Relevant Documents:PG&E ResponseCPUC ResponseU.S. Response
PG&E, the California Public Utilities Commission and the United States filed responses today to the March 5
“revised” order to show cause issued by Judge William Alsup of the U.S. District Court for the Northern District of California as to why the court should not modify PG&E’s probation conditions.
Specifically, Judge Alsup proposed the following new probation conditions:
- PG&E must “fully comply with all applicable laws concerning vegetation management and clearance requirements”;
- PG&E must “fully comply with the specific targets and metrics set forth in its amended 2019 wildfire mitigation plan ... including with respect to enhanced vegetation management”;
- The third-party monitor retained in connection with PG&E’s federal criminal convictions related to the 2010 San Bruno gas explosion must “assess PG&E’s wildfire mitigation and wildfire safety work”;
- PG&E must “maintain traceable, verifiable, accurate, and complete records of its vegetation management efforts,” and make those records available to the monitor; and
- PG&E must “ensure that sufficient resources, financial and personnel, including contractors and employees, are allocated to achieve the foregoing.” In addition, PG&E “may not issue any dividends until it is in compliance with all applicable vegetation management requirements as set forth above.”
In its response, PG&E says it is “committed to eliminating wildfire ignition risk as quickly and completely as possible” and has designed its wildfire safety plan to “achieve precisely that goal.” Although it does not object to complying with applicable law, PG&E urges the court to leave to state regulators the evaluation of PG&E’s compliance with state law. In addition, PG&E seeks to preserve flexibility to work with the CPUC to modify its wildfire mitigation plan to address changing conditions.
Finally, given that its ability to raise equity capital after, or in order to facilitate, emergence from bankruptcy is “crucial,” PG&E reserves its rights to object to the proposed prohibition on paying dividends (emphasis added).
In CPUC’s response, the commission says it “takes no issue” with probation conditions that are already required under its own regulations but must reserve judgment on the “reasonableness” of company expenses, including dividends, as it will consider those in its own regulatory process provided for under state law.
On Jan. 30, Judge Alsup held a hearing on his original
order to show cause but concluded that he would not impose new conditions at that time.
A hearing on the revised order is scheduled for April 2 at 11 a.m. ET.
PG&E ResponseCompliance with All Applicable Vegetation-Management and Clearance-Requirement Laws
In its response, PG&E asks the court to eliminate or amend the proposed condition that would require its full compliance with applicable vegetation-management and clearance-requirement laws. Although it “of course has no objection to complying with these (and all other) laws and regulations,” PG&E expresses concern that “grafting these state
civil regulatory requirements onto the terms of a federal
criminal probation is inconsistent with the fundamental goal of probation, which is to facilitate rehabilitation and to prevent additional criminal conduct.”
Noting that its service territory includes “tens of millions of trees that could come in contact with its lines,” PG&E explains that, “
as with any other vegetation management program,” PG&E’s inspection and maintenance program “does not include constant surveillance of all trees within striking distance of the utility’s lines.” According to the response, a “constant state of perfect compliance could therefore only be achieved by engaging in extensive clear-cutting that is not required by state law, is not legally, financially or practically possible and is not required by the Court’s revised conditions.” Under the circumstances, requiring such “perfect compliance” as a probation condition would “likely result in probation violations,” the response says.
PG&E urges the court to “leave the case-by-case assessment of compliance with state regulations to the state law enforcement and regulatory experts equipped to exercise the necessary professional judgment, especially on this scale.” The “most effective and appropriate way to do this would be to omit the first proposed condition from any probation modification,” the response says.
In the alternative, PG&E requests that the court at least revise the proposed condition to “clarify that the Court will only find a violation of probation if PG&E’s regulators (CAL FIRE or the CPUC) have in the first instance found PG&E to have violated the relevant regulatory requirements.” PG&E contends that a “federal probation court should not take on the prerogative of finding civil violations of state regulatory laws when the state regulator itself has not made any findings of violation” because that would “improperly supplant the authority of expert regulators and risk inconsistent determinations.”
