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

(Bloomberg) -- 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.

The Reference Shelf

• PG&E board decided bankruptcy was "the only viable pathway," a top executive says.
• PG&E’s shareholders may survive bankruptcy, if the past is prologue.
• PG&E CEO exits, as bankruptcy looms.
• Bloomberg Daybreak: PG&E Woes (Podcast)

To contact the reporter on this story: David R. Baker in San Francisco at dbaker116@bloomberg.net

To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, John O'Neil, Kara Wetzel

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