Suit Seeks to Void PG&E $11B Ratepayer Bond
The Utility Reform Network is legally challenging regulators’ approval of Pacific Gas & Electric’s plan to issue $7.5 billion in ratepayer-backed bonds, plus $4 billion in interest and charges over 30 years, intended to cover part of the utility’s wildfire liability.
The California Public Utilities Commission has put “captive ratepayers at risk of paying for billions of dollars of wildfire liabilities incurred by PG&E in 2017 and 2018 that are required to be paid by PG&E’s shareholders, not ratepayers,” TURN’s Sept. 13 filing to the California Court of Appeals, First Appellate District in San Francisco, argues.
The Wild Tree Foundation, which along with TURN opposed the utility’s ratepayer-backed bond application at the CPUC earlier this year, said it hoped the court would stop an abuse of power by the Commission. The current bond amounts to forcing fire victims to “pay the cost of their own damages, inflicted by PG&E’s callous, reckless, and illegal behavior in starting dozens of catastrophic fires over the past years,” April Maurath Sommer, Wild Tree Foundation executive director, said.
The bonds are a tool to refinance $6 billion in temporary loans for PG&E’s wildfire costs. These were the subject of its second bankruptcy reorganization that was finalized last year. According to the bankruptcy settlement, the loans are the responsibility of utility shareholders.
The long-term refinancing via bonds is intended to improve the company’s balance sheet and with it, its credit rating. Moody’s, however, told Current in April that the refinancing will not affect the rating it assigns to the utility. “It doesn’t move the needle from our perspective,” said Jeff Cassella, Moody’s lead analyst for parent company PG&E Corp.
PG&E told the CPUC that its customers would be reimbursed for payments they make on the $11 billion bond, using cash on hand plus tax deductions over the next three decades placed in a trust account. That would include $1 billion in shareholder funds when the first bonds are issued, with another $1 billion before mid-February 2024.
In order to take advantage of the tax deductions from net operating losses, however, PG&E must have sufficient earnings. Profit for the utility has been jeopardized by its criminal liability for the Kincaid Fire in Geyserville in 2019, possible criminal charges for sparking last year’s Zogg Fire in Shasta County, and unknown liability from likely igniting this year’s massive, ongoing Dixie Fire.
“There are further clouds on the horizon,” Tom Long, TURN legal director, warned.
The utility reiterated its earlier stance that CPUC approval of fully-backed, long-term ratepayer bonds will save customers money. Ari Vanrenen, utility spokesperson, said the issuance will improve “PG&E’s creditworthiness, which will allow us to continue making critical safety and reliability improvements in its electric system at the lowest possible cost to our customers.”
PG&E planned it first bond tranche this year but there can be no issuance until the legal dispute is resolved.
Customer repayment is not guaranteed
TURN told the appellate court the $11 billion bond is not rate-neutral as required by law because PG&E’s repayment has not been guaranteed by the utility, nor by the CPUC. AB 1054 allows utilities to issue ratepayer-backed bonds on condition that they not raise utility bills, i.e., that they be rate neutral, on average.
The annual ratepayer tab is estimated at $400 million.
TURN argued in the filing, as it did earlier to the CPUC, that there could be a customer repayment shortfall of up to $4 billion. That includes because the debt refinancing may not improve PG&E’s credit status and lower its borrowing costs, as required.
TURN also told the appellate court that the CPUC’s approval, including “whether or not ratepayer neutrality is achieved is dependent on the actions of future commissions.” But the definition of ratepayer neutrality they are expected to apply is unclear.
After the CPUC approved the PG&E securitization application April 23, TURN, Wild Tree and the City and County of San Francisco objected, and sought a rehearing. They argued the bond refinancing would increase rates, that it failed to be rate-neutral and would not improve PG&E’s ratings. On Aug. 12, the CPUC rejected their arguments.
Southern California Edison was the first investor-owned utility to test the new laws created to provide wildfire liability protection. Its first securitization application was for $337 million and approved late last year. Its second $1 billion ratepayer bond request is pending before the CPUC.