PG&E Files for Bankruptcy, Prepares to Reorganize
Credit to Author: Darrell Proctor| Date: Tue, 29 Jan 2019 15:29:16 +0000
California utility Pacific Gas and Electric (PG&E) filed for Chapter 11 bankruptcy on Jan. 29, as the company faces as much as $30 billion in potential liabilities for its role in a series of wildfires in the state. The filing was expected after the company notified its workers two weeks ago it was preparing a reorganization plan.
PG&E is working on a multibillion-dollar debtor-in-possession financing deal with several banks to provide the company funding to continue operations during its reorganization. The California Public Utilities Commission approved the company’s plans to tap up to $6 billion in financing to help it operate while under bankruptcy protection, and the company in a statement Tuesday said it will ask the bankruptcy court to approve $5.5 billion in financing.
John Simon, PGE’s interim CEO, said in a statement, “We are fully committed to enhancing our wildfire safety efforts, as well as helping restoration and rebuilding efforts across the communities impacted by the devastating Northern California wildfires. 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 took over the company’s reins after CEO Geisha Williams resigned Jan. 13. At the time, the company in a statement said, “While we are making progress as a company in safety and other areas, the board recognizes the tremendous challenges PG&E continues to face. We believe John [Simon] is the right interim leader for the company while we work to identify a new CEO.”
The company’s bankruptcy filing means all lawsuits against the company related to the wildfires will be suspended, and then consolidated in bankruptcy court, the Associated Press reported. PG&E faces dozens of lawsuits from home and business owners whose sustained property losses during the fires in 2017 and 2018.
Seth Hilton, a partner at Stoel Rives in San Francisco, where PG&E is headquartered, told POWER that, “In terms of PG&E’s ongoing operations, they announced they received debtor-in-possession financing, so if you’re a retail customer, your service should not be interrupted. There is a concern about what PG&E’s bankruptcy might mean in terms of its existing power purchase agreements.” Hilton said the bankruptcy code would allow the court to accept or reject any of those agreements as PG&E reorganizes.
The bankruptcy filing comes after PG&E last week was cleared of wrongdoing in the 2017 Tubbs Fire, which left 22 people dead in Sonoma County. State investigators said the fire was caused by a private electrical system, not by PG&E.
The company on Tuesday said it will tab turnaround specialist James Mesterharm as its chief restructuring officer to lead it through bankruptcy. Mesterharm is managing director of Chicago-based AlixPartners. He specializes in developing financial and operating strategies for underperforming and struggling companies.
PG&E in a document filed in the U.S. Bankruptcy Court for the Northern District of California listed assets of $71.39 billion and liabilities of $51.69 billion. The company in a statement said it intends to pay suppliers in full under normal terms for goods and services as it reorganizes.
The company last week said a judge’s proposal on wildfire mitigation could cost PG&E as much as $150 billion. A hearing on that proposal is scheduled for Wednesday.
PG&E shareholder BlueMountain Capital Management, one of the company’s largest investors, in a statement said it was “deeply disappointed” that the company’s board ignored calls from multiple parties to abandon what it called a “reckless and irresponsible plan to file for bankruptcy.” BlueMountain said it will propose a new slate of board directors for PG&E no later than Feb. 21. It asked all PG&E investors to support changes at the company.
Many of PG&E’s woes stem from its possible role in the Camp Fire, which occurred last November and left at least 86 people dead. It was the deadliest and most-destructive fire in California history. PG&E at the time said it could face “significant liability” well above its insurance coverage if its equipment was found to have been a cause of that fire, along with other fires in California in 2017 and 2018.
Reinsurance company Munich Re categorized the Camp Fire as the world’s most expensive natural disaster in 2018. Earlier this month the company estimated overall losses from the fire at $16.5 billion.
“PG&E is potentially caught in a situation, as are other utilities, where they can be held strictly liable for damages from the fires,” said Hilton. “There is a risk that PG&E will not be able to pass some or all of those costs on [to customers], and this bankruptcy is a way to deal with it.’
This is the second bankruptcy filing in PG&E’s history; the company also reorganized in 2001 in the wake of a California energy crisis that sent power prices soaring and left PG&E and Southern California Edison, the state’s largest utilities, with billions of dollars in debt.
“I think that’s PG&E’s goal here, not to entirely disappear,” Hilton said. “The concern here, and how this is different from the California energy crisis, [is that] the fire risk is not going away. This may be a process to deal with the 2018 fires, but there’s going to be risk going forward due to climate change and its impact on California.”
Those impacts may change the way utilities operate in fire-prone areas. “That’s something that PG&E and the CPUC have been looking at, how do you address the wildfire risk. There are some proactive measures, [such as] surveying the lines, cutting vegetation around the lines. In the event there are high winds, those lines could be shut down. But if you’re curtailing service to retail customers, it’s a difficult balance. I think you may see utilities being more proactive that way, curtailing service” to reduce the risk of fire during windy and dry conditions.
Hilton also said the possibility of utility-induced blackouts could “in turn lead to the development of some distributed resources” for power generation. “If there’s an increased likelihood you’re going to lose power, there’s an increased likelihood you’re going to want backup,” which could lead to more residential, commercial, and industrial customers turning to generators, and solar and wind power, to provide reliability and resiliency for their electricity.
PG&E provides electricity and natural gas to more than six million California customers. State lawmakers last year said the utility could raise rates to cover its losses from wildfires in 2017, but have indicated they are not prepared to allow additional rate increases to cover continuing losses.
—Darrell Proctor is a POWER associate editor (@Darrell Proctor1, @POWERmagazine).
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