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Who Could Get Hurt by PG&E’s Fire-Driven Bankruptcy

PG&E Corp., owner of California’s largest electric utility, warned Monday that it plans to file for bankruptcy protection on Jan. 29, pushed to the brink by wildfire lawsuits that could cost the company $30 billion. It’s the latest fallout from two years of massive blazes that have killed more than 130 Californians and destroyed tens of thousands of properties. The move could trigger big changes for PG&E, its 20,000 employees and the roughly 16 million people it serves. It raises the question of whether people who blame PG&E for burning down their homes will receive the compensation they want. And could bankruptcy derail California’s fight against global warming?

1. Will the lights stay on?

Yes. When utilities file for bankruptcy, they don’t cease operations. PG&E’s utility unit — Pacific Gas and Electric Co. — filed for bankruptcy in 2001 during the California electricity crisis without interrupting service. PG&E said Monday it expects to have $5.5 billion in “debtor in possession” financing lined up to carry it through the bankruptcy process.

2. Will customer bills go up?

Probably, but it’s impossible to say until the bankruptcy process is well underway. And for once, the decision to raise rates won’t rest solely with regulators at the California Public Utilities Commission. Rate increases will be tied to whatever reorganization plan the bankruptcy court judge overseeing the proceeding approves. California passed a law last year allowing PG&E to pass on to ratepayers some of the costs of wildfires for which it had been blamed in 2017, but it’s not clear how the law’s provisions will apply to a company that’s already in bankruptcy. Indeed, some of those provisions were designed to prevent utilities from going bankrupt.

3. What about the employees?

They will continue to work, responding to outages and maintaining the company’s vast web of wires and natural gas pipelines. They will still get paid, and the company will continue to fund their health care, a senior executive with the company’s Pacific Gas and Electric utility said Monday.

4. What happens to all the wildfire victims suing PG&E?

Filing for bankruptcy puts those lawsuits — total estimated liability: $30 billion — on hold and wraps them into the bankruptcy proceedings. That’s part of bankruptcy’s appeal to PG&E. The company would be able to bring all those cases into a single forum for resolving its financial problems, including wildfire suits. Bankruptcy filings also can force litigants to accept smaller settlements than they would have been able to negotiate otherwise.

5. How about the shareholders?

Don’t expect to see your dividends again anytime soon. PG&E stopped issuing dividends after the 2017 fires, and a bankruptcy proceeding would likely put off the resumption of issuing dividends by several years. But analysts don’t expect shareholders to be wiped out.

6. What role is the state taking?

The legislature last year gave PG&E the ability to issue bonds to pay off its 2017 wildfire lawsuit costs. A key state politician has drafted — but not yet introduced — a bill that would do the same for 2018. But PG&E argues the bond process set up by the legislature will take too long to help. Meanwhile, California politicians seem to be losing patience with PG&E. Governor Gavin Newsom’s response Monday morning didn’t indicate he would try to prevent the bankruptcy.

7. Could this interfere with California’s climate change goals?

California is requiring all its utilities to increase their use of renewable power, and PG&E has already lined up enough power purchase contracts to meet the state’s targets for the next few years. But the state’s climate fight very much relies on healthy electric utilities in multiple ways, such as deploying electric vehicle charging stations and making homes more efficient. Newsom is expected to make climate one of his signature issues and has already said that he wants California’s utilities to be strong enough to invest in the state’s energy transition. Meanwhile, analysts are waiting to see if PG&E will use bankruptcy proceedings to get out of some of the most expensive renewable contracts it signed years ago, before the costs of wind and solar power plunged.

 

Who Could Get Hurt by PG&E’s Fire-Driven Bankruptcy: QuickTake, by David R. Baker, Bloomberg, January 14, 2019.

Governor Newsom Statement on PG&E Announcing Intention to File Bankruptcy

SACRAMENTO — California Governor Gavin Newsom issued the following statement after the Pacific Gas and Electric Company (PG&E) announced its intention to file for bankruptcy:

“PG&E provides gas and electric service to 16 million Californians. From the moment I was elected, I have been closely monitoring the impact of PG&E’s existing and potential future liability for the deadly wildfires on the victims of the fires and the consumers who rely on PG&E for their electric and gas service.

“When I took office one week ago today, I immediately instructed my team to meet with the California Public Utilities Commission, CAISO, PG&E, and labor unions representing the workers who work for PG&E. My staff and I have been in constant contact throughout the week and over the weekend with these stakeholders and regulators. Everyone’s immediate focus is, rightfully, on ensuring Californians have continuous, reliable and safe electric and gas service.

“While PG&E announced its intent to file bankruptcy today, the company should continue to honor promises made to energy suppliers and to our community. 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.”

 

Governor Newsom Statement on PG&E Announcing Intention to File Bankruptcy, Office of Governor Gavin Newsom, January 14, 2019.

Embattled PG&E Has Long History With California’s New Governor

With its equipment suspected of causing the deadliest wildfire in California history, PG&E Corp. may find its fate in the hands of someone familiar: Gavin Newsom, the former mayor of its home town.

Newsom, California’s governor-elect, will take office in early January, and the aftermath of Butte County’s Camp Fire will be one of the most pressing issues on his agenda.

The disaster killed at least 88 people and leveled the town of Paradise, creating a crisis for thousands of people left homeless. It also has sent shares of PG&E, the state’s largest utility, plunging and left regulators raising questions about its future — matters that Newsom, ultimately, must address.

