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Questions swirl in aftermath of PG&E's bankruptcy filing

The utility faces around $30 billion in liability from California's destructive fires in 2017 and 2018. How will locals be impacted?

Pacific Gas & Electric filed for Chapter 11 bankruptcy Tuesday, throwing the future of the large investor-owned utility into the hands of the U.S. Bankruptcy Court, state legislators and the California Public Utilities Commission.

For now, lights and gas will still go on as usual. According to a Q&A response page on PG&E's website, the company is not going out of business, and does not expect "any impact" on its electric and natural gas service.

PG&E's website also states that the bankruptcy filing will not impact the growing number of people whose energy is purchased by local energy buyer groups, including Peninsula Clean Energy, a joint powers authority serving San Mateo County communities; and Silicon Valley Clean Energy, which serves much of Santa Clara County, including Mountain View, Los Altos, Los Altos Hills, Sunnyvale and Cupertino.

These are nonprofit entities, often referred to as community choice aggregators or CCAs, that pull together the energy demand of various communities to buy a portfolio of energy that's cleaner, more renewable and cheaper than what PG&E offers. They rely on PG&E's power grid to transmit and distribute the power they purchase, as well as on PG&E to collect energy bills on their behalf. The city of Palo Alto, which runs its own utilities system, will also not be affected.

Representatives from those nonprofit entities confirmed this understanding:

"We've been told by PG&E everything will be business as usual," CEO Jan Pepper of Peninsula Clean Energy (PCE) said in an interview. "There's no reason for people to be worried."

"No customer outages are expected as a result of this action, either for PG&E's direct customers, or for customers such as Palo Alto, connected through PG&E's transmission system," Palo Alto City Manager Ed Shikada said at a Jan. 14 City Council Meeting.

Regarding the impact of PG&E's action, Silicon Valley Clean Energy communications manager Pamela Leonard referred to a press statement by CalCCA, an association representing CCAs across the state, which stated that it supported PG&E's announcement it would continue to collect bills on behalf of CCAs.

"We agree with PG&E that “the normal and uninterrupted remittance” of customer payments to CCAs and other public-purpose programs is of the utmost importance," the association stated.

However...

Looking farther ahead, however, PG&E's bankruptcy raises major questions about the future of energy in California, and about who should pay when fires devastate huge swaths of land across the state.

According to State Sen. Jerry Hill, this is "slightly uncharted territory," but for now lights will stay on, and in the end, "rates will probably go up." PG&E's bankruptcy, he said, is a "bankruptcy of convenience more than a bankruptcy of necessity."

"The bankruptcy is going to cost ratepayers," said Jeff Aalfs, a Portola Valley town councilman and chair of Peninsula Clean Energy's board of directors.

Ratepayers are still footing the bill from the last time the company declared bankruptcy, in April 2001. That time, the utility was under U.S. Bankruptcy Court protection for three years and the bankruptcy was estimated to cost about $1,300 to $1,700 per customer.

At the core of PG&E's bankruptcy filing is the liability it faces from the spate of devastating fires that tore across California in 2017 and 2018. PG&E is being sued by thousands of wildfire victims and some local governments, says CALmatters reporter Judy Lin.

"We recognize that we have a lot of work ahead to rebuild credibility and trust," the company stated on Jan. 29.

"This bankruptcy was about protecting (PG&E's) liability around fire victims," Aalfs said.

One question at the heart of these bankruptcy hearings, he added, is this: "How do we absorb the cost of past and future fire events in a way that's fair?"

SB 901 was passed last year, and one controversial element of it is that liability PG&E incurs can be be passed on to ratepayers.

"If the government assumes liability in an event like a fire, does it make sense for a company to use public funds to protect private shareholders? I don't think that's fair," Aalfs said.

PG&E is still solvent, according to its most recent SEC filing, says KQED news.

However, the utility can't access credit because of the amount it could owe to wildfire victims. That changed on Jan. 28, when the California Public Utilities Commission voted to permit it to borrow up to $6.1 billion in loans and credit. On Jan. 22, it was reported that the company had already lined up billion in financing.

