PG&E Pays a Million a Day for America’s Biggest Utility Bust

(Bloomberg) -- Little things add up fast in the bankruptcy of PG&E Corp.

A six-minute phone call by a senior attorney costs the power company $102, filings show. A late dinner for a lone consultant at a San Francisco Starbucks is $50, please, and a month’s worth of copying and printing adds $6,944.80. Actual litigation? That’ll be $554,811, just for June at one firm. And preparing a bill for the court adds another $35,015.

All told, fees and related expenses for lawyers, bankers and restructuring experts advising PG&E and its creditors burned up about $140 million since the company went bust in January, court filings show. That’s more than $1 million for every weekday since the case began -- an expense that potentially cuts into funds that would go to victims of wildfires started by PG&E’s equipment.

Those liabilities are what forced PG&E into the biggest utility bankruptcy in U.S. history. If the company exits court protection as planned by June 2020, and bills keep piling up at the current pace, the total could surpass $400 million.

Eye-Popping

“The numbers are eye-popping, but that’s just how much bankruptcy costs,” said Jared Ellias, a professor of bankruptcy law at the University of California Hastings. And that’s not counting the court fight over PG&E’s soon-to-be released reorganization plan, or the millions in adviser fees to get it through the California Public Utilities Commission. “Then these costs are going to multiply,” he said.

None of this is illegal or underhanded. Court hearings, legal briefs, cross-country airfares, first-class hotels and incidental expenses are customary parts of unraveling a big U.S. business failure, and San Francisco-based PG&E’s case is unusually complex because it potentially involves fire victims, ratepayers, taxpayers, politicians and new legislation.

PG&E said in an emailed statement that it hired advisers “to help guide us through the complex Chapter 11 process – and help shape the business for the future – so that the company can remain focused on serving customers, enhancing our wildfire safety efforts, and working together with our stakeholders to create a more sustainable foundation for the delivery of safe, reliable and affordable service.”

The largest sum so far came from New York law firm Cravath Swaine & Moore LLP, which submitted bills topping $30 million. The total included about $1 million in expenses such as hotel rooms at $600 per night, airfare to and from San Francisco, and rides with Uber and Lyft. That’s on top of more than $75 million Cravath billed for the 12 months before the giant California energy utility sought Chapter 11 bankruptcy protection, according to Bloomberg Law.

AP Services, an affiliate of advisory firm AlixPartners LLC that is helping restructure PG&E, followed with about $16 million. Law firm Weil Gotshal & Manges LLP, which represents PG&E, rang up $14 million, with its June expenses meticulously documented in a filing almost 300 pages long.

A representative for AlixPartners declined to comment; Weil Gotshal and Cravath didn’t respond to messages.

Hourly Rates

In bankruptcy, all professionals working for the company, as well as those representing official creditor committees, must submit their bills to the judge overseeing the case.

Of the more than 420 professionals listed in bills reviewed by Bloomberg, about 75 charged more than $1,000 an hour. The highest rates were charged by nearly three dozen attorneys who billed between $1,300 and $1,600 an hour.

Lawyers for wildfire victims say that the bankruptcy fees could have been money for compensating those claimants.

“To the extent that we can save money anywhere, it ends up going to the victims,” said Steven Campora, an attorney for wildfire victims who have sued PG&E. “It goes into their pockets.”

A separate law firm appointed to represent wildfire victims, BakerHostetler, has billed the estate $9 million for its work on the case. BakerHostetler represents the committee of tort claimants, while the committee of unsecured creditors hired Milbank LLP, which also billed $9 million.

A representative for BakerHostetler declined to comment. Milbank didn’t respond to a message.

Costs and Benefits

“In theory the large hourly rates come out of the pocket of creditors, but those creditors also have to think about where they would be without those expensive professionals,” said Stephen Lubben, of the Seton Hall University School of Law. “The only people who benefit from a big fight among claimants are the ones who charge by the hour.”

In many of the biggest bankruptcies, a fee examiner is appointed by the judge overseeing the case to help review bills. But having an examiner look over the bills doesn’t mean costs will be lower, UCLA law professors Lynn LoPucki and Joseph Doherty concluded in a study for their 2011 book on bankruptcy.

And probity doesn’t come cheap. The examiner costs an initial $25,000 plus $75,000 a month, along with $850 an hour charged by a lawyer assisting the examiner.

The examiner was hired after a request from The Office of the U.S. Trustee, the federal bankruptcy watchdog. And the U.S. Trustee isn’t free, either; as of July 31, the government has billed the PG&E estate for over $1.25 million.

To contact the reporters on this story: Josh Saul in New York at jsaul15@bloomberg.net;Steven Church in Wilmington, Delaware at schurch3@bloomberg.net;Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net, ;Lynn Doan at ldoan6@bloomberg.net, Nicole Bullock

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