Among the 65,000 e-mails that the company made public last month was a string of contacts between Peevey and since-ousted PG&E Vice President Brian Cherry that could prove pivotal to state and federal prosecutors probing possible wrongdoing at the agency.
A Chronicle review of the e-mails shows that in late 2013, Cherry went so far as to tell Peevey that “you owe” another PG&E executive for keeping alive the struggling $4 billion project near Bakersfield. A month later, Cherry called on Peevey’s top aide to repay the debt by intervening to appoint an administrative law judge he wanted to oversee a $1.3 billion rate case.
State agents searched the homes of both Peevey and Cherry last month, looking for evidence of bribery, influence peddling and other felony conduct at the state agency.
In their search warrant affidavit, state investigators said that among the items they were looking for was evidence related to the Kern County alternative energy plant known as Hydrogen Energy California, or HECA. It would convert coal and petroleum refinery waste into power and fertilizer and inject greenhouse gases into nearby depleted oil fields.
The project has been criticized by local farmers and environmentalists, who say it would use large amounts of water and spew mercury and smog-causing compounds into the air of one of the most heavily polluted areas in the country.
Anxious to get plant built
The e-mails between PG&E and the utilities commission, which cover a five-year period, show how anxious Peevey was to get the energy plant built.
In April 2010, the president of the project — a partnership between energy giants BP and Rio Tinto — e-mailed Peevey to urge him to persuade PG&E and two other state utilities, Southern California Edison and San Diego Gas and Electric Co., to buy power from the proposed plant.
“The need to keep this project on schedule is critical,” the project president, Jonathan Briggs, told Peevey. In September 2010, Briggs e-mailed Peevey again to say the power-buying agreement was desperately needed to demonstrate “commercial feasibility” for the untested and costly technology.
“In short, without getting (a power purchase deal) in place by the end of September, Hydrogen Energy will not be able to justify material decisions including final site and land payments in the first week of October,” Briggs wrote.
‘Really need this’
In October 2010, Peevey reached out to Bruce Foster, then lobbyist for the company Peevey once headed, Southern California Edison, telling him that he was particularly “concerned … about HECA. Really need this.”
Cherry, for his part, told the utilities commission’s executive director, Paul Clanon, that same month: “Just got an earful from Peevey on HECA — and we support the project.”
He also e-mailed to Peevey that PG&E’s vice president of energy procurement, Fong Wan, had told a federal energy official who was promising $400 million for the project that the company was working on terms “we can live with.”
But Wan had added that PG&E was not interested in signing “a blank check for HECA,” Cherry wrote.
Peevey began lobbying hard for PG&E President Chris Johns to take part in the power purchase talks.
“As you know, the HECA project is of great importance to me, the governor, and (U.S. Energy) Secretary (Steven) Chu,” Peevey told Cherry in an e-mail in October 2010. He said it was “very important” that Johns attend a meeting at the end of the month to come to an agreement about buying power.
But with still no power purchase deal by late 2011, a Massachusetts company, SCS Energy, assumed control of the foundering project from the BP-Rio Tinto venture.
In December 2011, Peevey e-mailed Wan, saying the reconstituted project would be able to sell energy at half the earlier estimated price.
“Makes much more sense now,” Peevey told Wan, adding that the lower costs would translate into “big-time” savings for utilities.
Peevey also asked Wan for his help related to another fledgling project, a solar farm on Mare Island in Vallejo that would also feed PG&E’s grid.
Wan wanted the HECA and solar farm officials to call him. “I will do my best to find a possible win-win situation,” he wrote to Peevey.
HECA was still languishing on Jan. 1, 2013, when Cherry wrote a memo to his boss, Tom Bottorff, about a New Year’s Eve he had spent with Peevey at Sea Ranch in Sonoma County, where both men had vacation homes.
“Mike will be reaching out to you in a few weeks over HECA. He strongly believes in this project and its importance to the state of California,” Cherry told Bottorff.
Peevey now wanted PG&E to buy all the power generated by the 270-megawatt plant, Cherry wrote, “because he has doubts we can get Edison on board. Mike claims the power we will pay for HECA will be at the peak, so it will be a good (but not great) deal. He is very serious about PG&E playing a major role here.”
Providing power at peak demand periods allows energy companies to charge customers premium prices.
Peevey then reminded Cherry that PG&E had had “a great day” at the utilities commission’s most recent meeting, when Peevey had pushed through a regulatory decision in the company’s favor. The decision — opposed by customer advocates — awarded $29 million to utilities to encourage them to get customers to reduce energy use, even though the companies had failed to meet conservation targets.
After stressing how much PG&E had benefited, thanks to his efforts, Peevey said that “HECA was important to him,” Cherry wrote. “I told him I got the message and would forward it on.
“We ended the conversation with a dram or two of Johnny Walker Blue Label.”
Just before another Peevey-Cherry get-together at Sea Ranch in December 2013, the PG&E executive finally delivered some good news about the stalled power purchase talks.
‘You owe Tom’
Cherry wrote in an e-mail to Peevey that his boss, Bottorff, had fended off an internal challenge to the project. It came from Wan, the procurement executive, who had sought to cap how much of the power PG&E would buy.
“HECA is safe after Fong tried to put a 50 percent take limit on it,” Cherry told Peevey. “You owe Tom.”
A month later, Cherry was pushing Peevey’s chief of staff, Carol Brown, to assign Cherry’s preferred judge to a $1.3 billion rate-setting case arising out of the San Bruno gas explosion.
“This is a problem. Hope Carol can fix it,” Cherry told Peevey in a separate e-mail.
On Jan. 22, 2014, Cherry warned Brown what could happen if PG&E’s pick, John Wong, didn’t get the case: “I think Tom is going to have a harder time on HECA internally as a result.”
On Jan. 27, Brown reported back that Wong had gotten the assignment.
Changes at PG&E, regulator
Once PG&E began releasing e-mails in the case in September, the landscape changed. The utilities commission reassigned the rate matter to another judge, and PG&E fired Cherry and Bottorff.
Brown resigned as Peevey’s chief of staff, and Peevey himself decided not to seek a new six-year term as commission president in December.
The commission fined PG&E $1 million for improper lobbying in the judge-shopping case; the company is appealing.
One thing has not changed, however: HECA still exists only on the drawing board.
The e-mails should amount to “the final nail in the coffin — HECA should never see the light of day,” said Mark Toney, head of The Utility Reform Network.
“It’s an absolute end run around the rules, to do everything in secret, behind people’s back,” he said. “It is unbelievable the amount of backroom deals that PG&E and the utilities were involved with.”