According to CALmatters, the company faces up to $30 billion in liability for 2017 and 2018 fires in Northern California. "At least a dozen major fires have been traced to PG&E equipment, and one of its towers is a prime suspect in the 2018 Camp Fire, which killed 86 people," the publication states.

Controversially, as part of its bankruptcy filing, PG&E, while facing $51.7 billion in total debts, said it wants to pay employees $130 million in performance bonuses for last year, or between $5,000 and $90,000 per person, not including senior officers and directors, according to Bloomberg.

Hill called the request "shameful," given that about two weeks ago, the utility denied a $1.2 million claim from victims who lost homes in the wine country fires of 2017.

Impacts on local power agencies?

For CCAs like Peninsula Clean Energy, PG&E is both a competitor and a partner. CCAs rely on PG&E to transmit and distribute energy through its grid. They are able to purchase cleaner power and provide it to users at lower rates than PG&E can because they operate on a nonprofit basis and it's now cheaper to contract for renewable energy than it used to be. This is due, in part, to PG&E's large-scale contracts for green power negotiated years ago when that technology was costlier than it is now, for which PG&E continues to pay high rates, Aalfs explained. Those contracts require PG&E to pay up to four or five times for solar what current costs are, he said.

Aalfs said he sees a number of ways that the bankruptcy proceedings could play out in the future – some of which could be positive for CCAs and lower costs for ratepayers in the long-term. "To be very clear," he emphasized, "we have no idea what's going to happen. It's very speculative."

He pointed to a December memo from the California Public Utilities Commission, which states, "This Commission is tasked with regulating PG&E’s safe operation of its natural gas pipeline and electricity infrastructure. Given PG&E’s record and the dangers inherent in PG&E’s service territory, the Commission must evaluate whether there is a better way to serve Northern California with safe and reliable electric and gas service at just and reasonable rates."

It lays out a number of questions it plans to explore to regulate the utility.

The state Legislature, Hill said, has been tasked with establishing what the California PUC would have to consider as part of the bankruptcy process. There's an interest in making sure CCAs are not harmed, he added.

One possibility, Hill said, is that there may be an opportunity for PG&E to back out of its older, high-cost energy contracts. "It's possible this could be devastating to CCAs," he said. If PG&E gets rid of its expensive contracts, the utility "could, in a sense, reduce (its) rates to a point that they would be below the CCAs – and that could be a problem."

Such plans would likely be strongly opposed by the contract holders, Aalfs predicted.

"Canceling some of those contracts would be good for ratepayers, but bad for producers," he said.

A separate possibility if PG&E were to sell off its energy generation contracts and facilities, Aalfs suggested, is that the "exit fees" that PG&E charges CCA participants might be restructured and replaced with some other fee spread more evenly across all ratepayers, Aalfs said.

These exit fees are at the heart of a long-running battle between PG&E and CCAs.

Currently, PG&E charges users who opt out of buying its energy a fee that appears on each monthly bill. In October 2018, the California Public Utilities Commission agreed to permit that fee to rise dramatically. At the time, there was speculation that the move could impact the viability of newer CCAs.

On the other hand, the bankruptcy judge could very well agree to further increase those exit fees, Hill said. The judge's goal is to maximize assets and revenue, he explained.

Another alternative raised by the CPUC is for PG&E to become a wires-only company, in which case, Aalfs suggested, PG&E might be held to a higher standard of transmission infrastructure maintenance.

"I think they're doing quite a bit to make sure these never happen again in the future," he said. But those risks can only be minimized, not eliminated, he added.

"We made this deal a long time ago. We like having electricity. That means having a transmission grid," he said.

One way to build better safety into transmission infrastructure is to decentralize the grid through local power production and storage, Aalfs said. As more power is produced locally and power storage capabilities expand, that decentralization becomes more robust.

Some day, he speculated, during a high-wind period, PG&E might be able to shut off the grid, and his jurisdiction, Portola Valley, might be able to keep the lights on using local batteries for a few hours.

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