‘We are not in an energy crisis,’ Newsom says of PG&E bankruptcy
PG&E is about to go bankrupt. But the troubled utility said it will keep the lights on and is committed to a “fair and expeditious” resolution of the billions of dollars it faces in potential liabilities from the Camp Fire and the 2017 wine country fires.
How can PG&E survive? Here’s a look at what might happen, and what it would mean to the state, ratepayers throughout Northern California and those impacted by the wildfires.
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: What has PG&E said about this move?
In a press statement, the utility company said it “does not expect any impact to electric or natural gas service for its customers.” It also said it is “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 challenged by climate change.”
It also said its employees are expected to continue to receive their pay and benefits.
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. Among other things, 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 includes the 2017 fires, not the massive Camp Fire last year. Assemblyman Chris Holden, D-Pasadena, earlier vowed to would introduce legislation to extend the protections to include the Camp Fire, but said Monday he won’t.
“The playing field of solutions, quite frankly, has shifted from the Legislature to the courts,” he said.
Fire officials have not determined a cause for that fire, but many residents already have sued PG&E, which had a power-line malfunction near the fire ignition point.
Q: Does bankruptcy mean PG&E would go out of business? Will the lights go out?
No, and no. PG&E would file for protection under Chapter 11 of the federal bankruptcy code. Chapter 11 allows the company to stay in business while it sorts out 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.
Q: Will bankruptcy lead to higher rates?
Rates could go up, but not necessarily because of a bankruptcy filing.
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: How does bankruptcy benefit PG&E?
Chapter 11 gives companies breathing room of sorts, the chance to sort out their debts while they keep operating. One possible outcome is that PG&E would use a court-supervised auction to sell its natural-gas division to raise money to pay wildfire claims.
Q: What about PG&E executives?
Williams, the former CEO, will get her severance payments, according to a statement filed by PG&E on Monday with the Securities and Exchange Commission. That will total nearly $2.4 million, according to an earlier filing.
Q: Will wildfire survivors get paid in full?
Bankruptcy could reduce the amount of money available for paying 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. A bankruptcy trustee could require that survivors get some funds long before the courts could resolve the mountain of lawsuits. “Bankruptcy is often much faster than state court,” he said.
Q: So how much would these creditors 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.”
Q: What happens if the gas division is sold?
For many California ratepayers, it would mean writing two utility checks each month instead of one. Sacramento residents do that already, paying PG&E for gas and SMUD for electricity.
A sale would be overseen by the PUC. But it brings up another concern for Northern California residents, many of whom haven’t forgotten the San Bruno gas explosion that killed eight people and leveled a neighborhood in 2010: Who would be their new gas company or companies, and would they be any better 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 gas 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: Have PG&E stockholders been affected?
Yes. The company already suspended quarterly dividend payments in late 2017, and its stock price has been crushed since it disclosed that it experienced trouble on a transmission tower near the spot where the Camp Fire ignited Nov. 8. PG&E shares fell to $8.17 on Monday and have lost 80 percent of their value since the Camp Fire started.
Q: What does the new governor think?
Gov. Gavin 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,” while making sure “fire victims are treated fairly.” At a Capitol press conference later, he scolded PG&E for misleading regulators on a variety of issues, but added he’s confident the lights will stay on. “This is not 2001,” he said. “We are not in an energy crisis.”
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. In February, PG&E will release its latest financial results, which will provide more detailed analysis on the potential liabilities from the Camp Fire.