PG&E : March 22, 2019 – PG&E Response To Second Order To Show Cause Why PG&E’s Conditions Of Probation Should Not Be Modified

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JENNER & BLOCK LLP

Reid J. Schar (pro hac vice)[e-mail]

353 N. Clark Street Chicago, IL 60654-3456

Telephone: [phone] Facsimile: [phone]

CLARENCE DYER & COHEN LLP

Kate Dyer (Bar No. 171891)[e-mail]899 Ellis Street

San Francisco, CA 94109-7807

Telephone: [phone] Facsimile: [phone]

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CRAVATH, SWAINE & MOORE LLP

Kevin J. Orsini (pro hac vice)[e-mail]825 8th Avenue New York, NY 10019

Telephone: [phone] Facsimile: [phone]

Attorneys for Defendant PACIFIC GAS AND ELECTRIC COMPANY

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISIONUNITED STATES OF AMERICA,

Plaintiff,v.

PACIFIC GAS AND ELECTRIC COMPANY,

Defendant.

Case No. 14-CR-00175-WHA

RESPONSE TO SECOND ORDER TO SHOW CAUSE WHY PG&E'S CONDITIONS OF PROBATION SHOULD NOT BE MODIFIED

RESPONSE TO SECOND ORDER TO SHOW CAUSE WHY PG&E'S CONDITIONS OF PROBATION

SHOULD NOT BE MODIFIED

Case No. 14-CR-00175-WHA

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3	Introduction ............................................................................................................................................ 1
4	I.The First Proposed Condition Should At Least Be Clarified Given the Dynamic
Characteristics of the Natural Environment And To Ensure That Regulators Are
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	Determining PG&E's Compliance With The Law In The First Instance .................................. 4

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TABLE OF CONTENTS

• II. The Second Proposed Condition Should Be Modified To Clarify That Compliance with the Wildfire Safety Plan Will Be Determined By The CPUC As Directed By

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  California State Law .................................................................................................................. 9

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• III. PG&E Reserves Its Objection To The Fifth Proposed Condition Concerning

  Dividends ................................................................................................................................. 11

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Defendant Pacific Gas and Electric Company ("PG&E") respectfully submits this memorandum in response to the Court's March 5, 2019, Second Order to Show Cause Why PG&E's

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Conditions of Probation Should Not Be Modified ("Second OSC"). To the extent the Court proceeds with any modifications to the terms of PG&E's probation, PG&E requests that the Court eliminate or amend the first proposed condition and amend the second proposed condition for the reasons set forth below. PG&E reserves its objection to the portion of proposed condition 5 that would preclude PG&E from paying dividends.

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INTRODUCTION

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PG&E is committed to eliminating wildfire ignition risk as quickly and completely as possible. PG&E, in consultation with various experts, designed the Wildfire Safety Plan that it has submitted to this Court and the California Public Utilities Commission ("CPUC") to achieve precisely that goal. PG&E intends to work with CAL FIRE, the CPUC and other interested parties to determine whether there are ways to further enhance PG&E's Wildfire Safety Plan. Relatedly,

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PG&E welcomes the Court's proposals in conditions 3 and 4 that would direct the Monitor to take an even more active role in assessing PG&E's safety and records keeping efforts.1

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With respect to proposed condition 1, PG&E understands that it has a fundamental obligation to comply with applicable state laws and regulations, including in particular the vegetation management requirements set forth in California Public Resources Code Sections 4292 and 4293 and CPUC General Order 95. PG&E of course has no objection to complying with these (and all other) laws and regulations. Instead, PG&E's concern with respect to proposed condition 1 is that

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To the best of PG&E's knowledge, the record keeping standard for PG&E's vegetation

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management efforts articulated in condition 4 ("traceable, verifiable, accurate and complete") has not been promulgated or defined by regulators in the electric industry. However, following guidance in 2011 from the Department of Transportation's Pipeline and Hazardous Materials Safety Administration (PHMSA), PG&E implemented "traceable, verifiable and complete" record-keeping standards related to certain aspects of its natural gas operations.SeeDepartment of Transportation, Pipeline and Hazardous Materials Safety Administration, Pipeline Safety: Establishing Maximum Allowable Operating Pressure or Maximum Operating Pressure Using Record Evidence, and Integrity Management Risk Identification, Assessment, Prevention, and Mitigation, 76 FR 1504, 1506 (Jan. 10, 2011). PG&E will use that prior experience and work cooperatively with the Monitor to align on the definitions necessary to comply with condition 4.

