California’s governor and head utility regulator turned up the pressure on bankrupt utility Pacific Gas and Electric this week over upcoming changes to its board of directors.
"If they pick the board members and they don't have people who know how to turn around a troubled utility at an operational level, if they don't know how to turn around a company that's failed on safety, then they've got the wrong board," California Public Utilities Commission President Michael Picker told Utility Dive.
No more than five members of PG&E's 10-member board of directors are expected to run for reelection at the company's shareholder meeting in May. Early this month, Blue Mountain Capital, a hedge fund that is one of the utility's largest shareholders, nominated an entirely new slate of candidates for the board.
Picker said he is concerned PG&E may select board members more concerned with financial performance than correcting a safety record that's seen the utility's equipment ignite multiple deadly wildfires in recent years.
"You could get a board out of bankruptcy, for example, that is focused mostly on improving the share price from $13 to $25," Picker said at the Hawaii Energy Conference on Tuesday. "Mostly the hedge funds are going to be really interested in that."
Picker's remarks came just a day before California Gov. Gavin Newsom wrote a letter to PG&E on Wednesday, saying he was "troubled" the utility is preparing to fill its board with "hedge fund financiers, out-of-state executives and others with little or no experience in California."
The board nomination "raises serious doubts about the company's commitment to make changes needed to deliver safe, reliable and affordable power to Californians," he wrote.
New board members are approved by PG&E's shareholders, but Picker said his commission has the option to revoke the utility's license to operate if regulators do not like the choices.
"We issue a license that is called the certificate of public convenience and necessity that allows them to operate in the State of California," Picker said when asked what the CPUC could do to influence board picks. "[New board members] will have to testify to their fitness to actually run a utility that has a license to operate from the state."
"[T]here are a lot of things that we will probably have to consider before we are satisfied that PG&E is really ready to roll."
President, California Public Utilities Commission
Picker's Tuesday comments came as part of a wide ranging interview in which he also addressed jurisdiction over PG&E's electricity contracts and a new proposal to centralize renewable energy procurement in the state. Last November, his commission opened a safety investigation into PG&E after Picker said an audit showed the utility "appears not to have a clear vision for safety programs."
As part of that proceeding, California regulators have floated several potential reforms to the utility, including splitting it into multiple companies. Now, however, the CPUC president said he is more focused on the composition of the board than reorganization of the utility, which serves nearly 16 million people in Northern and Central California.
"You could break it up and you could get several boards, but you could still have the kinds of leadership problems unless you have folks who are very operationally effective in turning around a company," Picker said.
Any move to restructure the company or take away its operating certificate would likely come through the CPUC's safety proceeding, Picker said.
"Culture usually starts at the top, so that would be one basis to act," he said. "We've also looked at a variety of other things and we know that they don't have real effective safety culture coming up from the bottom to the top.
"We know that a lot of things that line workers see on the job don't seem to result in changes in the organization by the top decisionmakers," he added, "so there are a lot of things that we will probably have to consider before we are satisfied that PG&E is really ready to roll."
In recent weeks, multiple media outlets have reported that Bill Johnson, the outgoing CEO of the Tennessee Valley Administration, is likely to be named PG&E's next CEO. Picker said it's too soon to tell whether that will be a good choice.
"We will find out when we call him before us to testify to his fitness to act as a CEO," he said.
Bankruptcy jurisdiction not 'really an issue'
Picker also downplayed the significance of a simmering legal debate over which entity has jurisdiction over PG&E's power purchase agreements during the utility's bankruptcy proceeding.
"This is more kind of a press issue," he said. "I'm not sure it's really an issue."
This month, a federal court in California decided that a bankruptcy court, and not the Federal Energy Regulatory Commission (FERC), will be the venue that decides the fate of the contracts.
FERC had asserted it had "concurrent jurisdiction" over the contracts after independent generators expressed concern that PG&E may try to invalidate them in its bankruptcy proceeding. PG&E holds 387 PPAs with more than 350 companies worth about $42 billion, and generators are concerned PG&E will attempt to exit some of its older, more expensive renewable energy contracts to cut its liabilities in the bankruptcy proceeding.
