PG&E prepares bankruptcy filing after California wildfires
New York — PG&E, owner of the biggest US power utility by number of customers, said on Monday it is preparing to file for chapter 11 bankruptcy for all of its businesses as it faces potentially crushing liabilities linked to catastrophic wildfires in 2017 and 2018.
The company’s shares tumbled 55% in early trading.
PG&E faces widespread litigation, government investigations and liabilities that could potentially reach $30bn, according to the company, accounting for damage from fires in 2018 and in 2017.
PGE said it plans to file for bankruptcy protection around January 29, and is giving a 15-day notice to employees, to comply with California law.
PGE said on Sunday its CEO was leaving and being replaced by general counsel John Simon on an interim basis.
The utility holding company said the bankruptcy process will not affect electric or natural gas services for 16-million customers.
PGE is reeling from the November Camp fire that swept through the California mountain community of Paradise and killed at least 86 people in the deadliest and most destructive blaze in state history. PGE said in November it could face “significant liability” in excess of its insurance coverage if its equipment was found to have caused the Camp fire.
The state could find PGE responsible for the 2018 wildfires. Under California law, utilities are exposed to liability from wildfires regardless of their negligence.
The company decided to file for bankruptcy in part to address that issue, known as “inverse condemnation”, and questioned in its regulatory filing whether it could continue to operate in the years ahead as a private company exposed to that risk. A federal judge has also been putting restrictions on PGE to shut down unsafe power lines.
Energy companies that supply PGE could be hit by its bankruptcy. One of the most exposed is Kinder Morgan, the second-largest North American pipeline operator, analysts said.
The company’s board decided to oust CEO Geisha Williams and undergo a restructuring at a meeting last weekend in San Francisco, according to a source familiar with the matter.
Faced with liabilities from wildfires and a host of related issues, PGE’s board felt the company had no choice but to seek bankruptcy protection, according to two people familiar with the deliberations.
The legal requirement to alert employees ahead of bankruptcy filing accelerated the board’s decision. PGE, which drew down remaining amounts on credit lines totalling $3.3bn in November, had about $1.5bn of liquidity as of Friday. A notice to employees about a pending bankruptcy could potentially dry up PGE’s access to capital.
PGE said it is in discussions with lenders about receiving about $5.5bn in debtor-in-possession financing to help it operate while navigating through bankruptcy.
Advisers expect it may take up to two years for the company to emerge from bankruptcy.
The company has been under pressure from the California Public Utilities Commission to make operational changes. It said on January 3 it was reviewing its structural options and searching for new directors with safety experience.
PGE chair Richard Kelly said “a chapter 11 reorganisation for both the utility and PGE Corporation represents the only viable option to address the company’s responsibilities to its stakeholders”. Now it will be able to work with everyone ranging from wildfire victims, customers, employees and creditors in one court-supervised process.
The pace at which California officials would address PGE’s financial straits also weighed on the board’s decision to seek bankruptcy protection, the company said. California enacted a law allowing PGE to pass on fire liabilities to customers to help it grapple with 2017 blazes, but the measure does not address the 2018 disaster.
PGE said in a filing it could potentially raise more money and avoid filing for bankruptcy, but argued such financing would be complex, uncertain and expensive. A bankruptcy could help the company deal with some fundamental problems, including the prospect of continually being exposed to financial fallout from future wildfires, the company said. Many PGE customers live near dry forests where rain has become increasingly rare, stoking conditions for potential future blazes.
PGE serves 5.4-million electric customers and 4.3-million natural gas customers in northern and central California.