For PG&E To Survive And Thrive When It Emerges From Bankruptcy, It Must Achieve Four Goals

After 18 months in bankruptcy, California’s biggest utility has emerged victorious. It is confronted with the same issues that led it to this position in bankruptcy. The 18-month bankruptcy of Pacific Gas & Electric has concluded. It now has to start on a multi-year endeavor to avoid making the same errors that led to its demise.

On Wednesday, United States Bankruptcy Judge Dennis Montali accepted PG&E’s $59 billion restructuring plan. At the time, PG&E declared that it had effectively exited Chapter 11 bankruptcy protection. This includes the November 2018 Camp Fire, for which PG&E pled guilty.

PG&E has a long and arduous journey ahead of it. PG&E should meet the state’s lofty clean-energy, environmental, and electrification targets. To prevent political and public backlash, this must be done without raising customer rates.

PG&E has a slew of long-term issues. The necessity to adjust to the fact that a significant proportion of its customers are served by community choice aggregators, or the deconstruction of its natural gas network to meet the state’s zero-carbon target by 2045, are two examples.

PG&E must first satisfy every utility’s basic responsibilities, which are “the cornerstones for safe, dependable, and affordable” service, according to Isaac MazeRothstein (grid edge analyst at Wood Mackenzie Power & Renewables).

According to Maze-Rothstein, they need an alternative to virtually all PSPS occurrences (which stands for “public-safety shutoffs”) to prevent putting millions of people in the dark for days.

PG&E must achieve these objectives without raising rates for customers to “consider choices.” In times of emergency, PG&E may increase power prices to make it more costly. Customers may ask for other ways to quit the business.

This is the “utility death spiral” danger that rooftop solar and behind-the-meter batteries represent, but which has yet to materialize in the actual world. Maze-Rothstein said that they will be successful if they can achieve those goals for three years in a row. The narrator adds, “Everything else is an afterthought.”

These four issues are critical for PG&E in the short and long term.

1. Safety: Reduce the risk of wildfire as much as feasible.

Dan According to Richard, PG&E is mainly concerned with avoiding future wildfires. If it takes on a second one, the business may go insolvent. This option is still available if the business fails to comply with state safety requirements.

California’s investor-owned utilities will have access to a $21 billion state fund to help them recover from catastrophes like the Paradise fire, which occurred in November 2019. This fire, which resulted in $30 billion in liabilities, has the potential to deplete the fund, limiting the state’s capacity to offer further aid.

PG&E plans to spend $40 billion on its power infrastructure over the next five years. Wildfire mitigation will also cost $7.8 billion. Increased vegetation clearance along 1,800 miles of distribution lines, covering or burying of another 240 miles of wires, and 600 grid-sectionalizing devices are all part of the plan to minimize fire-related outages.

Before the COVID-19 outbreak, PG&E had already struggling to finish this massive project. Judge William Alsup of the United States District Court for Northern California supervises PG&E’s criminal probation for the 2010 San Bruno natural gas pipeline explosion.

According to Alsup, the business has not dealt with any obvious fire risks in the last year.

If PG&E fails to achieve its wildfire prevention objectives, the company may face penalties or possibly receivership under the provisions of a contract with the California Public Utilities Commission.

PG&E must demonstrate more than how many transmission towers were inspected and how many kilometers of tree limbs were removed. Even though current rules require trash and branches to be cleared within 10 feet of wires and poles, reports from the 2017 California Wine Country Fires suggest that at least one was sparked by a tree limb blown into wires far beyond this distance.

Machine learning should be used to model all trees that have been mapped using lidar, according to Wara, and those that are out of their control should be destroyed.

Some landowners and environmental organizations may have objected to PG&E’s vegetation-clearing effort last year, according to Wara.

PG&E can’t fully remove these risks, he says, since “they’d have to cut down all the trees in this area.”

The utility’s weather station network and camera, on the other hand, may be able to offer the data needed for this kind of study.

2. Reliability: To prevent blackouts caused by fires, invest in distributed energy

PG&E is expected to rely on fire-prevention outages for the foreseeable future, given the reality of a strained workforce and a bankruptcy-strengthened budget. 

Nobody wants their power to go out.

According to Wara, we are in the midst of a wildfire emergency. To avoid fires, blackouts are employed as a last option. These blackouts may be hazardous since they can cause traffic lights and illumination to fade, businesses and restaurants to lose refrigeration, and the elderly and sick who need medical equipment to go without electricity.

States’ legislators and regulators are discussing whether PSPS incidents should be designated a state emergency.  PG&E will deploy thousands upon thousands of mobile diesel generators, each with a megawatt of power, as a temporary option to provide energy backup for people and communities in danger. Battery systems will be financed via the state’s Self-Generation Incentive program.

As shown by the response to PG&E’s plan to install natural-gas generators at substations to, offer PSPS assistance this fiscal year, these units are more efficient and cleaner than diesel. Clean energy advocates, on the other hand, argue that they still release carbon dioxide and therefore jeopardize the state’s environmental objectives.

