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California Regulator to Reduce Historic PG&E Wildfire Fine by $200 Million

The California Public Utilities Commission's recommendation would help PG&E compensate wildfire victims and emerge from bankruptcy by a June 30 deadline.

SAN FRANCISCO (CN) — California’s utilities regulator plans to shave $200 million off a historic $2.14 billion fine against Pacific Gas and Electric for destructive wildfires sparked in 2017 and 2018, citing the risk a higher fine poses to the utility’s plan for exiting bankruptcy.

In a proposed decision issued Monday, the California Public Utilities Commission recommended permanently suspending a $200 million portion of the fine to help ensure PG&E can compensate fire victims and emerge from bankruptcy by a June 30 deadline.

The proposal comes nearly two months after the commission rejected PG&E’s attempt to settle the matter for $1.67 billion. The commission's chief administrative law judge instead proposed a $2.14 billion penalty, citing the “unprecedented” nature of “physical and economic harm” resulting from the fires.

Investigating PG&E’s role in 15 fires, the commission's Safety and Enforcement Division found the utility likely violated at least 50 regulations. The alleged violations include failures to properly inspect and maintain equipment, prune and clear trees near power lines, prioritize safety hazards, keep records, and preserve evidence.

PG&E appealed the decision in March, arguing a $200 million portion of the fine could jeopardize its plan to exit bankruptcy by June 30 and gain access to a state-backed insurance fund for future wildfires. PG&E said unless it can pay the $200 million with money reserved for wildfire victims, its debt load would rise above $25.5 billion and give its financial backers an option to pull out of a deal to fund its exit from bankruptcy.

“Given the current unprecedented stock market volatility and decline in PG&E’s stock price since the [presiding officer’s decision] was issued, backstop parties may choose to terminate their commitments and deploy their capital in other investments that may now appear more attractive,” PG&E wrote in its March 18 appeal.

On March 27, CPUC Commissioner Clifford Rechtschaffen requested reconsideration of the fine given the “unique situation of PG&E’s bankruptcy, its indebtedness to hundreds of wildfire claimants for loss of life and property, and the current upheaval in the financial markets.”

Even with a $200 million reduction, the $1.94 billion fine proposed Monday would be the largest penalty ever imposed by California’s utility regulator. It would surpass the prior record-breaking $1.6 billion fine against PG&E for the 2010 San Bruno pipeline explosion that killed eight people and injured dozens more.

PG&E shareholders will be required to pay the entire $1.94 billion fine, meaning the company will not be permitted to seek reimbursement from ratepayers. The fine will cover $1.8 billion in wildfire-related costs that could have been passed on to customers. Another $114 million will pay for system enhancements and corrective actions, including a study to determine the root causes of PG&E-sparked wildfires, fire safety and prevention programs and aid to vulnerable customers impacted by PG&E’s public safety power shutoffs.

A spokeswoman for The Utility Reform Network (TURN), a ratepayer advocacy group, criticized the commission's proposed decision as giving PG&E a “free pass” on paying for its wrongdoing.

“If PG&E is as broke as it claims, it should cut the costs of its billion-dollar bankruptcy and inflated executive pay instead,” TURN spokeswoman Mindy Spatt said by email. “PG&E's violations of the CPUC's rules have repeatedly caused death and destruction.  Why would the CPUC let PG&E pick its own penalties?”

According to a 76-page decision issued by Chief Administrative Law Judge Anne Simon in February, PG&E disagreed with several commission findings on regulatory violations related to 15 wildfires. PG&E said the regulator misinterpreted and misapplied several state regulations. PG&E did not contest nine alleged violations, but also refused to admit any wrongdoing. The company said only one of those nine violations, involving an incomplete patrol prior to re-energizing a line, was related to the ignition of a fire.

A total of 21 wildfires, most of which are believed to have been sparked by PG&E equipment, burned hundreds of thousands of acres in Northern California in 2017 and 2018. The fires killed at least 129 people and destroyed nearly 28,000 buildings.

Last month, PG&E agreed to plead guilty to 84 counts of manslaughter and one count of recklessly starting the 2018 Camp Fire, the most destructive wildfire in California history. The company will pay $4 million, including a maximum $3.5 million fine and $500,000 to reimburse the Butte County District Attorney’s office for investigation costs.

Stakeholders involved in the regulatory case have 10 days to comment on the proposed fine reduction.

PG&E spokesman Paul Doherty said the company is reviewing today’s decision and will respond within 10 days as directed.

“PG&E’s most important responsibility remains the safety of our customers and the communities we serve, and we are committed to doing right by the communities impacted by wildfires,” Doherty said.

Also on Monday, the commission issued another proposed decision approving PG&E’s $57.65 billion bankruptcy plan with modifications aimed at enhancing safety. The modified plan would require PG&E to submit to enhanced regulatory oversight for seven years, which could be extended if the company fails to demonstrate an improved safety record. It also requires that PG&E hire an independent safety adviser and form a new safety committee that will report to its board of directors.

PG&E’s bankruptcy plan requires approval by state regulators and a federal bankruptcy court. A bankruptcy court hearing on confirmation of PG&E’s restructuring plan is scheduled for May 27 in San Francisco.

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