Pacific Gas and Electric feels the heat
Company to file for bankruptcy as it faces crushing liabilities linked to fires
Pacific Gas and Electric (PG&E), owner of the biggest US power utility by number of customers, said on Monday it is preparing to file for chapter 11 bankruptcy for all its businesses as it faces potentially crushing liabilities linked to catastrophic wildfires in 2017 and 2018.
The company’s shares tumbled 55% in early trading.
PG&E faces widespread litigation, government probes and liabilities that could reach $30bn, according to the company, accounting for damage from fires in 2018 and in 2017.
PG&E said it plans to file for bankruptcy protection around January 29, and is giving employees a 15-day notice, to comply with Californian law.
PG&E said on Sunday its CEO was leaving and would be replaced by general counsel John Simon on an interim basis.
PG&E is reeling from the November Camp Fire that swept through the Californian mountain community of Paradise and killed at least 86 people in the most destructive blaze in state history. It said in November it could face “significant liability” in excess of its insurance coverage if its equipment was found to have caused the Camp Fire.
The state could find PG&E responsible for the 2018 wildfires. Under California law, utilities are exposed to liability from wildfires regardless of their negligence.
PRIVATE FIRM
The company decided to file for bankruptcy in part to address that issue, known as “inverse condemnation”, and questioned in its regulatory filing whether it could continue to operate in future as a private firm exposed to that risk. Energy companies that supply PG&E could be hit by its bankruptcy. One of the most exposed is Kinder Morgan, the second-largest North American pipeline operator, analysts said.
The company’s board decided to oust CEO Geisha Williams and undergo a restructuring at a meeting last weekend in San Francisco, according to a source familiar with the matter.
Faced with liabilities from wildfires and a host of related issues, PG&E’s board felt the company had no choice but to seek bankruptcy protection, according to two people familiar with the deliberations.
PG&E said it is in discussions with lenders about receiving about $5.5bn in debtor-inpossession financing to help it operate while navigating through bankruptcy.
Advisers expect it may take up to two years for the company to emerge from bankruptcy.
The firm has been under pressure from the California Public Utilities Commission to make operational changes. It said on January 3 it was reviewing its structural options and searching for new directors with safety experience.
PG&E chair Richard Kelly said that “a chapter 11 reorganisation for both the utility and PG&E Corporation represents the only viable option to address the company’s responsibilities to its stakeholders”.
Now it will be able to work with everyone ranging from wildfire victims, customers, employees and creditors in one court-supervised process.
The pace at which California officials would address PG&E’s financial straits also weighed on the board’s decision to seek bankruptcy protection.