Fi­nances: Bank­ruptcy fears grow­ing

San Francisco Chronicle Late Edition - - FRONT PAGE - By Cather­ine Ho and J.D. Mor­ris

Em­ploy­ees of PG&E Corp. may be about to learn whether the San Francisco util­ity, which is fac­ing bil­lions of dol­lars in po­ten­tial li­a­bil­ity for its role in the 2017 and 2018 Cal­i­for­nia wild­fires, is near­ing in­sol­vency.

Un­der a state law, SB901, passed in Septem­ber to pro­vide some re­lief for the com­pany’s fi­nan­cial pres­sure, PG&E must tell its em­ploy­ees at least 15 days be­fore a change of con­trol in the com­pany, in­clud­ing a bank­ruptcy fil­ing. That no­tice may come as soon as Mon­day, Bloomberg

re­ported Satur­day — a faster move to­ward bank­ruptcy than many had ex­pected.

PG&E is in dis­cus­sions with some of its lenders about a fi­nanc­ing pack­age worth up to $5 bil­lion, Reuters re­ported Sun­day, cit­ing peo­ple fa­mil­iar with the mat­ter. Such fi­nanc­ing, known as debtor-in-pos­ses­sion fi­nanc­ing, would al­low a com­pany un­der fi­nan­cial dis­tress to con­tinue op­er­at­ing dur­ing Chap­ter 11 bank­ruptcy pro­ceed­ings.

A PG&E spokesman said Sun­day: “We don’t com­ment on ru­mors or spec­u­la­tion.” The com­pany has pre­vi­ously said its board is con­sid­er­ing a range of mea­sures.

Pa­cific Gas and Elec­tric Co., the util­ity sub­sidiary of PG&E Corp., pre­vi­ously filed for Chap­ter 11 bank­ruptcy pro­tec­tion in 2001 dur­ing the en­ergy cri­sis, when the price of elec­tric­ity soared and the util­ity in­curred $9 bil­lion in debts it could not pay off. The com­pany emerged from Chap­ter 11 in 2004.

Reuters re­ported that the par­ent com­pany, the util­ity sub­sidiary or both might file for bank­ruptcy in the cur­rent cri­sis.

Bank­ruptcy would not cause an in­ter­rup­tion in ser­vice to cus­tomers, and em­ploy­ees would con­tinue to work and be paid. But bond­hold­ers and share­hold­ers would suf­fer losses, as would cred­i­tors such as wild­fire vic­tims awarded pay­outs.

PG&E’s largest union, IBEW Lo­cal 1245, would do ev­ery­thing pos­si­ble to pre­serve util­ity em­ploy­ees’ re­tire­ment plans if the com­pany files for bank­ruptcy pro­tec­tion, said Tom Dalzell, the busi­ness man­ager of the or­ga­nized la­bor group.

“We went through a bank­ruptcy in 2001 and pro­tected all wages and ben­e­fits and work­ing con­di­tions and pen­sions,” Dalzell said. “We’re pre­pared to do that again.”

An­a­lysts es­ti­mate that PG&E could face as much as $30 bil­lion in li­a­bil­ity be­cause of the 2017 Wine Coun­try fires and the 2018 Camp Fire, which killed 86 peo­ple and de­stroyed the town of Par­adise in Butte County. That fig­ure in­cludes civil claims filed by fire sur­vivors and fam­i­lies al­leg­ing wrong­ful death, prop­erty dam­age and per­sonal in­jury. PG&E’s wild­fire in­sur­ance for the year that be­gan Aug. 1, 2018, cov­ers $1.4 bil­lion.

The Cal­i­for­nia Depart­ment of Forestry and Fire Pro­tec­tion, or Cal Fire, has de­ter­mined that PG&E equip­ment ig­nited 17 of the wild­fires that tore through North­ern Cal­i­for­nia in 2017. In­ves­ti­ga­tors for­warded 11 of those cases to lo­cal district at­tor­ney’s of­fices for pos­si­ble crim­i­nal pros­e­cu­tion

The cause of the worst 2017 wild­fire — the Tubbs Fire, which killed 24 peo­ple and lev­eled neigh­bor­hoods in and around Santa Rosa — is still un­der in­ves­ti­ga­tion.

PG&E’s con­nec­tion to last year’s Camp Fire, the dead­li­est and most de­struc­tive wild­fire in state his­tory, has also been un­der heavy scru­tiny since the util­ity told state reg­u­la­tors of two in­stances where its power equip­ment mal­func­tioned in the area.

The util­ity faces nu­mer­ous le­gal claims seek­ing to hold it re­spon­si­ble for the 2017 fires, and the first of those cases is set to go to trial this year. Law­suits have also been pil­ing up against PG&E be­cause of the Camp Fire, with com­plaints filed in both Butte County and San Francisco courts.

State Sen. Jerry Hill, D-San Ma­teo, said he heard Fri­day from “some­one within our gov­ern­ment” that PG&E would prob­a­bly file the 15-day bank­ruptcy no­tice re­quired by SB901.

Hill, a fre­quent PG&E critic, wasn’t sur­prised, but he re­mained skep­ti­cal of the move.

“I’m skep­ti­cal of just about any­thing PG&E says or does,” Hill said Sun­day. “What’s their endgame? They could be no­ti­fy­ing their em­ploy­ees of bank­ruptcy in or­der to scare the Leg­is­la­ture into tak­ing some ac­tion or the state into of­fer­ing a loan of some kind or a bailout of some kind.”

A spokesman said Gov. Gavin New­som is “mon­i­tor­ing the sit­u­a­tion closely.” New­som said last week he is work­ing with leg­is­la­tors and reg­u­la­tors “to ad­dress the sol­vency of PG&E.”

An­other pro­vi­sion in SB901 spells out how PG&E can pass 2017 wild­fire costs along to its cus­tomers. The util­ity must first look at how much of a fi­nan­cial hit it can han­dle on its own us­ing a test state reg­u­la­tors are cre­at­ing. Costs beyond that could be fi­nanced with bonds PG&E cus­tomers would pay off over time.

But the law cur­rently al­lows PG&E to use that process only for 2017 fires. Fur­ther leg­isla­tive ac­tion would be re­quired to let PG&E fol­low the same steps for any wild­fire costs from 2018.

Gabrielle Lurie / The Chron­i­cle 2018

PG&E work­ers watch as trees are marked for cut­ting af­ter the Camp Fire in Par­adise (Butte County) in Novem­ber. State law says PG&E must in­form em­ploy­ees at least 15 days in ad­vance of a bank­ruptcy fil­ing.

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