California Eminent Domain Report

On June 30, 2020, Governor Newsom signed Senate Bill 350 (“SB 350”), which is intended to serve as a backstop for customers as Pacific Gas and Electric Company (“PG&E”) completes its restructuring process and begins implementing the reorganization plan recently confirmed by the United States Bankruptcy Court. The bill, named the Golden State Energy Act, gives the State authority to take certain actions if PG&E does not comply with the terms of its reorganization plan.

SB 350 establishes a new entity named Golden State Energy (“GSE”) to serve as a nonprofit public benefit corporation regulated by the California Public Utilities Commission (“CPUC”) for the purpose of owning, controlling, operating, or managing electrical and gas services in the event PG&E is unable to meet the requirements set forth in its reorganization plan. The bill establishes several areas of operation related to GSE, including governance, regulation, and financing.

The Commission recently set forth an oversight framework in Decision 20-05-053 to monitor PG&E as the company emerges from bankruptcy and ensure that safety obligations are being met. Under SB 350, if the Commission finds that PG&E does not meet its safety obligations and ultimately revokes PG&E’s certificate of public convenience and necessity to provide utility services, then this would trigger the sale of PG&E to GSE.

PG&E has agreed, as part of its reorganization plan, that in such a scenario it will sell the utility to GSE. The State would have the option to purchase all of the issued and outstanding equity interests of PG&E directly or via GSE at an aggregate price. If PG&E reneges on the sale agreement, GSE would have the authority to commence an eminent domain action against PG&E under the bill.

PG&E’s reorganization plan was approved by the bankruptcy court on June 20, 2020. On July 1, 2020, the company announced that it had obtained the necessary financing under the reorganization plan and had begun implementing the requirements therein.