What PG&E Bankruptcy May Mean for California Power, Gas Markets

(Bloomberg) -- California’s biggest utility buys a lot of natural gas and electricity for millions of consumers, and PG&E Corp.’s looming bankruptcy has credit departments stepping up scrutiny.

Key Insights

• After a series of downgrades of its credit to junk, PG&E was recently required to post collateral to cover its “outstanding and upcoming obligations,” according to a notice from the California Independent System Operator Corp., the state’s grid operator.
• PG&E’s credit crunch highlights the role of CAISO, which acts as a clearinghouse for power trading and monitors the ability of market participants to meet their obligations. It requires collateral from utilities and other traders that don’t have access to unsecured credit, which is common for a company facing bankruptcy.
• “Credit departments have already stepped up,” demanding cash payments, Daniel Grunwald, a Morningstar Inc. analyst, said in an interview.
• To avoid natural gas shortages, PG&E paid a month in advance for shipments after at least two suppliers said they restricted sales to the company. This is an example of how some credit departments have already started to scrutinize sales to PG&E and demand cash payments. That could disrupt traditional supply channels.

Market Reaction

• PG&E shares have tumbled 86 percent since the Camp Fire started Nov. 8, capping off two years of damaging blazes that the utility says exposed it to $30 billion in liabilities.
• Power and gas markets are operating normally -- at least for now.
• But transmission costs are likely to climb going forward as the state takes steps to prevent future fires.

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• PG&E’s Pacific Gas & Electric utility chose to miss an interest payment due Tuesday on $800 million of bonds due Jan. 15, 2040, triggering a 30-day grace period.
• PG&E has secured debtor-in-possession financing from lenders ahead of its planned bankruptcy filing around the end of the month, according to a representative for the Pension Benefit Guaranty Corp.
• PG&E’s shares and bonds plunged anew as bankruptcy moved closer to reality.
• As PG&E hurtles toward bankruptcy, a once-obscure legal doctrine with an awkward name certainly bears a portion of the blame.

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