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1	grafting these statecivilregulatory requirements onto the terms of a federalcriminalprobation is
2	inconsistent with the fundamental goal of probation, which is to facilitate rehabilitation and to
3	prevent additional criminal conduct.
4	PG&E's service territory includes tens of millions of trees that could come in contact with its
5	lines. PG&E has developed an extensive program of inspection and maintenance to identify which
6	of those trees need to be removed or trimmed based on the governing regulatory requirements. But
that program-as with any other vegetation management program-does not include constant
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8	surveillance of all trees within striking distance of the utility's lines. The natural environment
9	through which PG&E's lines traverse is dynamic; conditions can and do change in an instant. A tree
10	that was compliant at the time of a prior inspection might become a non-compliant hazard tree one
11	day later when it is damaged by a natural or man-made event or three months later after a bark beetle
12	infestation has taken hold. Because PG&E cannot monitor every tree at every moment of every day,
13	PG&E cannot know of each such condition the instant it arises. A constant state of perfect
14	compliance could therefore only be achieved by engaging in extensive clear-cutting that is not
15	required by state law, is not legally, financially or practically possible and is not required by the
16	Court's revised conditions. Requiring perfect compliance with state civil regulations as a condition
17	of probation against this backdrop will likely result in probation violations.
18	Moreover, as CAL FIRE has explained, "[w]hether a healthy tree or limb may contact the
19	line from the side or fall on the line, and thus whether the tree or limb is a hazard, depends on the
20	factual circumstances specific to that tree or limb." (Supplemental Response of the California
21	Department of Forestry and Fire Protection Following January 30, 2019 Hearing on Order to Show
22	Cause, dated February 6, 2019 ("CAL FIRE Feb. 6 Br.") (Dkt. 1012) at 1.) As a result, "inspectors
23	must use their professional judgment" and CAL FIRE evaluates the "specific circumstances" to
24	decide "on a case-by-case basis" whether a violation of state law has occurred. (Id.) General Order
25	95 Rule 35, enforced by the CPUC, "is similar to, and complements, Section 4293." (Id. at 3.) In
26	this case, compliance will involve assessment of millions of trees over PG&E's vast service territory.
27	PG&E submits that the Court should leave the case-by-case assessment of compliance with state
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RESPONSE TO SECOND ORDER TO SHOW CAUSE WHY PG&E'S CONDITIONS OF PROBATION

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regulations to the state law enforcement and regulatory experts equipped to exercise the necessary professional judgment, especially on this scale. The most effective and appropriate way to do this would be to omit the first proposed condition from any probation modification. Alternatively, and at a minimum, the Court should revise the first proposed condition to clarify that the Court will only find a violation of probation if PG&E's regulators (CAL FIRE or the CPUC) have in the first instance found PG&E to have violated the relevant regulatory requirements. A federal probation court should not take on the prerogative of finding civil violations of state regulatory laws when the state regulator itself has not made any findings of violation. Doing so would improperly supplant the authority of expert regulators and risk inconsistent determinations.

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With respect to proposed condition 2, PG&E has no objection to the Court's proposal to make compliance with PG&E's Wildfire Safety Plan a condition of its probation.2However, as a number of participants to the ongoing CPUC wildfire safety plan process have noted, PG&E must have the ability to work with the CPUC to update its plan to address advancements in technology and enhanced understanding of how to best eliminate wildfire risk. Some discretion to adapt to changing circumstances is critical, and the California State Legislature has appropriately exercised the powers left to it under the Federal system to vest the CPUC with the responsibility and authority to monitor compliance with each utility's wildfire safety plan. Accordingly, PG&E requests that the

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Court modify condition 2 to establish that a finding by the CPUC that PG&E has failed to comply with its Wildfire Safety Plan will be a predicate for a finding of a violation of this proposed condition.

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Finally, PG&E reserves its objection to the Court's fifth condition, which bars the issuance of "any dividends until [PG&E] is in compliance with all applicable vegetation management requirements as set forth above." (Second OSC (Dkt. 1027) at 6.) PG&E has already suspended dividends and will not pay any dividends at least until it emerges from bankruptcy. However, in the ordinary course of business, PG&E must raise significant amounts of capital to finance

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To the extent the CPUC modifies the Wildfire Safety Plan filed with this Court, PG&E will

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promptly file the revised plan with this Court and identify any such modifications with specificity.

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