Editorial: Failure to give ratepayers representation in PG&E bankruptcy to raise bills

Pacific Gas and Electric Co. just got some great news about its bankruptcy proceedings.

On Tuesday, the judge in PG&E’s bankruptcy case decided that millions of ratepayers will not have a committee to represent their interests during the company’s bankruptcy proceedings.

How did we get here?

The state’s biggest utility is facing billions of dollars’ worth of debt for its role in the deadly wildfires that have scorched California over the past several years.

In January, it made the controversial decision to file for bankruptcy. Interim CEO John Simon said at the time that the company’s goal was “to create a more sustainable foundation for the delivery of safe, reliable and affordable service.”

What went unsaid in the company’s harmonious statements is the fact that the company expects to create that foundation by increasing costs for ratepayers.

That’s what happened in 2001, the last time the utility went through a bankruptcy process.

At that time, the bankruptcy judge approved a plan requiring consumers to shoulder the costs for the majority of the company’s $12 billion debt load. Thanks to that judge’s decision, each PG&E ratepayer wound up paying an additional $1,300 to $1,700 in above-market prices.

Coincidentally, the judge for PG&E’s 2001 bankruptcy is the same judge for PG&E’s 2019 bankruptcy — Dennis Montali. If that’s not enough to convince you that an unfortunate chapter in California history is at high risk for repeating itself, consider this story.

In 2001, San Francisco consumer group The Utility Reform Network asked the courts to name a ratepayers’ committee for PG&E’s bankruptcy process. (In bankruptcy proceedings, committees typically consist of parties that hold large claims against the debtor. Committees can investigate the debtor’s business behavior and participate in the creation of a repayment plan along with the judge.)

There had been very few utility bankruptcies at the time, and TURN was concerned that PG&E would get together with its big creditors and decide to force ratepayers to foot the bill.

TURN convinced a federal trustee that ratepayers deserved a seat at the table, but PG&E lobbied against it, and Montali reversed the trustee’s decision.

TURN turned out to be right. The end result of the 2001 bankruptcy was satisfied PG&E creditors, skyrocketing bills for electricity customers and an eventual path to profitability for PG&E.

Nearly two decades later, California is facing the same scenario.

Earlier this year, TURN filed for a ratepayers’ committee. It noted that ratepayers are a major source of income for PG&E. Because of the utility’s near-monopoly status in the regions it serves, these ratepayers have few choices and cannot switch to competitors easily for lower prices.

Finally, these ratepayers have no voice in the company’s bankruptcy. TURN noted that this formula will almost certainly result in a wildly unfair bargain for customers.

Montali rejected TURN’s perfectly sensible request. His argument? “Ratepayers are not creditors.” That’s a shock to the millions of PG&E customers who served as the utility’s creditors in 2001.

It’s an eye-opener to the millions of PG&E customers who reacted with outrage after the state Legislature passed a bill to make it easier for the utility to borrow money from the state to pay off its liabilities for wildfire damages in 2017 — with the expectation that those bonds would be repaid via higher customer charges.

Last but certainly not least, Montali’s argument is a surprise worth celebration among PG&E’s creditors — a most welcome one. Now they know they won’t have to take the haircut they deserve for taking the risk of investing in PG&E.

Montali made one excellent point in his decision. He said that it’s the responsibility of the California Public Utilities Commission to regulate PG&E’s rates. The PUC’s role is to act as a check on PG&E — so that (among other things) the utility doesn’t gouge its customers.

Unfortunately for PG&E ratepayers, the PUC has historically fallen far short of that mission.

The commission certainly didn’t prevent rate hikes after PG&E’s 2001 bankruptcy. It took a full decade to adopt new regulations on fire safety,passing them only after the devastating fires of 2017. It stood by while Sacramento approved its ratepayer-financed bailout last year.

With Montali’s decision to reject a ratepayer commission, the PUC should assure the public it will be working hard to ensure that any solutions for PG&E’s bankruptcy are fair and equitable, and won’t fall solely on ratepayers.