Natural gas microgrid proponents argue that solar and batteries can only offer a limited amount of backup at a reasonable cost. Microgrids with solar, generators, and grid management, according to Maze-Rothstein, are the ideal option for big customers with essential backup requirements. Several units were able to keep the lights on during PSPS activities last fall. A further 170 megawatt is being considered.

Customers might mix customer-owned distributed clean energy with rate-based utility spending to ensure reliability, he said. The public benefit, however, must exceed the expenses.

The CPUC is now drafting a microgrid procedure to enable such cooperative efforts, according to Amisha Rai, West Coast managing director for Advanced Energy Economy.

State legislatures are also considering many options for assisting communities in recovering from the impacts of climate change.

She was curious as to how she might make use of the microgrid’s capabilities in the vicinity of evacuation centers.

“Can you use solar electricity to build community centers around schools?” Are you willing to consider mobile energy sources like electric school buses that are dispersed throughout the state? The expense of living, according to Rai, is the most pressing issue.

The current economic environment, according to Rai, makes this even more concerning.

3. Affordability: Keeping financing rates low to fulfill the massive investment needs

With a debt of more than $39 billion, PG&E will be declared bankrupt. This sum is almost twice as much as the debt before the bankruptcy. To fulfill capital needs, PG&E will have to increase rates.

Monday, Moody’s gave PG&E and its parent business, PG&E Corp, ratings that reflect their risk management in managing their obligations in the wake of the continuing wildfire threat. The $4.75 billion in new debt issued by the parent firm was given a B1 grade. This rating implies that the $4.75 trillion in new debt issued by the parent business is “speculative and subject to substantial credit risk.”

PG&E ratings, according to Jeff Cassella, vice president, and senior credit officer, are symptomatic of the numerous difficulties the business confronts as it emerges from its second bankruptcy in 20 years.

First, when wildfire danger rises, wildfires must be minimized.

Second, “building trust among key stakeholders,” such as legislators, regulators, and customers.

By 2021, PG&E anticipates its rate base to rise gradually from $44.5 billion to $60 billion. Former PG&E executive Dan Richards predicted that this would put enormous downward pressure on rates at a time when the economy has been in free fall since the COVID-19 outbreak.

Additional wildfire-mitigation expenditure, electric vehicle charging infrastructure, grid improvements, and investing in distributed Microgrids were all mentioned as possible rate-base growth possibilities.

It’s unclear if these expenditures will result in reduced consumer spending in the long run.

PG&E, for example, has received permission from the CPUC to spend more than $250 million in EV charging infrastructure.

Trucks, buses, and work vehicles were the primary targets of these initiatives. A reversal of this dynamic is possible. Under COVID-19, power sales may fall, causing rates to rise. Capital investment, on the other hand, broadens the rate base.

Customers that are frustrated by irregularity may choose self-generated alternatives such as rooftop solar-powered batteries under net Metering regulations or microgrids.

Large consumers may totally leave PG&E with these choices.

The PG&E microgrid project for natural gas substations has been placed on hold.

Rate-based microgrids may provide customers with a revenue-generating alternative in the future.

This might be a good thing for investors.

In the microgrid space, PG&E is expected to face competition from community-choice aggregators. These are small, family-run companies that are thriving in California. Twelve of PG&E’s 5.4 million customers are served by CCAs. These may be appealing alternatives for businesses that need to increase prices to cover future costs.

4. Achieving sustainable energy objectives in an uncertain future

CCAs make it more difficult for PG&E to meet its long-term clean-energy targets. PG&E was not alone in pushing for utility-scale renewable energy in California.

Because CCAs replace direct customers with distribution-only customers, they may be a financial headache for PG&E. According to Fei Zhang of Wood Mackenzie Power & Renewables, PG&E lost $1 billion in energy sales between 2017 and 2018. This was mostly due to consumers who did not opt-out of the new CCAs, both residential and commercial.

CCAs proposed taking over PG&E’s utility and turning it into a “wires-only” utility. The company’s distribution and transmission networks would be managed by CCAs, and energy storage and renewable energy would be procured at a fast rate.

There are only two CCAs with investment-grade credit ratings.

This is necessary to get advantageous loan conditions to invest, as well as to assume the increasing procurement role that they will play over the next 10 years. According to Colin Smith, a WoodMac analyst, there was an issue with consumer creditworthiness before the pandemic’s impact.

This was before a lot of people couldn’t pay their expenses.

PG&E continues to seek resources to fulfill its system-wide needs, despite its financial difficulties and debt burden, which Smith believes makes it less attractive than CCAs in similar situations.

Last month, PG&E secured contracts for 423 megawatts of energy storage devices (approximately 1.7 gigawatt-hours).

It also seeks zero-carbon alternatives to Diablo Canyon’s nuclear power facility. This will create a huge gap that renewables and batteries will almost likely fill. Smith said that replacing Diablo Canyon with storage was challenging.

In a fair period, it can be properly incorporated. For PG&E, these problems are less critical than preventing fires, restoring service to high-risk customers, and maintaining financial sustainability.

If we wait, Rai, AEE’s spokesman, claims that they will not grow more difficult to settle.

PG&E, she said, has to come up with a strong plan for dealing with these issues. How it will be linked to state strategies and how it will help state authorities achieve their objectives.

 

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