Good morning, California. Shawn Hubler and Laurel Rosenhall are sitting in for Dan Morain, who is off today.

“Shame! Shame! Shame! Shame! Shame! We won’t forget this!”—Protesters at the California Public Utilities Commission on Monday, alleging a bailout as the utility regulators voted to help PG&E to tap billions of dollars in credit it will need to maintain operations after filing for reorganization under Chapter 11 of the U.S. Bankruptcy Code.

CA's first climate-driven bankruptcy

PG&E faces billions in liability for fires in Northern California.

PG&E Corp filed early today for bankruptcy protection from liability for its role in California’s devastating wildfires, bad news for essentially everybody but the lawyers, experts say.

  • California’s largest and least popular utility faces as much as $30 billion in liability for the 2017 and 2018 mega-fires in Northern California. At least a dozen major fires—a year-round hazard now, thanks to climate change and development near wildlands—have been traced to PG&E equipment, and one of its towers is a prime suspect in the 2018 Camp Fire, which killed 86 people.
  • But a PG&E bankruptcy will likely soak ratepayers, cost shareholders, force wildfire victims to settle for pennies on the dollar and make it even harder for state lawmakers to keep the lights on in Northern California and sustain clean energy goals, The Sacramento Bee reports.

The Bee: “Complicating matters is that state policymakers—Gov. Gavin Newsom, the Legislature, the Public Utilities Commission—will have their hands tied to a certain degree. Once PG&E Corp. and its Pacific Gas and Electric Co. subsidiary begin Chapter 11 proceedings, the bankruptcy judge will have broad power to accept or reject any settlement that’s proposed.”

PG&E won’t be the only one paying for lawyers:  The Wall Street Journal reports that CPUC has hired Paul Weiss Rifkind Wharton & Garrison, the law firm that guided them through PG&E’s 2001 bankruptcy, and the state has hired O’Melveny & Myers, which has been advising the Puerto Rican government and its power company.

WSJ: “The top O’Melveny partner advising Puerto Rico’s utility is charging more than $1,100 an hour.”

For background, here’s a primer from CALmatters’ Judy Lin on how a PG&E bankruptcy will go down. And here’s a look at the very big questions that won’t be solved by this bankruptcy.

PUC crackdown on utilities?

Utilities have caused thousands of fires, but are rarely cited.

Tougher state regulation of power companies may be on its way, regardless of how PG&E’s bankruptcy turns out.

  • “Equipment owned by California’s three largest utilities ignited more than 2,000 fires in three and a half years—a timespan in which state regulators cited and fined the companies nine times for electrical safety violations,” The Los Angeles Times reported Monday. 
  • More than 1,500 of those fires were sparked by equipment owned by PG&E.

The Times: “The California Public Utilities Commission has never fined an electrical utility company for failing to meet safety standards before a wildfire strikes. Instead, the agency fines the utilities for violations after investigations into fires find wrongdoing — and the process can drag on for years.”

John Fiske, lawyer for wildfire victims: “The CPUC oversight of investor-owned utilities to prevent electrical or utility-caused wildfires is devastatingly absent. When you’re looking at areas that look like they’ve been bombed in a war zone, and to know that can be prevented with enforcement and oversight, it’s widely upsetting.”

CPUC President Michael Picker testified to state lawmakers last year that the commission is mainly an economic regulator focused on reasonable rates for consumers, and doesn’t have the technology or manpower to enforce safety.

  • A team of 19 CPUC inspectors does spot checks, but can’t cover more than a fraction of the state’s hundreds of thousands of miles of power lines and 4.2 million utility poles. State lawmakers told The Times that must change.

Santa Barbara Sen. Hannah-Beth Jackson: “I think, frankly, what we need do is rethink the system.”

Senate President Pro Tem Toni Atkins: “We are in a new reality now.”

Speaking of wildfire costs

Insurance payouts from the November fires alone now stand at $11.4 billion—and counting, California’s Department of Insurance reported Monday.

More than 46,000 claims have been reported so far, with more than 13,000 insured homes and business suffering a total loss, said Insurance Commissioner Ricardo Lara, who called the numbers “massive.”

Lara: “Today, we have a clearer picture of the loss from the devastating Camp and Woolsey fires. … To the residents of Paradise, Butte, Malibu, Los Angeles and the other communities who have lost so much—we stand with you on the long road to recovery.”


FSB Core Strategies: Public Affairs. Ballot Campaigns. Legislative & Regulatory Fights

Cannabis market's high maintenance

AB 286 would cut taxes on legal weed.

You’ve heard of sin taxes—fees levied on cigarettes, alcohol or other bad-for-society products. Now get ready for sin tax breaks.

  • Taxes on legal marijuana sales in California would drop for three years under a new bipartisan bill that Democratic Assemblyman Ken Cooley calls “a little bit of a tax holiday to support the legal market.”

Backstory: The black market here is still thriving, even though Californians voted in 2016 to make cannabis use legal. An estimated 80 to 90 percent of Golden State marijuana flows to illegal weed dealers, who don’t tax, undercutting legal dispensaries. Legal weed is being taxed as much as 45 percent, between state and local levies.

