Insolvent California wants to Nationalize Bankrupt PG&E
Gov. Gavin Newsom announced the insolvent State of California is putting together a ‘Strike Team’ that could move to nationalize the assets of the bankrupt PG&E utility.
Newsom told lawmakers in his State of the State speech, “We’re facing hard decisions that are coming due.” In his first month in office, Newsom has been dealing with a $7 billion tax shortfall since December, $1 trillion unfunded public employee pensions, President Trump threatening to withhold $9 billion in wildfire aid, and cancelation of the state’s $98.1 billion high-speed-rail boondoggle.
Undeterred by the tsunami of grim financial challenges, the wildly progressive rookie governor trumpeted that he convened a ‘Strike Team’ supposedly crewed by the nation's best bankruptcy attorneys and financial experts from across the energy sector to develop a comprehensive PG&E strategy to unveil within the next 60 days.
Many utility industry analysts believe Newsom is scheming to have the State of California nationalize PG&E by engineering a wipe-out of public shareholders and forcing holders of PG&E’s $18 billion debt to take a “big principal haircut.”
In a webinar featuring Karol Denniston, Senior Bankruptcy Partner in the San Francisco office of Squire Patton Boggs highlighted that PG&E before filing its second Chapter 11 was still burdened from the aftermath of its first bankruptcy in 2001, on criminal probation for its gas line explosion in 2010, liable for $20 billion from 2017 wildfires, and liable for another $10 to $20 billion for 2018 wildfires.
Despite California’s residential utility rates of 19.53 cents per kilowatt hour, almost double the 10.95 cents in Oregon and 9.46 cents in Washington, Denniston forecasts that PG&E utility rates are going up substantially because California Courts have ruled that utilities under the theory of inverse condemnation are liable for damage caused by their equipment, even if the utility followed all state regulated safety precautions.
Courts blame PG&E for uninsulated overhead power conductor lines being susceptible to sparking ground fires due to “trees falling onto them during high-wind events.”
PG&E does bury some of its 18,466 miles of overhead power lines each year. But the cost for a new 69 kV overhead transmission line is $285,000 per mile, versus $1.5 million per mile for an underground line; while a 138 kV overhead line costs $390,000 per mile, versus $2 million per mile underground. Underground lines also require new terminals and are substantially more expensive to dig up for maintenance purposes.
Gov. Brown singed SB-901 in September to help PG&E avoid bankruptcy by passing through its wildfire liabilities to utility rate payors over the next 20 years at the rate of $5.20 per billion of liability claims. A $30 billion in wildfire liability would spike California residential electric rate to 22 cents per kilowatt hour, hammering the poor and aged.
Newsom and his progressive fellow travelers believe nationalizing California utilities would be cost advantageous because state and local government entities–including public power utilities–can sell municipal bonds with tax-free interest. Moody’s AAA-rated corporate bond interest rate index is 1.2 percent higher than AAA muni-bonds, but muni-bond size averages a puny $7 million, versus $210 million for corporate issues.
Newsom has become a pariah to progressives for dumping California’s high-speed-rail boondoggle, even though he kept 100 percent of the taxes. But he can nationalize PG&E, Gov. Newsom could reinvent himself as a top “Green New Deal” champion.