PG&E's Fate May Include Bankruptcy, Bailout or Takeover

(Bloomberg) -- The fate of PG&E Corp. isn’t limited to bankruptcy. The embattled California utility owner could also face a shakeup, breakup, bailout or takeover as it grapples with billions of dollars in potential liabilities from wildfires.

What happens next hinges largely on state lawmakers, the outcome of a regulatory review and investigations into whether PG&E equipment sparked Northern California wildfires in 2017 and 2018 that together killed more than 100 people.

“All these things are on the table in terms of exploration,” Glenrock Associates LLC analyst Paul Patterson said in an interview. “But it’s hard to tell how seriously they’re being assessed at this point given the limited information we’ve got.”

Here’s an overview of options that may lie ahead:

Shakeup

The California Public Utilities Commission has embarked on a sweeping review of the San Francisco-based company in the aftermath of the fires, examining its safety culture, structure and governance. It includes considering whether some or all of PG&E’s board members should be replaced, if the company needs new management -- or both. In response, PG&E said on Jan. 4 that it was searching for new directors who could bring “fresh perspectives” on safety and operations. A state lawmaker who co-wrote a law last year to help PG&E pay for wildfire liabilities said a leadership shakeup should also include changes “in the executive suite.”

“PG&E has demonstrated a pattern of poor management and illegal conduct that has shattered lives across California,” State Senator Bill Dodd, a Democrat from Napa, said in December.

Breakup

As part of that review, regulators are also mulling whether the structure of PG&E itself needs overhauling. That could include carving the utility owner into smaller regional subsidiaries or converting it into a government-owned company. Another option is splitting PG&E’s natural gas and electric distribution and transmission divisions into separate companies, regulators said. PG&E said Friday it’s “reviewing structural options.” One option under consideration: selling its natural gas business after a bankruptcy filing, people familiar with the matter said.

Bailout

California lawmakers are scheduled to reconvene Monday after a holiday break and are considering introducing a bill to help PG&E absorb liabilities from the 2018 fires. The measure could extend legislation that lets PG&E issue bonds to pay off costs tied to 2017 wildfires to include last year’s Camp Fire, the deadliest in state history. The California Department of Forestry and Fire Protection, called Cal Fire, is investigating PG&E wires as a possible source of the blaze. Chris Holden, chair of the state Assembly’s utilities and energy committee, said addressing wildfires will be a “top priority” for lawmakers.

“Maintaining a reliable, safe, and affordable utility service for all Californians continues to be our ultimate goal,” Holden said in an email.

Bankruptcy

PG&E is considering whether to file for bankruptcy as soon as February, people familiar with the situation said Friday. Analysts estimate the company could face upward of $30 billion in liabilities from the 2017 and 2018 fires. Evercore ISI’s Greg Gordon said it “could face a liquidity crisis by mid-to-late ’19.” PG&E has declined to comment.

California Public Utilities Commission chief Michael Picker said in November that he couldn’t imagine allowing the state’s largest utility to go into bankruptcy. One lawmaker said Friday that PG&E may be raising the prospect of a Chapter 11 filing to pressure lawmakers into bailing out the company.

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