Compliance with Wildfire Mitigation Plan
Although it does not object to fully complying with the targets and metrics set forth in its wildfire mitigation plan, PG&E asks the court to modify this proposed condition to require a CPUC finding that PG&E failed to comply with that plan as a predicate to any finding that the condition has been violated. PG&E argues that “[s]ome discretion to adapt to changing circumstances is critical” and seeks the flexibility to work with the CPUC to “update its plan to address advancements in technology and enhanced understanding of how to best eliminate wildfire risk.”
The response notes that later today PG&E and other electrical corporations will file their responses to comments regarding the wildfire mitigation plans that certain interested parties, including the Office of the Safety Advocate and the Energy Producers and Users Coalition, filed “rais[ing] concerns that strict adherence to CPUC-approved wildfire mitigation plans would discourage electrical corporations from making modifications that could increase safety based on new information.” As it will indicate in its response to comments, PG&E agrees that “some measure of flexibility is important to address changed conditions and allow continuous improvement, especially in the early years of the plans.”
Other Proposed Conditions
In its response, PG&E reserves its rights to object to the condition that would preclude it from paying dividends until it complies with all vegetation-management requirements included in the proposed conditions. PG&E explains that it is not seeking relief with respect to this condition at this time because it has already suspended dividends and would not resume paying dividends until after its emergence from bankruptcy. In light of the “significant negative long-term effects” the prohibition could have on its “ability to reorganize and continue to make necessary capital improvements upon emergence from Chapter 11,” PG&E reserves its rights.
According to the response, prohibiting dividends would “substantially constrain[]” PG&E’s ability to raise equity capital and, in turn, “impair its ability to make the investments and improvements needed to carry out its duty to provide safe and reliable service and reorganize in a way that benefits all Californians.” The response notes that PG&E “consistently spends more cash than it generates through its operations and cannot fund all its infrastructure investments without external financing from the debt and equity markets.”
With respect to the remaining proposed conditions, PG&E indicates that it “welcomes” the monitor’s “even more active role in assessing PG&E’s safety and records keeping efforts.”
CPUC Response
The CPUC responded as follows to the court’s new proposed probation conditions:
- The commission “takes no issue” with requiring the company to comply with vegetation-management rules, which the commission noted CPUC regulations already compel it to do;
- The wildfire-mitigation plan submitted by PG&E to the commission so far is a draft, to be amended and approved by May 2019;
- A court-appointed monitor “could duplicate the efforts” of an independent evaluator already selected by PG&E from a list of Cal Fire and CPUC suggestions;
- The commission has “no issue” with requiring PG&E to maintain vegetation-management records, as it already must under CPUC regulations; and
- Regarding dividends, the CPUC “cannot prejudge” its own proceeding at which it will “evaluate the reasonableness of PG&E expenses,” as required by the California Public Utilities Code.
In addition, the CPUC in its response volunteered a brief summary of its own rulemaking processes underway, including regarding wildfire-mitigation plan development and regarding the de-energization of lines in dangerous conditions.
U.S. Response
The United States notes that the court has found, among other things, that “wildfires have burned almost [three] percent of California in the last two years,” adding that PG&E’s equipment or lines “started 17 major fires in October 2017 alone,” PG&E’s “vegetation management practices have been ‘dismal’” and PG&E violated existing probation conditions in failing to adequately notify the U.S. Probation Office of a certain settlement with Butte County.
Although the United States does not object to any of the proposed conditions, it notes its expectation that PG&E would be compelled to comply with the targets and metrics of the PG&E’s 2019 wildfire mitigation plan approved by the CPUC, even if the approved version differs from PG&E’s proposed version.
In addition, the United States notes that the proposed condition that PG&E “devote sufficient financial resources and personnel” to addressing the other proposed conditions “may prove duplicative” because violating that condition would also violate one or more of the other conditions. Moreover, citing the pending
bankruptcy case, the United States observes that PG&E “likely has several hurdles to overcome before it may issue dividends, including [Bankruptcy Code] Section 363, California State law governing the issuance of corporate dividends, as well as agreements PG&E may have reached with its lenders.” If PG&E’s financial condition changes, the United States would be willing to revisit this condition, the response adds.