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All Eyes on California as PG&E Cuts Deal on Board Overhaul

All Eyes on California as PG&E Cuts Deal on Board Overhaul

(Bloomberg) -- After a weeks-long battle, bankrupt power giant PG&E Corp. has struck a deal with a group of investors to hire a chief executive officer and form a new board that will lead the company through the biggest utility bankruptcy in U.S. history.

Now it just has to sell the slate to California’s leaders. And that’s already proving an uphill battle: An hour after PG&E named outgoing Tennessee Valley Authority chief Bill Johnson as its CEO and appointed 10 new directors, California Governor Gavin Newsom issued a statement saying the board “raises concerns” and lacks experience. State legislators began sounding off, with one saying: “I’m not impressed.”

All Eyes on California as PG&E Cuts Deal on Board Overhaul

Winning over California will be crucial for Johnson as he steers PG&E through what’s expected to be a contentious bankruptcy with politicians, regulators, activist investors, creditors and wildfire victims wrestling over how to restructure a utility serving 16 million people in one of the world’s largest economies. He replaces Geisha Williams, who resigned in January before the company filed for bankruptcy facing $30 billion in liabilities from wildfires its equipment has been suspected of igniting.

Perhaps anticipating the challenge ahead, Johnson said in a statement Wednesday that he’s “dedicated to meeting the high expectations that our customers, regulators and legislators have for PG&E.”

Shares climbed as much as 6.3 percent Thursday to $19.64 in New York.

The 10 new directors joining PG&’s 13-member board include former energy executives, restructuring experts, a former federal energy regulator and at least four California residents. They were all part of a deal the company struck with investors Knighthead Capital Management, Redwood Capital Management and Abrams Capital Management -- which collectively own about 10 percent of the company’s shares. The group squared off against activist investor BlueMountain Capital Management, which had put forth its own slate.

Among the appointees are:

  • Jeffrey Bleich, a partner at the law firm Dentons and a California resident.
  • Nora Mead Brownell, a former member of the Federal Energy Regulatory Commission.
  • Fred Fowler, former chief executive officer of the natural gas pipeline company Spectra Energy Corp.
  • Meridee Moore, founder and CEO of San Francisco-based alternative asset manager Watershed Asset Management.
  • Richard Kelly, former CEO of power utility Xcel Energy Inc.
  • All of them will stand for election at an annual meeting on May 21 while Johnson will be up for election as a 14th director.

    While PG&E made some changes to the slate after Newsom voiced reservations last week, the governor said in a statement that the board “still raises concerns.” He pointed to a “large representation of Wall Street interests and most board nominees’ lack of relevant California experience” and said the state would hold PG&E to the “highest standards.”

    What Bloomberg Intelligence Says

    “New CEO Bill Johnson and the new board, though light on equity holders, could be an advantage in the key goal of surviving bankruptcy.”
    --Kit Konolige, senior industry analyst
    Click here to view the research.

    Bottom Line

    California Assemblyman Chris Holden said he wasn’t impressed and didn’t “see much in this collection that indicates that they are going to watch out for anything but their bottom line.”

    State Senator Bill Dodd, who along with Holden had helped draft wildfire legislation that was positive for PG&E, said by phone that he had shared the governor’s concerns ahead of PG&E’s announcement. And despite the reservations, he said, he’d been told only three changes were made to the board picks before the company announced the appointments Wednesday.

    “When you look at a slate of 13 candidates,” Dodd said, “from my vantage point, with the heavy lifting that PG&E has to do going forward, that raises some real concerns.”

    BlueMountain had meanwhile nominated 13 directors including former California treasurer Phil Angelides, National Transportation Safety Board ex-chairman Christopher Hart and Jeff Ubben, chief executive officer of activist investor ValueAct Capital Management.

    Safety Culture

    It’s unclear whether BlueMountain will continue to push for its picks to be elected. It said in a statement Wednesday that PG&E needs a board with “strong financial and turnaround expertise,” as well as experience in “risk management, utility operations and clean energy.” The firm said it will “carefully evaluate the nominees put forward.”

    California’s chief utility regulator, Michael Picker, meanwhile said by phone that he’ll want to bring some of the new appointees before the state Public Utilities Commission to talk about PG&E’s safety culture and how the board will shape it.

    Johnson’s appointment may face its own push-back.

    Clean energy advocacy group Vote Solar said in a statement that his track record falls short of what “PG&E’s customers deserve.” The group pointed to the lack of solar and wind power on TVA’s coal-dependent system. Coal made up more than a quarter of TVA’s portfolio last year, with solar and wind accounting for 3 percent, according to the company’s website.

    PG&E noted in its statement that, under Johnson’s leadership, TVA retired more than half of coal generation, cutting the utility’s carbon emissions by about 50 percent over the last decade.

    Johnson, who announced his retirement from the TVA in November, may be best known as the man who served as CEO of Duke Energy Corp. for less than a day. He had been appointed as part of the company’s $17.8 billion takeover of Progress Energy in 2012 but was replaced eight hours later with James Rogers, the former Duke CEO who was supposed to become executive chairman. Johnson received an exit package estimated to be worth more than $40 million.

    He was appointed that same year to his post at TVA, a corporate agency of the U.S. government that supplies electricity to power companies serving 10 million people in the Southeast.

    --With assistance from Romy Varghese, Emily Dooley and Jim Efstathiou Jr..

    To contact the reporters on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net;Scott Deveau in New York at sdeveau2@bloomberg.net;David R. Baker in San Francisco at dbaker116@bloomberg.net

    To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, Joe Ryan

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