Whether he will prove to be an ally for the company is an open question.

As mayor of San Francisco from 2004 to 2011, Newsom has already had to work closely with PG&E, whose ties to the city stretch back more than a century. He was considered friendly with the company, opposing efforts to create a municipal utility. In the past year, PG&E — and almost all its top executives — gave to his gubernatorial campaign.

And yet, Newsom also pushed PG&E to close one of the city’s last fossil-fuel power plants. As mayor, he berated the company for repeated equipment failures that caused manhole fires, blackouts and in one case, a sidewalk explosion that left a pedestrian with severe burns. More recently, as lieutenant governor, Newsom pressured PG&E to close California’s last nuclear plant.

Now the company is facing one of its gravest crises. Although no cause for the Nov. 8 Camp Fire has been determined, one of PG&E’s high-voltage transmission lines malfunctioned about 15 minutes before the fire started, in the same area where investigators say the flames began. The utility’s equipment has already been blamed for starting 17 of last year’s Northern California wildfires, which together killed 44 people, and survivors of this month’s blaze have filed suit against the company.

PG&E faces an estimated $17 billion in liabilities for the 2017 fires, and CoreLogic Inc. expects losses from the Camp Fire to reach as high as $13 billion. While one state lawmaker plans legislation to help the company deal with any costs arising from the Camp Fire, another wants it broken up. And the state’s utilities commission is exploring whether PG&E needs to be restructured, or possibly split into pieces.

Newsom hasn’t taken a stand on the proposed legislation, and his staff declined to make him available for this story. He will, however, have to get involved, even if public anger at PG&E makes that perilous, said Dan Schnur, a veteran California political analyst.

“There’s going to be considerable public pressure on Newsom to act,” said Schnur, a professor at the University of Southern California’s Annenberg School of Communication and Journalism. “Legislators get to choose which fights they lead. Governors generally don’t have that flexibility.”

PG&E declined to comment specifically on its relationship with Newsom. But Lynsey Paulo, a spokeswoman for the company, said it makes a point of working with many politicians.

“PG&E holds itself to the highest ethical standards of public disclosure and compliance, and we participate in the political process, working with elected officials at all levels on a variety of matters that are important to our state and local communities,” she said.

Newsom’s predecessor, Jerry Brown, was seen as an ally for the state’s utility companies, whose help he needed to boost the use of renewable power and fight climate change. One of his closest aides — Nancy McFadden, who died this year — had previously worked for PG&E. The governor’s sister, Kathleen L. Brown, sits on the board of another California utility owner, Sempra Energy.

Newsom, a centrist Democrat and San Francisco native, was among many of the city’s political leaders who were “cozy” with PG&E, said Tom Ammiano, who served more than a decade on the board of supervisors before winning a state Assembly seat. (Ammiano is also a Democrat but hails from a further left-leaning faction of the party than Newsom.) The company, whose Pacific Gas and Electric Co. utility was founded in the city in 1905, had long been considered the 500-pound gorilla of local politics and remains one of San Francisco’s largest employers.

Ballot Opposition

Newsom sided with PG&E to oppose a 2008 ballot measure that would have increased San Francisco’s use of renewable power — and given city officials the ability to set up a municipal utility on PG&E’s home turf. The campaign against the measure was led by one of Newsom’s advisers at the time, who had also worked with PG&E. But Newsom insisted that the adviser kept the interests of his clients separate.

“We had the public power thing — we thought it would be a good idea,” said Jake McGoldrick, a former supervisor who served from 2001 to 2009. “I never saw him show any sign of interest in any kind of municipalization.”

But while Newsom was mayor, the city sued to stop a 2010 statewide ballot measure sponsored by PG&E that would have made it far more difficult for California cities and counties to get into the electricity business. The city couldn’t keep the initiative off the ballot, but voters defeated it, even after PG&E spent $46 million on the campaign.

As lieutenant governor, Newsom used his leverage as chairman of the State Lands Commission to pressure PG&E into closing its Diablo Canyon nuclear plant, which is almost surrounded by earthquake faults. The utility, already worried that a flood of cheap renewable power could soon render the plant unprofitable, decided to retire it. The commission extended the leases long enough to ensure the orderly closure of the plant, now scheduled to shut down in 2025.

The debate over Diablo Canyon didn’t prevent PG&E from donating to Newsom’s successful run for governor. The company this year gave $58,400, according to state records, while its executives added $41,500. Chief Executive Officer Geisha Williams pitched in $10,000. Newsom raised $47.5 million for his campaign, according to data from the California Secretary of State.

‘Done Right’

Nathan Ballard, who served as Newsom’s spokesman during much of his tenure as mayor, said Newsom always insisted that the company resolve its problems rather than pushing for its breakup. Such problems included replacing aging infrastructure in San Francisco that, several times, caught fire or caused blackouts.

“He was always very aggressive about making sure PG&E got it done right,” Ballard said.

Ballard, who said he talks to the governor-elect regularly but won’t be part of the incoming administration, said he has “no doubt” Newsom would tackle the issue of wildfires and utility liability.

“It will be driven by Governor Gavin Newsom,” Ballard said.

— With assistance by Romy Varghese

 

Embattled PG&E Has Long History With California’s New Governor, by David R. Baker, Bloomberg, December 2, 2018.