Utility Breakup Plan: Two Attorneys Say ‘PG&E Too Big to Succeed’

The opening paragraph of a lawsuit names the California Public Utilities Commission, California Department of Water Resources, California Department of Finance Director Keely Bosler, State Treasurer Fiona Ma, and all of the CPUC Commissioners, Marybel Batjer, Liane Randolph, Martha Guzman Aceves, Clifford Rechtschaffen, and Genevieve Shiroma, as those really responsible for the California wildfires — as well as the dubious legislative bailout.

Maria Severson, who together with Michael Aguirre, are the attorneys representing the plaintiffs. Signed into law by Governor Gavin Newsom July 12, 2019, AB 1054 became a financial and legal bailout of the investor owned utilities (IOU) from the consequences of their “continued intransigence against prioritizing safety

Attorneys Severson and Aguirre also just submitted a proposed plan for breaking PG&E up, claiming the giant utility is too big to succeed.

Attorneys Aguirre and Severson sent a letter to Gov. Newsom with their proposal:

We understand that the Governor’s office has yet to propose a reorganization plan for Pacific Gas & Electric’s bankruptcy. We write to ask the Governor to propose a plan to reorganize PG&E that would break up PG&E into the 8 local areas within which it now operates. PG&E’s 8 local area assets would be auctioned to the highest bidders under Bankruptcy Code Section 363.

Noting that the Governor has not yet submitted his proposal to the Bankruptcy Court, attorneys Aguirre and Severson propose reorganizing PG&E into 8 Parts:

Humboldt Area

North Coast and North Bay Areas

North Valley Area

Central Valley Area

Greater Bay Area

The Greater Fresno Area

The Kern Area

The Central Coast Division

The attorneys explain there is precedent for “363 sales” in Chapter 11 bankruptcies involving large corporations. “For example, such sales were made in the General Motors, Chrysler, and Lehman Brothers bankruptcies. The term ‘363 sale’ refers to a sale of a debtor’s assets authorized under section 363 of the Bankruptcy Code. Sales of assets under section 363 can apply to substantially all assets of a Chapter 11 debtor. Generally, when bankruptcy practitioners refer to a “363 sale,” they are referring to a sale of substantially all of the assets of a Chapter 11 debtor. See, 6 Pratt’s J. Bankr. L. 291 (2010), 262 Asset Sales: The Latest Restructuring Tool.”

The attorney continued:

“We note you have retained one of the nation’s outstanding bankruptcy firms, O’Melveny, ‘to serve as attorneys for the State of California Department of Finance and the Office of the Governor of the State of California, Gavin Newsom.’ The subject matter of the representation relates to ‘pending chapter 11 cases of PG&E Corporation and Pacific Gas & Electric Company and matters ancillary or related thereto.’ (14 February 2019 Fee Agreement)”

The Lawsuit

California Globe spoke with Attorney Maria Severson, who filed the lawsuit, as she explained the case:

PG&E was seeking $375 million back from the Public Utilities Commission for the wildfire payouts, and now must eat that money. The other utilities knew they also started fires. They asked the PUC if they could join in the PG&E case to unload the wildfire costs on ratepayers. Initially the PUC didn’t allow it, but PUC President Michael Picker let them in — after the trial!

Ultimately the PUC denied the utilities the wildfire repayments, and they appealed to the appellate court. They were denied by the appellate court. They appealed to the United States Supreme Court, which made clear they were unwilling to hear the case, and left it alone. 

They lost big in the courts, so they went to the Legislature and Governor Newsom for the bailout. And they got one.

The lawsuit was filed “to invalidate AB 1054 as violative of the U.S. and California Constitutions, receive a declaration of the bill’s invalidity, and enjoin any state officer and agency from implementing the bill’s various provisions.” Prior to passage of AB 1054, the lawsuit shows PG&E made massive campaign contributions to nearly every member of the Legislature and to Governor Newsom to secure the bill’s passage.

This appears to be uncharted territory. California Globe will continue with interviews, reports and updates.