spent] on this issue, focused on what that [takeover] would look like [and] what it would not look like, including a potential legislative play in the short term.”

PG&E: On Track to Exit Bankruptcy

PG&E had no immediate reply Friday to Newsom’s comments. But the company assured a gathering of investors late last week that it was on track to exit Chapter 11 bankruptcy by the end of June, as AB 1054 requires, allowing PG&E to participate in a $21 billion wildfire insurance fund established by the state.

In a presentation to the Evercore ISI Utility Conference on Thursday and Friday, PG&E said it was on the “path to [an] expeditious Chapter 11 exit through the fair settlement of wildfire claims and pending regulatory proceedings, progress with legislative initiatives, and establishment of a multiyear investment and rate roadmap.”

In particular, the utility noted it had settled with three core groups that filed claims from the massive wildfires of 2017 and 2018 ignited by PG&E equipment. Fire victims have agreed to accept $13.5 billion in cash and stock, while insurers and other holders of subrogation claims had agreed to an $11 million all-cash settlement. Counties, cities and other local government entities had accepted a $1 billion settlement. (See Judge OKs PG&E Deals with Fire Victims, Insurers.)

PG&E’s restructuring plan must still be confirmed by the U.S. Bankruptcy Court in San Francisco and approved by the CPUC. AB 1054 requires the commission to find that the plan and the “electrical corporation’s resulting governance structure … [is] acceptable in light of the electrical corporation’s safety history, criminal probation, recent financial condition and other factors deemed relevant by the commission.”

PG&E is on criminal probation after being convicted in federal court of six felonies stemming from the September 2010 San Bruno gas pipeline explosion, which killed eight people in a suburban neighborhood. State fire investigators found its equipment failures responsible for a series of fires in Northern California wine country in October 2017 and for the Camp Fire, the state’s deadliest and most destructive wildfire, which killed 86 people and leveled the town of Paradise in November 2018.

Calls for a public takeover of all or part of PG&E’s system have escalated. San Francisco offered PG&E $2.5 billion for its assets there. The utility rejected the offer, but San Francisco leaders say they haven’t given up. An effort led by San Jose Mayor Sam Liccardo continues to gain supporters among cities and counties. (See Pressure Grows for Public Takeover of PG&E.)

The governor said Friday he has remained in personal contact with Liccardo and others regarding their efforts.

‘Escalating Enforcement Process’

Newsom’s budget summary said that “after PG&E’s decades of mismanagement and neglect of its critical infrastructure, failed efforts to improve its safety culture, and its disruptive implementation of public safety power shutoffs, the company that emerges from bankruptcy must be poised for transformation as required by AB 1054. The budget reflects necessary support for the administration’s efforts to achieve the required transformation of PG&E within the bankruptcy process.”

“However, if protecting Californians’ interests and ensuring the necessary transformation requires further intervention, including a state takeover of the utility, the administration will work with the legislature to secure necessary statutory changes, appropriations to support transactional and planning costs, and liquidity measures. Consistent with the administration’s commitment to maintain a balanced budget and strong fiscal resiliency, any such action would be carefully structured in a manner that safeguards the state’s general fund.”

Newsom’s statements built on his discussion of a possible public restructuring of the state’s largest utility in November, when the governor said his backup plan for PG&E’s future consisted of reorganizing it, possibly with an “ISO-like structure” akin to CAISO, a public-benefit corporation with leaders appointed by the governor and confirmed by the State Senate. (See California Could Restructure PG&E, Governor Says.)

In December, Newsom wrote a letter to CEO Bill Johnson, saying PG&E’s restructuring plan fell short of his expectations. He called for PG&E Corp. and its utility subsidiary to have more directors from California and for its reorganization plan to provide for an easier means to a state takeover, should it become necessary.

The letter, which Newsom filed with U.S. Bankruptcy Judge Dennis Montali, also called for “strict, clearly defined operational and safety metrics to which the reorganized company will be held accountable” and an “escalating enforcement process that provides for greater oversight of the reorganized company.”