Facing at least $30 billion in wildfire-related liabilities, PG&E Corp. is preparing to file for bankruptcy, a move the company says will allow its electric and natural gas utility to keep operating.
The company on Jan. 14 said that it provided the 15-day advance notice required by recently enacted California law that it and its wholly owned subsidiary Pacific Gas and Electric Company currently intend to file petitions to reorganize under Chapter 11 of the U.S. Bankruptcy Code on or about Jan. 29, 2019.
In the near-term, California’s public power utilities should see little direct effect from a bankruptcy filing by PG&E, said Barry Moline, executive director of the California Municipal Utilities Association.
“There shouldn’t be much impact on day-to-day operations of public utilities or power flows in the state,” Moline said on Monday.
A bankruptcy filing is the “only viable option to restore PG&E’s financial stability to fund ongoing operations and provide safe service to customers,” the San Francisco-based investor-owned utility company said in a Securities and Exchange Commission filing on Monday.
PG&E said a bankruptcy filing would allow the utility to continue serving its 16 million customers in central and northern California without interruption, according to a webpage the company set up about its reorganization plans.
Also, a bankruptcy filing on Jan. 29 will give the company time to work with regulators and policymakers to develop a plan for the utility to provide safe natural gas and electric service amid challenges posed by climate change, according to the company.
Bankruptcy provides a chance to maximize the value of certain PG&E assets and businesses, including through their sale, the company said in the SEC filing.
Geisha Williams, PG&E’s chief executive officer, stepped down Sunday. John Simon, PG&E’s general counsel, was named interim CEO while the company’s board searches for a permanent replacement.
The possible bankruptcy is driven by wildfires last year and in 2017 that ravaged northern California.
The Camp Fire in November burned about 153,000 acres, killing 86 people and destroying nearly 13,975 residences, 530 commercial structures and 4,300 other buildings, PG&E said.
Fires in October 2017 killed 44 people while burning about 245,000 acres and destroying about 8,900 buildings, according to PG&E.
“If the utility’s facilities, such as its electric distribution and transmission lines, are determined to be the substantial cause of one or more fires, and the doctrine of inverse condemnation applies, the utility could be liable for property damage, business interruption, interest and attorneys’ fees without having been found negligent,” PG&E said in the SEC filing.
In the past, California courts have said utilities are liable for damages on the grounds that losses caused by a public use undertaking, such as power lines, should be spread across the community that benefited from the undertaking, PG&E said, noting that liability can be assessed without a finding of negligence.
About 50 complaints have been filed on behalf of at least 2,000 plaintiffs related to the Camp Fire, PG&E said, noting that more claims will likely be filed.
About 700 complaints were filed on behalf of at least 3,600 plaintiffs related to the 2017 wildfires, according to PG&E.
The claims represent at least $30 billion in potential liability, PG&E said, adding that it faces additional financial exposure from potential punitive damages, fines and penalties or damages related to future claims.
PG&E has about $840 million of insurance coverage for liabilities, including wildfire events, for the period from Aug. 1, 2017, through July 31, 2018. The company has liability insurance coverage for wildfires totaling about $1.4 billion covering Aug. 1, 2018, through July 31, 2019.
PG&E’s warning that it could file for bankruptcy comes about a month after the California Public Utilities Commission launched an investigation to consider the future of PG&E in light of long-running safety issues at the utility.
Options range from replacing PG&E board members that have a background in safety to reconstituting some or all of the company as a publicly owned utility or utilities.
While perhaps the most difficult option among those the PUC is exploring, creating a public utility is “extremely viable,” according to CMUA’s Moline.
One possible outcome would be for a state-backed authority to buy PG&E in a “grand bargain” that would include a plan for paying off the company’s liabilities, Moline said.
Meanwhile, it’s possible the California Legislature could act to spread out the cost across all customers of PG&E’s pending liabilities, according to Moline.
In response to the PG&E news, the California Community Choice Association said community choice aggregators (CCAs) “are closely monitoring any developments related to PG&E's financial situation and are in the process of evaluating potential impacts on CCA customers and operations."
The California Community Choice Association supports the development and long-term sustainability of locally-run CCA electricity providers in California. There are currently 19 operational CCA programs in California serving an estimated 8 million customers.
Late last year, California adopted a law related to utility cost recovery for liability related to the 2017 fires.
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.