  • Supporters of AB 286 believe lower legal weed taxes will channel business away from illegal drug dealers and toward licensed vendors, who will then send more dollars to the state. The bill would cut the cannabis excise tax from 15 percent to 11 percent and eliminate the cultivation tax until 2022.

Money matters: Cannabis taxes yielded $84 million last year—$101 million lower than projected. Lowering expectations, Gov. Gavin Newsom is projecting $355 million this year—roughly half of Jerry Brown’s prediction, The Associated Press says.

  • A legalization supporter who benefited from cannabis industry campaign cash, Newsom didn’t opine on the bill. But he has hinted he thinks some marijuana taxes are too high.

Newsom: “I want to see to see more enforcement address the legitimate concerns about local governments that are using this as a way to raise money, not end the war on drugs.”

A new death penalty debate

Death chamber at San Quentin State Prison.

Death penalty advocates are asking a federal appellate court to seize control of a case that has resulted in a 13-year-long moratorium on executions in California.

  • The request to the U.S. 9th Circuit Court of Appeals comes on behalf of murder victims’ family members, including ex-National Football League player Kermit Alexander, whose mother, sister and two young nephews were murdered in Los Angeles in 1984. Kent Scheidegger of the Criminal Justice Legal Foundation filed the unusual appeal last week.
  • Tiequon Cox, convicted of the Alexander murders, is among 22 people on Death Row at San Quentin who have exhausted all appeals and probably could be put to death but for an ongoing challenge to California’s lethal injection protocol.
  • Acting on a suit by inmates’ attorneys, then-U.S. District Court Judge Jeremy Fogel of San Jose issued an order in 2006 blocking the use of lethal injection as cruel and unusual punishment. Judge Richard Seeborg of San Francisco took over the case after Fogel retired.

Scheidegger helped write the 2016 initiative that promised to speed up executions in California. Two-plus years after voters approved Proposition 66, the state is no closer to resuming executions. 

  • California has 739 condemned inmates. Twenty-four had exhausted their appeals, but two died of natural causes. 

The brief: “Time is of the essence. The sentences put on hold by the District Court have already been delayed far too long, and every additional day is another miscarriage of justice.”

What’s ahead: Expect state lawmakers to soon revisit the issue of  whether to abolish capital punishment.

Dems seek a deal on NIMBY suit

The fight for housing continues in Huntington Beach.

That state lawsuit against Huntington Beach alleging chronic NIMBYism has one of Surf City’s new Democratic lawmakers working overtime to forge a solution.

  • Freshman Assemblywoman Cottie Petrie-Norris, who rode the “blue wave” to displace Huntington Beach’s traditionally Republican legislative representation, has been in negotiations with Gov. Gavin Newsom’s office, hoping to resolve the state’s issues with the city out of court, CALmatters’ Matt Levin reports.

Petrie-Norris: “I reached out [over the weekend] to every member of the city council and the city manager and also the governor’s office.”

Newsom’s spokesman: “Our goal has always been for Huntington Beach to amend its housing plan to allow for more housing. The Governor supports and encourages all efforts to help the city come into compliance with state housing law, and the state will gladly drop its lawsuit once it does so.”

Politics matter: Petrie-Norris and fellow Democratic Sen. Tom Umberg, whose district also includes the city, each won traditionally Republican seats by relatively narrow margins.

  • Voter registration in Huntington Beach is almost evenly split between the major parties—37 percent Republican and 36 percent Democratic—but its local government and state legislators historically have tilted conservative and Republican—and in the past two years, the city has sued the Democrat-dominated state government at least twice.

CALmatters' Newsom promise tracker

Is Gov. Gavin Newsom on track with his campaign promises?

Gov. Gavin Newsom has vowed to tackle childhood poverty, create a “master plan” for aging, guarantee health insurance for all, make preschool universal…and the list goes on. To keep track of all those campaign promises, CALmatters’ John Osborn D’Agostino and  Ben Christopher put together a helpful tool.

  • With a jam-packed budget proposal and a few early executive orders, the new governor is “In Progress” on quite a few  proposals, including more funding for neonatal care, more support for low-income housing development, and a second year of free community college free, to name a few.

Will Newsom’s to-do list survive the legislative process (and the economy) and make it all way to the “Completed” column? Keep checking back here to find out.

Commentary at CALmatters

Another Cal Poly might help Newsom govern rural California.

Joe Rodota, cabinet secretary to former Gov. Pete Wilson: If Gov. Newsom really wants to be governor for rural California and change the direction of the state’s long-neglected northern region, he’ll need to do more.  The governor should consider another potential California State University campus: a Cal Poly for Northern California.

Dan Walters, CALmatters: The union that represents teachers in the state’s largest school district, Los Angeles Unified, is claiming that its six-day strike produced a victory, and local media are echoing that line. It may be, however, a pyrrhic victory because it could drive L.A. Unified even closer to insolvency.

Please email or call with tips, suggestions and insights, [email protected]org, 916.201.6281. Shawn Hubler, [email protected]edits WhatMatters. Thanks for reading, please tell a friend and sign up here.

See you tomorrow.