PCG PG&E Corporation

By Alejandro Lazo 

SAN FRANCISCO -- California Gov. Gavin Newsom recently ended weeks of traversing burned down, blacked out and evacuated parts of this state with a dramatic promise: If PG&E Corp couldn't fix its own problems, he would consider a government takeover.

Widespread blackouts intended to prevent more deadly wildfires have disrupted the lives of more than two million Californians and become the biggest crisis of Mr. Newsom's 10 months in office. Putting his administration in the precarious center of a problem fueled largely by forces beyond his control could wed his fate deeper to the crisis.

But political consultants and policy experts say Mr. Newsom may have no better options than to try to take ownership of the problem.

"Because the governor is the executive, he gets credit for things he doesn't really do, and gets blamed for things that are not really his fault," said Garry South, a political adviser to former Gov. Gray Davis, who was recalled in 2003, partly due to an energy crisis. "Gavin Newsom knows this extremely well."

Until now, Mr. Newsom, 52 years old, has had a smooth first year, helped by a booming economy that allowed for spending increases on a number of programs. The former San Francisco mayor and lieutenant governor also has made his mark by repeatedly engaging President Trump in public spats that play well in the left-leaning state.

As of September, 44% of Californians approved of Mr. Newsom's performance as governor, while 32% disapproved, according to the Public Policy Institute of California. No new public polls have been conducted since the blackouts began.

In the weeks following the first wave of power shut-offs that began Oct. 9, Mr. Newsom blamed PG&E's "greed" and "mismanagement" multiple times in written statements and appearances, demanding repeatedly that affected customers receive rebates for the blackouts. The company agreed to pay the rebates.

No utility has deployed the strategy of shutting down power to avoid wildfire risk as broadly as PG&E, which is scrambling to revamp its equipment and trim trees across its 70,000-square-mile service territory. That equipment -- determined to have sparked 19 wildfires in 2017 and 2018 that collectively killed more than 100 people -- is particularly dangerous when dry, windy conditions prevail. The company sought chapter 11 bankruptcy protection in January, citing more than $30 billion in potential liability costs.

On Tuesday, Mr. Newsom convened a meeting in Sacramento with PG&E and insurance industry executives, wildfire victims and debt and equity investors aimed at expediting the company's exit from bankruptcy, improving its safety standards and limiting the need for more preventive power outages.

While the state is a party to the bankruptcy proceedings and California law requires its utilities regulator to sign off on any final plan, a state takeover of PG&E would be difficult, experts said, as any offer would have to compete with those being considered in court. A push to buy the investor-owned utility and turn it into a giant customer-owned cooperative has gained momentum in recent weeks, with support from the mayors of San Jose, Oakland and Sacramento.

At the meeting, Mr. Newsom reiterated his threat that the state would intervene "if the stakeholders don't come to a swift resolution that allows for needed safety transformation ahead of next fire season," a spokesman said. The spokesman didn't offer further specifics, though the governor has said publicly that a state plan would keep the utility quasi-independent and he wouldn't put the general fund, which pays for most public services, at risk.

S. David Freeman, the former head of the Los Angeles Department of Water and Power and the Tennessee Valley Authority, said having one owner take over for another isn't likely to resolve issues that have built up over decades, particularly given the nature of PG&E's aging infrastructure.

"This problem is unsolvable under the current situation," Mr. Freeman said. "In the meantime, we are going to have to put up with a lot of anguish."

PG&E's chief executive has said it could take a decade for the company to improve its electric system enough that pre-emptive blackouts would be largely unnecessary. Mr. Newsom has argued that while transforming the entire grid might take that long, his aim is to have a safe utility by the next fire season by identifying the most dangerous parts of the grid and making targeted investments.

"I assure you we are not allowing any of this to be the new normal, and this will not take 10 years to fix," Mr. Newsom said recently after handing out apples at a food bank for Kincade Fire evacuees in Santa Rosa.

His comments were met with resounding applause from the crowd. Debbie Meier, who was living in her car last month after being evacuated from her home in Windsor, Calif., said she was enthused by a call from the governor for billionaire investor Warren Buffett to buy the utility.

"PG&E has run us into the ground over the last 10 years, somebody else has to do it," she said. "We can't just keep having this every year."

Mr. South, the former adviser to Mr. Davis, said Mr. Newsom has an advantage over his onetime boss.

"There is a readily identifiable villain in PG&E," he said. "He is doing a really good job at pointing that out."

Katie Bays, an energy analyst with corporate consulting firm Sandhill Strategy, said the governor has so far walked a fine line using harsh language that resonates with angry voters while still assuring investors that he will do his best to ensure PG&E has a solvent future.

Politically, she added, Mr. Newsom's life is likely to become harder if the state takes control of the company.

"Isn't it easier and better and potentially more expedient to have PG&E as a punching bag when fires break out?" she asked.

Write to Alejandro Lazo at alejandro.lazo@wsj.com

(END) Dow Jones Newswires

November 10, 2019 10:14 ET (15:14 GMT)

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