PG&E Corp., California’s largest power company, filed for bankruptcy protection Tuesday for the second time in two decades, starting an unpredictable process that could take years to resolve and is likely to result in higher energy prices for the millions of Californians who buy electricity from Pacific Gas & Electric.
PG&E listed about $71.4 billion in assets and nearly $51.7 billion in total debts. The company said it filed requests for authorization to continue paying employee wages and to continue existing customer programs. It also said it intends to pay its suppliers under normal terms for goods and services provided on or after the date of the bankruptcy filing.
“Through this process, we will prioritize what matters most to our customers and the communities we serve — safety and reliability,” interim Chief Executive John R. Simon said in a statement. “We believe that this process will make sure that we have sufficient liquidity to serve our customers and support our operations and obligations.”
PG&E says a Chapter 11 bankruptcy filing, which will allow the company to continue operating while it comes up with a plan to reorganize its debts, is the only way to deal with billions of dollars in potential liabilities from a series of deadly wildfires, many of which were sparked by the company’s infrastructure. A bankruptcy filing “is ultimately the only viable option to restore PG&E’s financial stability to fund ongoing operations and provide safe service to customers,” the company told the Securities and Exchange Commission this month.
PG&E said it also filed a motion seeking court approval to enter into a $5.5-billion debtor-in-possession agreement with several banks. The company had already lined up the money to fund its operations during what it expects to be a two-year bankruptcy process. The company says electricity and natural gas service will continue uninterrupted for its 16 million customers in Northern and Central California.
Energy experts say PG&E’s rates are likely to rise when the utility emerges from Chapter 11 protection, at least in the short term, because bankruptcy inevitably makes it more expensive for a company to borrow money, and the company passes costs along to consumers. Ralph Cavanagh, co-director of the energy program at the Natural Resources Defense Council, said PG&E’s electricity rates jumped 40% following the company’s last bankruptcy.
“It’s almost impossible to see a way out of this that doesn’t have some short-term cost increases,” Cavanagh said in a recent interview.
Besides that, it’s far from clear what will happen next.
Unlike most companies that seek bankruptcy protection, PG&E is a regulated monopoly that provides an essential public service. The California Public Utilities Commission would need to approve any reorganization plan that involves raising electricity rates.
State lawmakers will have no formal role in the process, but some PG&E critics have called for the Legislature and Gov. Gavin Newsom to break up the company into smaller pieces or convert it to a public entity. San Francisco officials have said they will study the possibility of acquiring PG&E’s electrical infrastructure in the city.
Some utility experts say a government takeover is unlikely because it could saddle state or local agencies with huge liabilities from future fires without addressing the causes of those fires. Newsom has played his cards close to his vest, saying after PG&E announced its planned Chapter 11 filing that he would work toward a solution “that ensures consumers have access to safe, affordable and reliable service, fire victims are treated fairly, and California can continue to make progress toward our climate goals.”
Assemblyman Chris Holden (D-Pasadena), chairman of the Assembly Utilities and Energy Committee, lamented the bankruptcy filing. “The impacts to fire victims and ratepayers may be severe,” he said in a statement early Tuesday. “Our goal all along was to protect the most vulnerable, but now the Bankruptcy Court will be managing the future of PG&E and its creditors, including the damages of fire victims for which the utility is deemed responsible.”
Financial pressure has been mounting on PG&E since October 2017, when a series of wildfires ravaged Northern California, killing 44 people. State investigators determined that PG&E’s equipment sparked or contributed to more than a dozen of those fires, which killed 22 people.
The company’s crisis only grew with the November 2018 Camp fire, which killed 86 people and destroyed most of the town of Paradise.
The California Department of Forestry and Fire Protection has yet to announce a cause for the Camp fire, but PG&E’s infrastructure is suspected. The utility company’s stock has lost more than 80% of its value since the 2017 fires broke out, and its credit rating has been downgraded to junk status.
PG&E has blamed its wildfire costs, in part, on climate change, which scientists say is contributing to bigger and hotter fires in California and across the Western United States. The company has also pushed lawmakers to rewrite the state’s strict liability laws, which allow utilities to be held liable for wildfires sparked by their infrastructure even if they follow all safety rules and aren’t found negligent.
PG&E has estimated its potential wildfire liabilities at $30 billion or more, although that number includes the Tubbs fire, the biggest and deadliest of the 2017 Northern California blazes. Cal Fire announced last week that the Tubbs fire wasn’t caused by PG&E, which by some estimates could cut the company’s potential liabilities in half.
Even without Tubbs fire damages on its ledger, PG&E’s liabilities could still exceed the company’s market value, which was down to about $6 billion at the end of last week.
“To be clear, we have heard the calls for change and we are determined to take action throughout this process to build the energy system our customers want and deserve,” Simon said Tuesday.
Critics say PG&E has exaggerated its financial woes and is filing for bankruptcy as a ploy to extract investor-friendly concessions from the Legislature or regulators. Those critics include ratepayer advocacy groups and lawyers for fire victims, whose clients could see court awards reduced by a bankruptcy judge. They also include BlueMountain Capital Management, a hedge fund that holds more than 11 million shares of PG&E stock that could be wiped out.
BlueMountain urged PG&E’s management not to go through with the bankruptcy filing and said last week it would nominate a full slate of new directors to the company’s board.
“Instead of rolling up their sleeves and getting to work, current board members are poised to concede defeat and pass the buck to a bankruptcy judge. There is no imminent financial crisis — there is a leadership crisis,” BlueMountain said in an open letter to other shareholders, asking them to join the hedge fund in its protests.
In addition to the likelihood of higher electricity rates and lower payouts for wildfire victims, PG&E’s bankruptcy could affect California’s ability to meet its climate change goals. Those goals depend on a rapid transition from fossil fuels to climate-friendly power sources, and state officials have been counting on PG&E to make massive investments in solar and wind farms and other clean energy technologies.
Even without the fires, PG&E continues to grapple with the fallout from the 2010 explosion of one of its natural gas pipelines, which killed eight people and destroyed 38 homes in San Bruno. PG&E was fined $1.6 billion by the Public Utilities Commission and $3 million by a federal judge. Just last month, the commission accused PG&E of falsifying pipeline safety records for years after the deadly explosion.
The company is still under probation after a criminal conviction stemming from the gas explosion. The federal judge overseeing the probation, William Alsup, said this month that he may order PG&E to inspect its entire electric grid and do extensive tree-trimming before this summer, which PG&E says could cost as much as $150 billion.
Alsup also suggested he could order PG&E to preemptively shut off electricity in certain areas when strong wind and other weather conditions create a high fire risk. PG&E and the state’s other big investor-owned utilities, Southern California Edison and San Diego Gas & Electric, rarely use preemptive power shutoffs as a wildfire prevention strategy, but that could change as climate changes fuel bigger fires.
The last time PG&E filed for bankruptcy, in 2001, fires had nothing to do with it. That bankruptcy was a result of California’s infamous energy crisis, in which a failed deregulation plan allowed Enron Corp. and other energy traders to manipulate markets and send prices skyrocketing. PG&E said at the time that it needed relief from $9 billion in debt that it incurred because it couldn’t recover its higher costs from ratepayers.
PG&E emerged from that bankruptcy process with a reorganization plan that saw investors largely made whole. The company was also allowed to boost its regulated profits for years to come. Customers, meanwhile, were saddled with higher rates.
-By Sammy Roth, Los Angeles Times