Facing billions of dollars in wildfire-related liabilities, California’s PG&E Corporation and its primary operating subsidiary, Pacific Gas and Electric Company, on Jan. 29 filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Northern District of California.
In conjunction with the filings, PG&E also filed a motion seeking interim and final approval of the Court to enter into an agreement for $5.5 billion in debtor-in-possession (DIP) financing with J.P. Morgan, Bank of America, Barclays, Citi, BNP Paribas, Credit Suisse, Goldman Sachs, MUFG Union Bank and Wells Fargo acting as joint lead arrangers.
PG&E expects the court to act on an interim basis on the DIP motion in the coming days. The DIP financing, when approved, will provide PG&E with necessary capital to ensure essential maintenance and continued investments in safety and reliability for the expected duration of the Chapter 11 cases, it said.
As part of the filings, PG&E also filed various motions with the court in support of its reorganization, including requesting authorization to continue paying employee wages and providing healthcare and other benefits.
In the filings, PG&E also asked for authority to continue existing customer programs, including low income support, energy efficiency and other programs supporting customer adoption of clean energy.
PG&E said it expects the court to act on these requests in the coming days. PG&E also intends to pay suppliers in full under normal terms for goods and services provided on or after the filing date of January 29, 2019, it said.
PG&E said that throughout the forthcoming process, it remains committed to, among other things, supporting the orderly, fair and expeditious resolution of its liabilities resulting from the 2017 and 2018 wildfires and assisting customers and communities impacted by wildfires in Northern California. PG&E's restoration and rebuilding efforts will continue, it said.
Prior to the bankruptcy filings, according to a Reuters article, PG&E debtholders submitted separate multibillion-dollar rescue proposals to the company.
This is the second time PG&E has filed for bankruptcy protection in recent years. PG&E filed for bankruptcy protection in 2001 during the Western energy crisis when power prices surged, partly because of market manipulation. It took the company about three years to move through the bankruptcy process.
PG&E appoints Chief Restructuring Officer
In order to help support the company through the reorganization process, PG&E has appointed James Mesterharm, a Managing Director at AlixPartners LLP, to serve as Chief Restructuring Officer.
In addition, PG&E appointed John Boken, also a Managing Director at AlixPartners, to serve as Deputy Chief Restructuring Officer. Mesterharm, Boken and their colleagues at AlixPartners will continue to assist PG&E with the reorganization process and related activities.
Wildfires
The bankruptcy is driven by wildfires that ravaged northern California. The Camp Fire in late 2018 burned about 153,000 acres, killing 86 people and destroying nearly 13,975 residences, 530 commercial structures and 4,300 other buildings, PG&E previously noted.
And PG&E said that on Jan. 24, 2019, the California Department of Forestry and Fire Protection released the results of its investigation of the 2017 Tubbs Fire, which concluded that PG&E equipment did not cause the fire.
“The comprehensive analysis underlying PG&E's decision to pursue reorganization under Chapter 11, conducted with the assistance of independent legal and financial advisors, took into account PG&E's longstanding belief based on available evidence that its equipment did not cause the Tubbs Fire,” PG&E said.
“As such, PG&E continues to believe that the Chapter 11 process will facilitate the orderly, fair and expeditious resolution of the liabilities that have arisen and will continue to arise in connection with the 2017 and 2018 Northern California wildfires.”
CAISO says no effects on power grid operations, energy markets
In the wake of PG&E’s bankruptcy filing, the California Independent System Operator on Jan. 29 reported no effects on power grid operations and energy markets. The ISO also said it does not expect any delay in payments due Jan. 29 to market participants.
The grid operator said that PG&E to date has complied with all credit support requirements in the ISO tariff. In addition, PG&E filed a motion asking the court for authority to continue paying ISO market invoices for transactions prior to the bankruptcy filing, CAISO noted. Invoices for transactions after the filing are continuing to be paid according to normal procedure.
“The ISO is continuing its normal day-to-day operations with the utility. As the operator of the high-voltage power grid for most of California, the ISO has been closely monitoring the system and markets since PG&E announced its intention to file for bankruptcy protection and has not detected any material change in market trends, including day-ahead pricing, that could be attributed to the PG&E activity,” the grid operator said in a news release.
FERC says it has concurrent jurisdiction with bankruptcy courts
In related news, the Federal Energy Regulatory Commission on Jan. 25 clarified that it has concurrent jurisdiction with bankruptcy courts to review and address the disposition of wholesale power contracts sought to be rejected through bankruptcy.
The ruling came in a case involving PG&E. Earlier this month, NextEra Energy, Inc. and NextEra Energy Partners L.P. filed a petition for declaratory order and complaint against PG&E (Docket No. EL19-35). The petition asked FERC to find that, if PG&E filed for bankruptcy, PG&E may not abrogate, amend, or reject in a bankruptcy proceeding any rates, terms and conditions of its wholesale power purchase agreements subject to the Commission’s jurisdiction without first obtaining approval from the Commission under Federal Power Act sections 205 and 206.
In its Jan. 25 order, FERC said that it reviewed the FPA and Bankruptcy Code in light of the arguments raised in the petition “and conclude that this Commission and the bankruptcy courts have concurrent jurisdiction to review and address the disposition of wholesale power contracts sought to be rejected through bankruptcy.” FERC issued a nearly identical ruling on Jan. 28 in response to a complaint and petition for declaratory order filed by Exelon Corporation.
California PUC mulls public power option for PG&E
The California Public Utilities Commission began a proceeding in late December that, among other things, will look into the possibility that some or all of Pacific Gas and Electric could be reconstituted as a publicly-owned utility or utilities.
The investigation will examine several corporate business and governance model options, with an emphasis on drastically improving public safety.
San Francisco also eyes options
Meanwhile, prior to the bankruptcy filing, in a recent letter, the mayor of San Francisco asked the San Francisco Public Utilities Commission (SFPUC) to prepare for the potential ramifications of PG&E’s “current instability” as the IOU moved towards a bankruptcy filing by performing a detailed analysis that the mayor said should evaluate all options, including the possibility of “acquiring or building electrical infrastructure assets.”
The mayor asked the SFPUC to conduct a “detailed analysis of the current health of the electrical network and a robust feasibility study on the various potential outcomes, along with engaging with the appropriate state legislative and regulatory bodies.”
