PG&E Is On Its Way To Bankruptcy. Here’s How It Could Play Out
Pacific Gas and Electric is on its way to bankruptcy for the second time.
The utility announced Monday it would file for Chapter 11 protection by the end of January in anticipation of overwhelming financial liability due to its role in igniting California wildfires, which PG&E estimates could be more than $30 million.
The move, which PG&E has floated for months, will likely mean higher rates for consumers and a longer wait for fire victims suing the utility. But Gov. Gavin Newsom drew a distinction from the company's 2001 bankruptcy, saying there will be no interruption to service, and possibly a more-favorable legal standing for the state.
PG&E Rates Likely Will Go Up
“This is not a surprise, it's been coming for a while,” said Michael Wara, director of the Climate and Energy Policy Program at Stanford University, who added that PG&E faced “severe challenges” after the Camp Fire in Paradise late last year.
Wara says customers need to understand that rates will likely go up — and that the only question is how much. “We are not in a situation where the cost of electricity is going to be stable,” Wara said, “because of the cost of these fires, and the risks created because of future fires.”
The first time in recent history that PG&E filed for bankruptcy was in 2001, when “there were some big bills that couldn’t be paid and a flawed electricity regulatory system,” Wara said.
PG&E faces big, multibilllion-dollar liability bills and lawsuits after fires in 2017 and 2018, but the difference is these big bills are now the new normal as large wildfires ignite yearly, according to Wara.
Even as the utility heads toward reorganization under bankruptcy, officials said in a press release Monday the company “does not expect any impact to electric or natural gas service for its customers” and that “employees will continue to receive their pay and health care benefits as usual.”
Governor, Lawmakers Consider Possibilities For A Post-Bankruptcy PG&E
Gov. Gavin Newsom reiterated that point, reassuring Californians that PG&E’s bankruptcy won’t lead to any gas or power outages — unlike the utility’s last bankruptcy 18 years ago.
“This is not 2001,” Newsom told reporters outside the governor’s office at a hastily-called news conference late Monday afternoon. “This is 2019. We have an abundance of energy, and our customers should not be concerned about turning on their lights. They should not be concerned about their gas.”
Newsom said he’s bringing in experts in bankruptcy law and finance to help the state navigate the legal process. That’s because under federal law, the bankruptcy judge must consider shareholders and Wall Street creditors in addition to ratepayers and wildfire victims. State laws aren’t given as much weight.
Republican Assemblyman James Gallagher, who represents the Camp Fire area, says PG&E had better come out of bankruptcy in very different shape.
“I think there should be strong considerations to either a substantial reorganization of PG&E or a breakup,” Gallagher said.
Democratic Senator Bill Dodd, whose district was devastated by the Wine Country fires in 2017, thinks PG&E should consider selling off its gas division, something the company has already begun exploring.
“It’s my hope that when you take a look at what we’ve heard that the gas transmission company could be worth, I think that’s something that could smooth out the impacts to ratepayers,” Dodd said, while acknowledging that tactic might not necessarily help wildfire victims.
Bankruptcy Could Impact California’s Fight Against Climate Change
“We can’t view this just as one off,” said Austin Brown, executive director of the UC Davis Policy institute for Energy, Environment and the Economy. “This a sign of things to come.”
PG&E’s potential reorganization under Chapter 11 worries Brown. He says California is on track to meet its ambitious clean energy goals, but bankruptcy could slow the transition — especially when it comes to the goal of boosting the number of electric vehicles in the state, because PG&E has put a lot of effort and resources into building vehicle-charging infrastructure.
“You can only imagine that kind of effort will only be back-burnered, or may be eliminated entirely,” Brown said.
As the number of electric vehicles topped 500,000 in 2018, Brown says the state relies on utilities to expand infrastructure. He also wonders how PG&E expects to harden the California grid against risk — undergrounding wires, clearing poles and lines of trees and limbs — as the threat of bankruptcy lingers.
How Bankruptcy Works — And Why Fire Victims Will Have To Wait
When PG&E reorganized under bankruptcy in 2001, Sacramento-based attorney Mike Gorton represented at least one company in the case. He says the energy crisis caused the price of electricity to rise, but the California Public Utilities Commission wouldn’t allow the company to raise rates.
“That put PG&E in a serious cash-flow problem,” Gorton said. “Today, the problem isn't so much cash flow; the problem is it has huge potential liabilities.”
If all the parties involved can’t negotiate, PG&E will have to come up with a reorganization plan for how much each party that is owed will receive. “If there’s no agreement, it gets tried by bankruptcy court and then a judge will decide.”
Gorton says a bankruptcy filing could have a number of outcomes, including negotiation with creditors. PG&E could also split into smaller companies or municipal districts, a plan favored by some lawmakers
During this time, those who have filed lawsuits against PG&E will have to wait. When official bankruptcy papers are submitted, it will freeze all lawsuits against PG&E, Gorton said, including those by Camp Fire victims.
Creditors with collateral will be paid first, Gorton explained, and “fire victims would get paid what is left available.”
California lawmakers say PG&E ratepayers and wildfire victims must be protected as the utility goes through bankruptcy. But they’re not yet sure how — or if — they can act to ensure that outcome.
Assembly Speaker Anthony Rendon acknowledges the state’s power in federal bankruptcy court might be limited.
“We’re not sure what our tools are, what we’re capable of,” Rendon says. “But we’re certainly going to aim in that direction.”
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