US judge leaves PG&E probation up to utilities commission

SAN FRANCISCO -- Whether Pacific Gas & Electric Co. must comply with new probation conditions will be up to the California Public Utilities Commission, a federal judge said Thursday.

While denouncing the utility for failing to follow through with commitments to safety upgrades, U.S. District Judge William Alsup said he's willing to reconsider new terms if the state regulatory agency supports PG&E's position that its programs have been sufficiently overhauled.

"If the CPUC thinks it has it under control, I'm very likely to defer to your judgment on this," he said.

Commission attorney Christine Hammond warned of unintended consequences if the new conditions are imposed. She did not say whether the agency would support PG&E's bid for Alsup to completely withdraw the new terms.

In an order accusing the company of being unable to safely deliver power to California, Alsup issued new probation conditions in April designed to prevent future wildfires. They included forcing it to directly employ a team of vegetation management inspectors, design a system to assess equipment and dramatically bolster record-keeping.

PG&E appealed the decision and was granted a stay.

During Thursday's telephonic hearing, PG&E argued the conditions were imposed illegally, are unnecessary and will actually hamper efforts to improve wildfire safety.

Alsup's ruling interferes with the state regulatory process, according to company attorney Kevin Orsini. Raising concerns of federalism, he said the court should not step into the role of a regulator to apply specific conditions to how PG&E maintains its system.

"We do not stand here and say the process is done," the Cravath, Swaine & Moore partner said. "There's an ongoing regulatory process that will continue as long as there's these wildfire conditions in California."

Alsup replied that the process did not prevent the historically destructive 2017 and 2018 Northern California wildfires.

PG&E agreed to accept new conditions imposed last year requiring it to comply with state law and its own wildfire mitigation plan, which it then violated, the judge reminded the lawyer.

"What can I do if you keep violating probation?" he asked. "Doesn't a judge have the authority to enforce it by imposing more conditions that are designed to bring you into compliance?"

The new probation conditions were imposed after PG&E stated in February it remained unable to certify perfect compliance with goals outlined in its state-mandated wildfire mitigation plan. Among the most critical issues Alsup identified were record-keeping inconsistencies and PG&E refusing to employ an in-house team of vegetation management workers, instead of outsourcing the work.

Responding to concerns over a significant backlog of tree trimming, Orsini disputed allegations PG&E is 10 years behind. The issue is being overblown because healthy trees identified as nonhazardous can similarly fall on power lines and spark fires, he said.

"Even the best vegetation management team in the world will not be able to stop all tree strikes," he said. "It's fundamentally and physically impossible."

Alsup was not satisfied. He accused PG&E of reneging on the commitment to directly employ a vegetation management team.

"I was flimflammed by you, counsel," he said. "You're trying to wiggle off your own statements to me now."

Orsini replied it was a pilot program. PG&E is much closer to reaching its tree trimming goals than stated by the court, he said.

Assistant U.S. Attorney Noah Stern said the government agrees Alsup could impose new probation conditions but that they should be considered with state regulators. But he sided with Alsup on claims federalism bars him from doing so.

"Taken to its logical conclusion, it would bar a court from ever imposing a substantive probation condition on a regulated company," he said.

Hammond detailed punitive actions the commission has taken against PG&E, including a record $1.93 billion penalty for wildfires it caused in 2017 and 2018. She then turned to the importance of PG&E retaining its fiscal health to make necessary safety upgrades.

"The concern is that conditions of probation may hamper PG&E's ability to pivot and address given issues in the appropriate order," she said.

Alsup ordered the commission to brief him on what it is doing to improve the utility's wildfire safety performance and its concerns with his new probation conditions.

PG&E must also submit an alternative proposal to the probation terms.

Among the last steps for PG&E to exit bankruptcy, the commission also unanimously approved the company's reorganization plan despite challenges that its for-profit model endangers the public.