New Governor, but Old Problems Shape 2019
Three days after being inaugurated as the 40th Governor of the State of California, Gavin Newsom offered his first budget, which at $209 billion, is $8 billion more than former Governor Brown’s last budget.
Newsom’s major point, which he repeatedly stressed, was that even with the state treasury flush with billions of extra tax dollars, he’s being careful about making long-term commitments that could backfire in a recession and, instead, is devoting the vast majority of those dollars to one-time spending and/or paying down debt, including unfunded pension liabilities.
Newsom called it “budget resiliency,” noting that even a moderate recession could slash revenues by $70-plus billion over three years, overwhelming the state’s “rainy day fund” and other reserves. In effect, he’s continuing Brown’s cautious approach to expensive commitments, while offering one-time appropriations and start-up funds for the ambitious expansion of health care, early childhood services and other big-ticket programs he also advocates.
Between the inaugural and the middle of May, the Governor and the Legislature will trade ideas and make arguments that will seek more spending. To be sure, the “supermajority” Democratic legislature will seek to spend as much of the surplus as possible – Newsom’s challenge will be to reign it in.
As for the “problems” he inherited, on January 29, 2019, what was becoming seemingly inevitable came to fruition: PG&E filed for bankruptcy for the second time in 18 years. The company’s filing came on the heels of the devastating wildfires that ravaged the utility’s service territory in 2017 and 2018 and which they are now accused of causing. With over $30 billion in potential liabilities mounting, the crushing financial exposure left the company with very few alternatives and the Board of Directors voted on January 28 to go ahead with a Chapter 11 bankruptcy filing in federal court.
With CEO Geisha Williams abruptly resigning days before, Interim CEO John R. Simon offered the following: “Our most important responsibility is and must be safety, and that remains our focus. Throughout this process, we are fully committed to enhancing our wildfire safety efforts, as well as helping restoration and rebuilding efforts across the communities impacted by the devastating Northern California wildfires. We also intend to work together with our customers, employees and other stakeholders to create a more sustainable foundation for the delivery of safe, reliable and affordable service in the years ahead. To be clear, we have heard the calls for change and we are determined to take action throughout this process to build the energy system our customers want and deserve.”
In inheriting the massive problem, Governor Gavin Newsom simply offered: “PG&E today filed for reorganization in federal bankruptcy court. That was PG&E’s choice but it does not change my focus, which remains protecting the best interests of the people of California. My administration will continue working to ensure that Californians have access to safe, reliable and affordable service, that victims and employees are treated fairly, and that California continues to make forward progress on our climate change goals.”
Left in the wake of the bankruptcy is a significant amount of legislative uncertainty. What can the legislature actually do? What can the governor and CPUC actually do? For now, the San Bruno federal court case will continue to play out – and will likely guide how the legislature and governor view and may respond.
A day after PG&E filed for bankruptcy protection, U.S. District Judge William Alsup accused PG&E of “killing people” and declared that the utility violated the terms of its probation for the 2010 San Bruno gas pipeline explosion.
Judge Alsup opened the hearing before a packed courtroom by comparing PG&E to a drug dealer who violates probation by committing a different crime. He noted that PG&E equipment was involved in starting 17 recent wildfires.
Judge Alsup spoke very sharply to the PG&E attorneys stating, “Does a judge turn a blind eye and let PG&E continue what you’re doing, let you keep killing people? There is one clear pattern here: PG&E is starting these fires. Global warming is not starting these fires. You’ve got to be on your absolute best behavior — no more crimes.”
The judge strongly suggested he’d ratchet up safety requirements on the utility’s probation, saying he’s considering such simple restrictions as requiring that PG&E not start another fire. Alsup has also threatened to order the company to make a thorough inspection of its electricity grid and complete a wide-ranging vegetation management plan ahead of the fire season. He said trees or limbs falling into PG&E equipment was the biggest menace. PG&E wrote in a court filing that such a move would necessitate a $75 billion to $150 billion investment and the hiring of 650,000 workers. Aslup was not amused and has threatened to sanction PG&E further.
So, while we have a new governor, the old problems are shaping the New Year. The legislative year is barely getting going, but most of the legislation with a few minor exceptions, is all about dealing with PG&E, and the other IOUs and future fires and fire liability. In fact, the first hearing of the year will belong to the Senate Energy Committee which will focus on PG&E’s reorganization.
Of the nearly 2,600 bills that have been introduced in 2019, only a few energy bills are worth mentioning for now: Senate Bill 772 (Bradford), would require the CAISO, to procure 2,000 – 4,000 MWs of long duration bulk energy storage; Assembly Bill 915 (Mayes) would move the RPS from the current 60% to 80% by December 31, 2038; Assembly Bill 56 (Garcia) would establish a central statewide entity to procure electricity for all end-use retail customers in the state; Assembly Bill 235 (Mayes) would create the California Wildfire Catastrophe Fund Authority; Senate Bill 549 (Hill), would subject PG&E electric rates to legislative approval; and finally, Senate Bill 550 (Hill) would put parameters around approval in change of PG&E structure.
No word yet on legislation to address “inverse condemnation,” but we anticipate that this idea may become legislation. The session is just getting started and concludes on September 13, 2019.