By Jan Smutny-Jones | Special to CalMatters
Editor’s note: This commentary is in response to: “California Democrats can speed up improvements to PG&E’s antiquated system. Here’s how,” Nov. 25, 2019.
It is understandable why lawmakers are angry about PG&E’s failure to invest properly in its infrastructure as local communities have suffered greatly from power shutoffs and wildfires.
It is wrong, however, to blame California’s world-leading renewable energy policies. And it is further wrong to suggest that PG&E should breach its clean energy contracts as part of its bankruptcy reorganization plan to benefit wildfire victims and customers.
Put simply, any cancellation of renewable energy contracts would hurt, not benefit wildfire victims. This is because it would reduce the amount of PG&E funds available to them as the utility emerges from bankruptcy.
PG&E purchased power from renewable electricity producers under long-term contracts through a competitive process over the past decade. PG&E does not make any money on them since they are a direct pass through to customer rates. If PG&E does not buy the power, it does not recover any costs.
The contracts also have “liquidated damages” provisions. That means that if PG&E breaches the contract, it must pay the renewable provider the expected future economic value of the contract.
Since PG&E is in bankruptcy, these damages become claims against the utility. The renewable energy company becomes an “unsecured creditor” and placed into a pool of other unsecured creditors to share whatever money becomes available.
This would not be a good outcome for wildfire victims who are in that pool of unsecured creditors.
Suddenly, less money would be available and victims’ claims would be diluted as a large amount of breached contract claims are added to the pool. It is unfair to the wildfire victims and creates more uncertainty in moving beyond the PG&E bankruptcy.
What’s more, PG&E still would need to purchase any electricity displaced by the breached renewable contracts in order to keep the lights on. It is likely that this power will come at a premium, harming customers, as power suppliers will charge to account for the potential risk of contracts not being honored in the future.
California clearly needs to continue investing in infrastructure upgrades and clean energy technology to further reduce the growing risk of wildfire. To do so requires capital investments. Who would want to loan us the money if we get a reputation for reneging on contracts?
Our state has benefited greatly from a diversified portfolio of resources supported by the state’s energy policies: geothermal, biomass, wind, solar, natural gas and energy storage.
These projects create good-paying jobs and tax revenue for local communities. The price of renewable energy has dropped thanks to competition and technology advancements. The state’s electric sector greenhouse gas emissions are also down significantly as a result of this diverse energy portfolio.
California’s environmentally responsible energy policies date back to the mid-1970s and have had bipartisan support from state leaders since then, along with the majority of Californians today.
With climate change contributing to worsening wildfires, we must stay the course and continue to support a clean energy sector as part of the solution.
The author wrote this for CalMatters, a public interest journalism venture committed to explaining how California’s Capitol works and why it matters.
Jan Smutny-Jones is chief executive officer of Independent Energy Producers Association, Smutny@iepa.com. He wrote this commentary for CalMatters, a public interest journalism venture committed to explaining how California’s Capitol works and why it matters. To read his past commentary for CalMatters, please click here.