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California governor could make sweeping change at state's power regulator

Key Points
  • California's power regulator could face a shake-up that could lead to sweeping changes for PG&E and other utilities.
  • Gov. Gavin Newsom hinted about possible change coming to the California Public Utilities Commission during a meeting held last week in Sacramento, The Wall Street Journal reported Monday.
  • The state regulator for power companies has come under criticism for failing to properly enforce a 2016 law requiring electric utility companies to have a wildfire action plan.
A PG&E worker attempts to clear a fallen utility pole from Pentz Road in Paradise, Calif., after it was felled by the Camp Fire, Thursday, November 8, 2018.
Karl Mondon | Digital First Media | Getty Images

California's power regulator could face a shake-up that could lead to sweeping changes for PG&E and other utilities. It follows the California Public Utilities Commission coming under criticism for failing to properly enforce a 2016 law requiring electric utility companies to have a wildfire action plan.

Gov. Gavin Newsom hinted about possible change coming to the CPUC during a meeting last week in Sacramento, The Wall Street Journal reported Monday. It said the governor met with a group of state lawmakers and analysts from S&P Global Ratings.

According to the Journal, the governor is weighing "overhauling" the commission, including making a management change, as the state prepares for the upcoming wildfire season. Newsom's office and the CPUC didn't respond to a request for comment.

"The utilities in California are probably due for a pretty massive overhaul anyways," said Brian Curtis, CEO of Concentric Power, a California-based energy technology firm. "It's sort of a once-in-30-year opportunity to re-regulate how things are going in California."

Last month, PG&E — the state's largest electric utility — said in a regulatory filing that it believes it's "probable" that the company's equipment will be found to be the source of the catastrophic 2018 Camp Fire, which destroyed more than 10,000 homes and killed 86 people in Butte County. Problems with PG&E equipment near where the Camp Fire is believed to have started were also reported by the utility in November.

PG&E, which filed for Chapter 11 bankruptcy in late January, also faces liability for more than a dozen other Northern California wildfires that broke out in 2017.

The state is considering legislation that would allow the San Francisco-based utility to issue new debt to help cover some costs from the devastating wildfires. California also could push for a breakup of PG&E or take steps that could impact other investor-owned utilities in the state such as Edison International and Sempra Energy.

The state regulator could push some investor-owned utilities to shed their natural gas units or split up their electric power business. PG&E received criticism after the deadly San Bruno gas explosion in 2010 and Sempra's Southern California Gas Co. unit has faced protests in 2015 for leaks at its Aliso Canyon gas leak in Los Angeles County.

In February, S&P said it "has been actively reexamining its assessment of California regulatory construct for electric utilities." S&P also raised the possibility it could lower all of California's investor-owned regulated electric utilities to "below investment grade before the start of the 2019 wildfire season."

"We're going to be heading toward a different regulatory regime in the not-too-distant future, and I think it's probably going to cut the utilities off at the knees in terms of credit," said Curtis. "It will change the cost of capital and change how the utilities can actually invest in infrastructure or not."