In filing before the CPUC, San Francisco questions the legality of PG&E plan to raise $7.5 billion by borrowing against revenue raised from a new charge on ratepayer bills
SAN FRANCISCO (June 12, 2020) — With Pacific Gas and Electric Company seeking final approval this week on its overall plan for exiting bankruptcy, the City and County of San Francisco has filed a legal protest with the California Public Utilities Commission, raising concerns about one of the utility’s proposed next steps: a plan to borrow $7.5 billion to finance its bankruptcy-related costs by adding a new charge to ratepayer bills.
While the CPUC has approved the PG&E reorganization plan, the state regulatory body has not yet reviewed the utility’s proposed “securitization” plan, which would add a new charge to ratepayer bills so it can borrow money at a lower interest rate to fund its bankruptcy.
PG&E has proposed establishing a trust that will eventually pay ratepayers back for these new surcharges — insisting that this makes its proposal “ratepayer neutral,” as required under state law. But San Francisco’s filing questions the legality of this complex financial scheme, noting that there is no guarantee that PG&E’s “optimistic expectations” about its financial performance will allow these payments to be made —thus shifting long-term risks and costs to ratepayers in violation of state law. PG&E also proposes to share the upside with ratepayers if it makes more money than expected, but the proposal only gives ratepayers 25% of the upside, while they bear 100% of the downside.
“PG&E’s securitization plan is a financial house of cards,” said City Attorney Dennis Herrera. “We can’t lose sight of what this proposal does: PG&E wants to add a new charge to ratepayer bills with no guarantee that customers will be paid back. PG&E wants ratepayers to take on all the risk. This plan does not come close to the standards of ‘ratepayer neutrality’ established in state law, nor does it protect the public interest. PG&E’s proposal would shift all of the risk to ratepayers and leave the CPUC with no recourse to alter this arrangement in the years ahead—regardless of any future bankruptcies, negligent or criminal behavior, or other financial schemes and gimmicks. To protect ratepayers and the public interest, the CPUC should reject this proposal.”
With the CPUC beginning proceedings in June to review PG&E’s securitization plan, the City and County of San Francisco filed a legal protest against the utility’s proposal on June 4.
In its filing last week, the City and County of San Francisco notes that PG&E’s securitization plan is primarily intended to raise money to pay for financing costs associated with its bankruptcy—providing the utility with lower interest rates than it will have to pay through the $35 billion of debt it has taken on to exit bankruptcy. Not one dollar of PG&E’s massive borrowing—including the securitization money—is being used for system improvements or crucially needed wildfire hardening.
While PG&E has also said securitization will be needed to raise money for fire victims, San Francisco and other ratepayer and victim advocates have argued that the fairest way to pay victims is in cash. To achieve this goal, PG&E could tap the billions of dollars of other new capital it is planning to raise as it exits bankruptcy, as well as the $2.5 billion San Francisco has offered to purchase its local electric assets. Instead, the utility has offered to pay victims with company stock and borrowed money raised in part from a charge imposed on ratepayers, including fire victims themselves.
“This looks like yet another bait and switch from Pacific Gas & Electric,” said Supervisor Aaron Peskin. “Once again, they are trying to shoulder the rate payers with huge increases that they will never return. I hope the CPUC will not be bamboozled by PG&E again.”
“PG&E has come up with yet another overly complicated solution to a problem it caused in the first place: If the utility is serious about compensating the victims of wildfires started by its equipment and building a safer, more reliable electric system, there’s no need to borrow money on top of borrowed money,” said Supervisor Hillary Ronen. “San Francisco has made a fair and just $2.5 billion offer to purchase PG&E’s local electric assets, providing much-needed funds that could do far more to help the company straighten out its finances than this opaque new securitization scheme. I hope the CPUC will be mindful of this when they consider PG&E’s proposal.”
The City and County’s filing raises serious questions about the legality of PG&E’s proposal — concluding that shifting all of the financial risk to ratepayers for the $7.5 billion does not meet the requirements of AB 1054, the state’s new wildfire liability law.
The City of San Francisco’s full legal filing can be found here.
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