Governor’s 2020 Budget Signals State’s Willingness to Takeover PG&E

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Welcome to 2020! It is a new year and with every new year, comes a lot of new: new goals, new diet, new workout routines that leave every part of you sore... In the professional setting, a new year brings a lot of “chores,” like closing out the financials for the previous year, perhaps completing year-end reviews, and on and on, and you are left asking, “We do this every year…??” One of those chores is almost sure to be budgeting, which is universally considered to be unpleasant. Well, imagine having to kick off the year by preparing a budget for the entire state of California, the 5th largest economy in the world.

Luckily, that chore was left to Governor Newsom and last week, he released his 2020 budget proposal. The proposed $222 billion dollar state budget prioritizes public education, addressing the homelessness crisis and action on climate change, among others. (For a good overview of the budget, check out this article from LAist.com.)

One issue the Governor emphasized is the desire to improve the response to wildfires. Recent wildfires have devastated parts of the state, utility companies have been in the crosshairs, and concerns about the cost of damages caused by the wildfires has sent the largest utility company in California, Pacific Gas & Electric (PG&E) into bankruptcy and sparked efforts to change inverse condemnation laws. (My partner Brad Kuhn discusses the lasted in that debate here and here.)

The Governor took a firm stance on the topic; in his budget introduction, the section “Safe, Reliable, Affordable and Clean Energy” focuses on legislative efforts to prevent future fires, emphasizes that ratepayers should not bear the burden of wildfire costs, and signals that a state takeover of PG&E is a possibility. The Governor did not mince words on his feelings about PG&E:

“The state’s goals are clear. Californians must have access to safe, reliable, affordable, and clean energy. […] 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…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.” (Budget Summary, Intro., pp.12-13.)

The Governor seems to have fired the first warning shot, essentially telling PG&E, 'Do it right or pay the price.' However, a public takeover of a private utility is difficult, faces tough legal challenges and can be hugely expensive – we have seen some recent examples of the struggle where municipalities have tried to takeover investor-owned utilities. (See blog posts here and here.) For now, the Governor didn’t elaborate on the circumstances under which the state would start down the path to takeover, so we shall see what happens when PG&E emerges from bankruptcy.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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