Finances: Bankruptcy fears growing
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.