Pacific Gas & Electric announced its intent to file for Chapter 11 bankruptcy protection Monday, citing the “extraordinary challenges” of the multibillion-dollar liabilities it faces from the past two years of deadly California wildfires.
Monday’s filing with the U.S. Securities and Exchange Commission provided the 15 days' notice required under California law for PG&E’s plan to file for bankruptcy protection “on or about January 29, 2019.” The announcement came less than a day after the utility announced that CEO Geisha Williams was stepping down, to be replaced by general counsel John Simon on an interim basis.
Despite preparing for bankruptcy, PG&E said it expects no impact to its electric and natural-gas customers. It also said it “remains committed to continuing to make investments in system safety as it works with regulators, policymakers and other key stakeholders to consider a range of alternatives to provide for the safe delivery of natural gas and electric service for the long term in an environment that continues to be challenges by climate change.”
That's a fairly concise statement of the immense challenge PG&E and the state of California will face in the months and years of bankruptcy reorganization to come.
PG&E’s bankruptcy filing has been a possibility for months, but its likelihood rose to near-inevitability in the first few weeks of 2019 as S&P and Moody's cut the utility's credit rating to near-junk status and amid continued declines of its battered share price. Weekend reports from Bloomberg and Reuters warning that a potential bankruptcy notice could come as soon as Monday proved to be true.
California Governor Gavin Newsom said Monday that his administration has been in constant contact with PG&E stakeholders and regulators since he took office last week. In light of today's bankruptcy announcement, the immediate focus is on ensuring that Californians continue to have safe and reliable electric and gas service, said Newsom. He called on the company to "honor promises" made to energy suppliers and the broader community, and committed his office to helping resolve PG&E's financial crisis.
"Throughout the months ahead, I will be working 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," Newsom said.
PG&E faces an estimated $30 billion in potential liability for the state’s deadliest wildfires of 2017 and 2018, if state investigations find that its equipment was the cause. These include the 2017 Tubbs Fire, which killed 22 people, and last year's Camp Fire, which killed at least 86 people and caused an estimated $7.5 billion to $10 billion in damages.
While both major fires are still under investigation, PG&E has acknowledged that one of its transmission lines malfunctioned near where the Camp Fire started. The utility has tried to explain why it decided against de-energizing power lines that may have caused the spark. The utility faces dozens of lawsuits from people who lost loved ones and property in the fires, and under a legal standard known as "inverse condemnation," utilities in California are held liable for damages caused by fires started by their equipment, even if they are found to be safely and legally operating that equipment.
Wildfire legislation passed in September, SB 901, gives the California Public Utilities Commission the authority to allow utilities, including PG&E, to pass on some wildfire-related costs on to ratepayers through increased bills — a first for the state. This provision only extended to fires in 2017 and earlier, however. To address future wildfire costs, SB 901 allows the CPUC to apply a so-called “stress test” review, to determine which costs can be passed on to ratepayers, versus those that must be borne by the utility’s shareholders, in order to keep the company operating. Last Thursday, the CPUC opened a proceeding to start crafting the regulations that would govern this stress test.
CPUC President Michael Picker has already taken the unusual step of personally calling Wall Street analysts in November to assure them that the agency was seeking multiple avenues to avoid a PG&E bankruptcy, including acting quickly on SB 901's provisions. But the CPUC has also launched a review of PG&E’s overall “corporate governance, structure and operations,” based on its failure to address the safety problems that led to the utility’s deadly San Bruno pipeline explosion in 2010, and its potential role in sparking the deadly wildfires of the past two years.
PG&E is facing a mounting tide of criticism from politicians and the public over its role in these disasters. The state senator representing San Bruno has called for breaking up the California utility if its equipment is found to be at fault for last year's blazes. Last month, the federal judge supervising PG&E’s San Bruno felony trial asked the California attorney general to weigh in on whether PG&E's actions tied to the recent wildfires could be considered criminal.
Governor Newsom has already proposed spending an additional $105 million on preventing, fighting and responding to wildfires in the state. His new administration will now have to plan a response to PG&E's wildfire liability and bankruptcy as well.
This story was updated to clarify that PG&E has filed a 15-day notice stating its intent to seek bankruptcy protection. The utility has yet to file for bankruptcy.