Overwhelmed by billions of dollars in claims from the Camp Fire and the 2017 wildfires of Northern California, PG&E said Monday it plans to file for bankruptcy, but insisted it will not go out of business.
The embattled utility gave 15-day notice of its intent to file for protection under Chapter 11 of the bankruptcy code, as required by a state law enacted last fall to deal with utility fire liabilities. The company made the announcement less than 12 hours after announcing the resignation of its CEO, Geisha Williams.
“We believe a court-supervised process under Chapter 11 will best enable PG&E to resolve its potential liabilities in an orderly, fair and expeditious fashion,” said interim CEO John R. Simon in a prepared statement. He pledged to “continue providing our customers with safe service and investing in our systems and infrastructure.” Simon had been the utility’s general counsel.
In a filing with the Securities and Exchange Commission, the company said total liabilities from the 2017 and 2018 wildfires “could exceed $30 billion,” easily outstripping PG&E’s liability insurance coverage and the $1.5 billion in cash it has on hand.
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The company’s debt was downgraded to junk-bond status by Wall Street’s leading credit-rating agencies last week, putting a significant strain on the company’s ability to raise new cash, said Steve Malnight, PG&E’s senior vice president of energy supply and policy.
Still, company officials insisted they will use the Chapter 11 process to steer PG&E out of financial disaster.
“PG&E’s not going out of business,” Malnight told The Sacramento Bee on Monday morning. “Employees are going to continue doing their job, and continue to get paid .... Our most important responsibility is the safety of our customers and the communities we serve, and nothing that we are announcing today will impact that commitment.”
He said the Chapter 11 filing will stabilize the company’s finances and enable it to invest in wildfire-safety programs announced in recent months.
The first tangible financial impact of PG&E’s troubles will come Tuesday, when the company plans to skip a $21.6 million bond payment that’s due. The bonds are unrelated to the wildfire crisis.
Williams, the former CEO, will collect roughly $2.4 million in severance payments, according to documents filed with the SEC.
The company is facing other pressures, including a federal judge’s threat to order PG&E to inspect its entire electric grid.
Richard Kelly, chairman of PG&E Corp., said a Chapter 11 filing “represents the only viable option to address to the company’s responsibilities to its stakeholders.”
Gov. Gavin Newsom said he will work with the Legislature ”and all stakeholders on 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.”
John Geesman, an attorney and energy consultant, and former member of the California Energy Commission, said the bankruptcy process will be long, and the company that emerges probably won’t look anything like the PG&E that exists today.
“What comes out of the bankruptcy is quite likely not to bear any resemblance to the company that went in,” Geesman said.
The company could sell off some assets for cash, he said. Published reports say PG&E’s natural gas division could get auctioned off.
In any event, Geesman said “this is the beginning of what is likely to be a very lengthy process. It is easy to go in, but it is hard to come out.” PG&E’s 2001 bankruptcy, a legacy of the California energy crisis, took three years to complete.
PG&E said it is in the process of lining up $5.5 billion in so-called “debtor-in-possession” financing to operate the company while in Chapter 11. It said both the parent corporation, PG&E Corp., and the utility, Pacific Gas and Electric Co., will file for bankruptcy.
PG&E has already asked state regulators for a $1 billion rate hike, beginning in 2020, to help cover the increased costs of improving its fire safety.
The Chapter 11 filing, the second in the company’s history, will allow PG&E to keep operating while it sorts out its ever-growing debt load. PG&E kept the lights on during the three years it spent in Chapter 11 between 2001 and 2004, when it was clobbered by rising power costs during the energy crisis.
The Legislature last year gave PG&E a partial bailout, instructing the Public Utilities Commission to take utilities’ finances into account when deciding whether to let ratepayers absorb any of the costs of wildfire claims. But the law, SB 901, doesn’t take into account fires started in 2018 or beyond, including the Camp Fire. The Nov. 8 fire destroyed Paradise and killed 86 people, more than any other in state history.
State Sen. Bill Dodd, D-Napa, the author of SB 901, said PG&E’s “hubris and mismanagement have led to this unfortunate point.” He called for a housecleaning on PG&E’s board of directors and added that, “above all, PG&E must be held to safety mandates.”
In recent weeks PG&E has pledged to upgrade fire safety by trimming trees more aggressively, installing hundreds of remote cameras to detect fires, and taking other steps. Meanwhile, the federal judge overseeing PG&E’s criminal probation sentence — the result of the deadly 2010 natural gas pipeline explosion in San Bruno — has said he might order PG&E to inspect its entire electricity grid before the start of the next fire season in June.
Bankruptcy creates immediate complications, meanwhile, for the scores of wildfire survivors who are suing PG&E. Those plaintiffs would become unsecured creditors, along with investors holding billions in PG&E debt. Bankruptcy law expert Jared Ellias, of UC Hastings College of Law in San Francisco, said that means it’s less likely the survivors will get 100 percent payment on their claims for damages.
Mark Toney, executive director of The Utility Reform Network in San Francisco, said ratepayer interests would be neglected in bankruptcy court. “It puts the decision in the hands of a bankruptcy judge whose first priority is paying creditors off. The ratepayers are the last priority.”
Malnight, the senior vice president, said “there are many stakeholder interests that are going to need to be balanced through the bankruptcy process — customers, the claimants and the victims from the wildfires, our other creditors, suppliers, employees and the state. The Chapter 11 process provides a single forum where we can work together.”
In its SEC filing, PG&E said it’s facing 50 lawsuits filed by at least 2,000 Camp Fire victims — and expects “a significant number more” to come. That is on top of 700 complaints filed by 3,600 victims of 2017 wildfires.
The company also notes that several Northern California district attorneys are investigating potential PG&E criminal liability in some of those fires.
PG&E shares fell roughly in half Monday to $8.32 on the New York Stock Exchange. They were trading at nearly $50 before the company disclosed that a faulty transmission tower may have caused the Camp Fire. Cal Fire is still investigating.
PG&E had already been reported to be considering selling off its gas service division, a move to free up money to pay debt. It is uncertain whether such a move would occur in bankruptcy court. Malnight said it’s too soon to say how the process will play out but “we’re open to looking at all alternatives.”
That would bring up another concern for Northern California residents, many of whom haven’t forgotten the San Bruno gas explosion that killed 8 people and leveled a neighborhood in 2010: Who would operate the new gas company?
“We really have to make sure that who they sell it to is experienced (and) has a good track record in operating gas pipeline systems in a safe manner,” Toney said. “We don’t want to see venture capital firms buying it or parties that don’t have experience and aren’t going to put the public interest first.”
State legislators from both political parties Monday issued statements taking a tough stance on PG&E.
California Senate President pro Tempore Toni Atkins said she will work with the governor to assure reliable utility service and protect ratepayers and fire victims.
“This is a critical concern for California’s public safety and economy, and we will not take it lightly,” she wrote in a press statement.
Republican Assemblyman James Gallagher, who represents the Camp Fire burn area, said in a statement he wants PG&E to be held responsible for what it owes fire victims, and believes the company should be broken up.
“No Wall Street creditors should get paid until fire victims have been properly compensated,” he said. “PG&E should not be allowed to come out of bankruptcy in the same form. Strong consideration must be given to substantially reform or break up this quasi-government monopoly.”