PG&E is going bankrupt. What that means for ratepayers, wildfire survivors
In a dramatic but not unexpected move, PG&E revealed on Monday it will file for bankruptcy in a desperate bid to sort out the estimated $30 billion in claims it’s facing from Northern California’s wildfires. The Chapter 11 filing will begin years of uncertainty for millions of Californians, from ratepayers all the way up to new Gov. Gavin Newsom.
Rates could go up — although they might have gone up anyway. Wildfire survivors might find it harder to collect damage claims in full from PG&E.
The embattled utility insisted it will keep the lights on and that customers won’t notice any disruption in service. But the utility said it needs the legal protection of bankruptcy to figure out a debt-payment plan and stabilize its rapidly deteriorating finances. It will be the second bankruptcy in PG&E history.
Richard Kelly, chairman of PG&E Corp., said a Chapter 11 filing “represents the only viable option to address the company’s responsibilities to its stakeholders.”
The company has been bludgeoned by the wine country fires in 2017 and last November’s Camp Fire, which destroyed the town of Paradise and killed 86 people, more than any other fire in California history. PG&E estimates its wildfire liabilities at $30 billion or more, according to a filing with the Securities and Exchange Commission.
Gov. Gavin Newsom said “all of the options are on the table” for dealing with the crisis. Added John Geesman, a consultant and former member of the California Energy Commission: “What comes out of the bankruptcy is quite likely not to bear any resemblance to the company that went in.”
Severin Borenstein, of the University of California Energy Institute, called it a turning point. “Ten years from now, we are going to look back at this as a sort of milestone.”
A look at what the Chapter 11 case will mean:
Q: When will PG&E file for bankruptcy?
On or about Jan. 29. The utility was required, under a state law signed in September by former Gov. Jerry Brown, to give 15 days’ notice before filing. That’s what it did Monday. The notice came out about 12 hours after CEO Geisha Williams resigned.
Q: Didn’t the Legislature bail out PG&E?
The Legislature, in passing SB 901 last fall, gave PG&E and other utilities limited protection against wildfire claims. The law says the Public Utilities Commission could allow utilities to pass some wildfire claim expenses onto ratepayers if the utilities aren’t strong enough financially to shoulder the costs themselves.
The protection, however, only extends to the 2017 fires, not the Camp Fire. As lawsuits by Camp Fire survivors piled up, PG&E’s credit rating fell to junk-bond status last week. That made it much harder to borrow money.
Assemblyman Chris Holden, D-Pasadena, has said he would introduce legislation to extend the protections to include the Camp Fire, but he retracted that proposal Monday.
“The playing field of solutions, quite frankly, has shifted from the Legislature to the courts,” he said.
Cal Fire has blamed PG&E equipment for a dozen of the 2017 fires. It hasn’t finished its investigation into the Camp Fire, but PG&E has disclosed that a transmission tower suffered a malfunction near the ignition point a few minutes before the fire started.
Q: Does bankruptcy mean PG&E would go out of business? Will the lights go out?
No, and no.
Chapter 11 allows the company to stay in business while it gets a handle on 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 state suffered several days of rolling blackouts in 2001, but they were spread beyond PG&E’s territory and weren’t caused by the bankruptcy.
“Employees are going to continue doing their job, and continue to get paid,” said Steve Malnight, the utility’s senior vice president of energy supply and policy. “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.”
Q: Will rates go up?
Rates could go up, but not necessarily because of bankruptcy.
Pacific Gas and Electric Co. has already asked the Public Utilities Commission for authority to raise rates by 6.4 percent in 2020. If the rate hike is granted in full, monthly gas bills would increase $1.84 and electric bills would rise $8.73, on average. The higher rates would generate about $1.1 billion in additional annual revenue. PG&E says about half would be spent on wildfire prevention initiatives, such as installing high-definition cameras in remote areas and trimming trees more aggressively.
But bankruptcies can add enormous legal costs, and PG&E could seek to have ratepayers absorb those expenses. “Bankruptcy is never a clean, easy process, and there’s a lot of costs involved just in terms of lawyers and accountants,” said James Bushnell, a UC Davis energy economist. “Some of that is going to be passed onto ratepayers.”