"Why does PG&E care?" Picker asked rhetorically. "They get paid for going out and doing contracts and delivering electricity. It's not a very good business for them, but they do that. Their business is really wheeling that power to customers."
"This is something NextEra created as an issue to satisfy whatever need they had."
President, California Public Utilities Commission
Whether or not FERC has a role to play, Picker said any attempt to invalidate a power purchase agreement must pass through the CPUC.
"We approved those contracts," he said. "Anybody who wants to change them has to come back to us for permission to change those contracts."
The CPUC president blamed one independent generator in particular for increased focus on the PPA issue.
"This is something NextEra created as an issue to satisfy whatever need they had," he said. "I don't think it's a real issue. I think it goes exactly to something NextEra is doing."
NextEra, one of the nation's largest independent power producers, was one of the companies that pressured FERC to extend jurisdiction to the bankrutpcy case. Picker lamented the media attention given to the issue.
"I think there's too much focus on this and too much speculation," he said. "I think the trial lawyers would like to see contracts shed and contracts broken, because that means they see some headroom for more ratepayer dollars going to them and the people they represent. But I don't see that the utility is trying to do that, and I know we're not trying to do that."
Statewide renewables procurement
Alongside PG&E's bankruptcy, Picker and his agency are also working to ensure California's utilities and retail power suppliers meet the goals of its 100% clean energy and carbon neutrality targets by 2045.
Earlier this month, an administrative law judge for the commission recommended rejection of an Integrated Resource Plan filed by the states' power suppliers, saying it would not provide sufficient greenhouse gas reductions.
"What you see is all these different players are getting into the business of providing people with electricity," Picker said, referencing the numerous community choice aggregators that have sprung up in the state in recent years. "Can they meet the GHG reductions as well as things like the renewables goals?"
Picker said the rise of CCAs and distributed energy means California's electric utilities are being "deregulated by technologies."
"We're seeing the breakdown of the central planning mechanisms, and we can see from the IRP program that it's not working out currently and we know that we have to do some things to protect consumers and meet our clean energy goals," he said.
To direct resource selection for the utilities and CCAs, the judge proposed creating a centralized energy procurer that would ensure the state's power mix met all of its policy goals.
"I don't know how quickly this whole evolution will work out but we don't want to drift into this and have the same outcomes as 2000-2001."
President, California Public Utilities Commission
The ALJ proposed decision must still be approved by regulators, but the CPUC often adopts such recommendations with minimal or no changes. Picker said the centralized procurement model will help the state to not repeat market design mistakes of the past.
"I don't know how quickly this whole evolution will work out but we don't want to drift into this and have the same outcomes as 2000-2001," he said. "There we had a plan, maybe not a great plan, and the market design clearly failed.
"Here we don't even have a plan," he added. "We're just drifting."
Picker said that centralized procurement model will help keep the state on track to its goals, and that regulators have already investigated models from elsewhere.
"It could be like the [Illinois Power Agency] or it could be a bit like NYSERDA, so I think there's models out there and if that's the direction we head," Picker said. "Then we'll do our usual very deliberative process to compare these different very complicated models and make the wisest choice for the State of California."
Picker said the growth of distributed resources and CCAs could drastically change the utility business model in California — but he still expects there to be three large investor owned utilities in the near future.
"I think we're going to have three big IOUs. They are mostly going to be transmission and distribution platform operators," he said. "I think they may actually participate in some of these other markets whether it is battery storage or behind the meter or rooftop solar behind the meter or even PPAs and sales of bulk wholesale electricity into various retail providers."
"There may be a lot of different providers," Picker added. "There will be a provider of last resort — could be the same thing as the central procurer that will backstop a lot of these smaller entities in terms of actually helping to meet their GHG goals, or in case they fail, because some of them certainly will. So I think there will be a lot of changes three years out is my guess."