OFFICE OF THE GOVERNOR December l3, 2019 William D. Johnson Chief Execufive Officer Corporafion 77 Beale Sfreef San Francisco, CA 94177 RE: Draff Amended Plan of Reorganizafion for Corporafion (?Corp?) and Pacific Gas and Elecfric Company (The ?Ufilify? and, collecfively wifh Corp, dafed as of December 6, 20l9 (fhe ?Amended Plan?) Dear Mr. Johnson: Since The day decided To file for bankrupfcy profecfion, have been clear abouf fhe sfafe's objecfives. Californians musf have access fo safe, reliable, and affordable service. Vicfims and employees musf be freafed fairly. And California musf confinue To make forward progress on our climafe change goals. These objecfives were codified info law in Assembly Bill 1054 (Holden, Chapfer 79, Sfafufes of 2019) and musf be safisfied as parf of any emergence from bankrupfcy. To facilifafe an expedifious resolufion of fhe chapfer 1 cases fhaf achieves fhe sfafe?s objecfives, my office has underfaken a review of The Amended Plan and The maferials submiffed in supporf of such plan fo defermine whefher, in my sole judgmenf, fhe Amended Plan and The resfrucfuring fransacfions confemplafed fherein comply wifh AB l054. appreciafe fhe efforfs of The managemenf feam fo provide my office informafion fo assisf in fhaf review. I have defermined fhaf fhe Amended Plan and fhe resfrucfuring fransacfions confemplafed fherein do nof comply wifh AB l054. In my judgmenf, fhe Amended Plan and fhe resfrucfuring fransacfions do nof resulf in a reorganized company posifioned To provide safe, reliable, and affordable service fo ifs cusfomers, as required by AB 1054. GOVERNOR GAVIN NEWSOM SACRAMENTO, CA 95814 (916) 445-2841 @64 chapter it cases punctuate more than two decades of mismanagement, misconduct, and failed efforts to improve its safety culture. caused the devastating San Bruno gas pipeline explosion, which killed 8 people, caused 58 injuries, and destroyed approximately 38 homes. has caused multiple catastrophic wildfires in the last three years, including the Camp Fire, which we know killed 85 people, destroyed the town of Paradise and resulted in billions of dollars in economic losses to the region. recent management of the public safety power shutoffs did not restore public confidence. Instead, caused extreme uncertainty and harm for Californians who rely on power for their health care and for their livelihoods. For too long, has been mismanaged, failed to make adequate investments in fire safety and fire prevention, and neglected critical infrastructure. has simply violated the public trust. It is against this backdrop that compliance with AB lO54 must be measured. To access the state?s wildfire fund, AB 1054 requires: - toresolve its insolvency proceeding by June 30, 2020; - The bankruptcy court to determine that the plan of reorganization fairly satisfies pre-petifion wildfire claims; - The California Public Utilities Commission (the to determine that the reorganization plan and other documents are consistent with the state?s climate goals and neutral, on average, to ratepayers; and - The CPUC to determine that the plan of reorganization, other plan documents, and the resulting governance structure be acceptable to the CPUC taking into account safety history, criminal probation, recent financial condition, and other relevant factors in order for the reorganized company to access the wildfire fund. The review of the plan of reorganization is not a rubber stamp it is a critical component of AB l054. To be approved under AB l054, any plan of reorganization must position the emerging new entity for transformation. Such plan should include stringent governance and management requirements, enforcement mechanisms, and a capital structure that allows the company to make critical safety investments. In addition to the feedback set forth below, my team will provide your advisors with additional information to further clarify my views on specific features of the plan. Governance and Management Requirements The resoluTion of This bankrupTcy musT yield a radically resTrucTured and Transformed uTiliTy ThaT is responsible and accounTable. To ThaT end, my office previously informed you ThaT any accepTable plan under AB 1054 musT provide for major changes in governance and incorporaTe enforcemenT mechanisms. has failed To address mosT of The issues we previously raised on governance. The governance and enforcemenT mechanisms ThaT I believe are necessary include The following: i. Changes ThaT will resulT in a more qualified and independenT board of direcTors ThaT undersTands iTs obligaTion To achieve The goals of AB l054. A Transformed company should be governed by a board of direcTors selecTed based on a pre-deTermined seT of qualificaTions, include members wiTh exTensive safeTy experience, and be comprised of a majoriTy of Californians. To faciliTaTe TransformaTion, The board ThaT will lead The reorganized company should be accepTable To me and approved by The CPUC and idenTified in The Amended Plan. I do noT expecT ThaT The posT-confirmaTion board of direcTors will include The currenT direcTors. STricT, clearly defined operaTional and safeTy meTrics To which The reorganized company will be held accounTable. An escalaTing enforcemenT process ThaT provides for greaTer oversighT of The reorganized company if fails To meeT The defined operaTional and safeTy meTrics. Because of This company's hisTory, The license To operaTe should be condiTioned on agreeing To This process. This should also include a sTreamlined process for Transferring The license and The operaTing asseTs To The sTaTe or a Third-parTy when circumsTances warranT. EscalaTing enforcemenT should include governance changes ThaT proTecT California in The evenT ThaT The reorganized company Tails To meeT The operaTional and safeTy meTrics or commiTs oTher bad acTs including a subsequenT bankrupTcy filing. The Amended Plan does noT incorporaTe any mechanisms To address These issues. Thus, I believe The Amended Plan falls woefully shorT of The requiremenTs of AB 1054. The Amended must provide, 05 non-woivoble condition, that the confirmation order is entered by June 30, 2020 end the effective date occur by August 29, 2020. In the event either of these dates are not met, the Bankruptcy Court should oppoint Cl ll trustee acceptable to the CPUC to manage the debtors dispose of their assets dnd/or operdtions. Capital Structure To achieve sofe reliable service mdl