Mark Toney, executive director of The Utility Reform Network in San Francisco, said ratepayer interests would be neglected. “It puts the decision in the hands of a bankruptcy judge whose first priority is paying creditors off. The ratepayers are the last priority.”
Q: Will wildfire survivors get paid in full?
Bankruptcy could reduce the amount of money available for survivors who’ve sued PG&E over the Camp Fire and the 2017 fires. Survivors would be declared “unsecured creditors” and would be lumped in with other such creditors — namely the investors who hold roughly $18 billion in long-term debt owed by the utility and its corporate parent, PG&E Corp.
Wildfire victims seeking recovery “could be in deep trouble,” said Jared Ellias, a bankruptcy-law expert at UC Hastings College of Law in San Francisco.
Ellias did say, however, that bankruptcy could speed the processing of damage claims. “Bankruptcy is often much faster than state court,” he said.
Q: So how much would fire victims receive?
It’s too early to tell. But it’s worth noting that PG&E’s bonds have been trading at about 78 cents on the dollar, said Carol Levenson of Gimme Credit LLC, a debt-analysis firm. That suggests bondholders aren’t counting on getting paid in full, she said. The same could apply to fire survivors.
Survivors’ lawyers say they believe they can recover damages for their clients regardless. “PG&E has a lot of assets,” said Dario de Ghetaldi, a Bay Area lawyer who’s suing PG&E on survivors’ behalf. “I think there will be sufficient assets to protect the victims ultimately.”
Republican Assemblyman James Gallagher, whose district includes the region devastated by the Camp Fire, said: “No Wall Street creditors should get paid until fire victims have been properly compensated.”
Q: Will PG&E be broken up?
One possible outcome of the bankruptcy is the sale of PG&E’s natural gas division, to raise cash to pay wildfire claims and other debts. For many Californians, that would mean writing two utility checks each month instead of one. Sacramento residents already do that, paying PG&E for gas and SMUD for electricity.
The possible sale brings up another concern, following the 2010 PG&E gas pipeline explosion that killed eight people in San Bruno. Who would take over the gas division, and would they operate any differently than PG&E?
“We really have to make sure that who they sell it to is experienced (and) has a good track record in operating 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.”
Q: What happens to PG&E executives?
Williams, who resigned as CEO late Sunday, is eligible to collect severance payments of $2.4 million, according to company filings with the SEC.
Q: Have PG&E investors been affected?
Yes. The company already suspended quarterly dividend payments to shareholders in late 2017. PG&E shares fell roughly in half Monday, to $8.17, and have lost 80 percent of their value since the Camp Fire started.
Bondholders are already taking a hit. PG&E said in its SEC filing that it plans to skip a $21 million bond payment that’s due Tuesday. The bond isn’t connected to the wildfires.
Q: What does the new governor think?
Newsom, who used to be mayor of PG&E’s hometown of San Francisco, issued a statement early Monday saying in part: “Everyone’s immediate focus is, rightfully, on ensuring Californians have continuous, reliable and safe electric and gas service” and fair treatment for fire survivors.
He later berated PG&E for misleading regulators on various issues: “They misled the public; that is simply unacceptable.” But he’s satisfied that the lights will stay on. “This is not 2001; we are not in an energy crisis,” he said.
Q: What happens next?
Aside from bankruptcy, plenty. A federal judge has told PG&E to appear in court Jan. 30 to respond to his plan to require the company to fix transmission lines and take other safety steps. It remains unclear how a bankruptcy filing would affect such an order.
In February, PG&E will release its latest financial results, which will provide more detailed analysis on the potential liabilities from the Camp Fire.
The PUC also has to deal with PG&E’s request for a rate hike. The Legislature will undoubtedly have to get involved in whatever resolution emerges to PG&E’s crisis. “We’re going to have to do something,” said state Sen. Bob Hertzberg, D-Van Nuys, who was Assembly speaker when PG&E went bankrupt in 2001.
This story was originally published January 15, 2019 at 3:00 AM with the headline "PG&E is going bankrupt. What that means for ratepayers, wildfire survivors."