PG&E Files For Chapter 11 Bankruptcy; Estimates $50B In Liability
SAN FRANCISCO (CBS SF) – San Francisco-based utility Pacific Gas & Electric Company officially filed for Chapter 11 bankruptcy protection early Tuesday morning, amid potential massive liabilities from recent wildfires.
"Through this process, we will prioritize what matters most to our customers and the communities we serve – safety and reliability. We believe that this process will make sure that we have sufficient liquidity to serve our customers and support our operations and obligations," PG&E interim CEO John Simon said in a statement.
The Chapter 11 process enables a company to freeze its debts and continue functioning while developing a financial reorganization plan.
But the move could ultimately drive up electricity rates for customers, jeopardize California's ambitious transition toward renewable energy and lead to smaller payouts for fire victims.
It was also seen as a possible glimpse of the financial toll that could lie ahead as climate change takes hold. Scientists say global warming is leading to fiercer, more destructive wildfires and longer fire seasons.
PG&E Co. told a federal bankruptcy court in its bankruptcy petition Tuesday that its estimated liability in the wake of devastating Northern California wildfires is more than $50 billion.
In a companion filing, PG&E explained it currently faces more than $30 billion in possible liability from wildfire lawsuits and claims, but said that number doesn't include potential punitive damages and fines and said it expects additional lawsuits and claims.
"PG&E initiated these Chapter 11 cases to address extraordinary financial challenges," the company's lawyers wrote.
"That potential exposure has resulted in a severe deterioration of (PG&E's) credit profile and liquidity position," they said.
PG&E Corp., the utility's parent holding company, filed a twin petition seeking Chapter 11 protection and gave the same estimate of more than $50 billion in potential liability.
The company said in a statement it will continue providing electricity and natural gas, investing in system safety and paying its 24,000 workers while seeking an "orderly, fair and expeditious resolution of its liabilities from the 2017 and 2018 fires."
San Francisco-based PG&E, which is owned by shareholders, provides electricity and natural gas to 16 million customers in Northern and Central California.
State Sen. Bill Dodd, D-Napa, called the bankruptcy filing disappointing and accused the utility of mismanagement.
"Given its track record of obfuscation and mismanagement, I'm not surprised PG&E claims it can no longer meet its financial obligations," Dodd said in a statement.
"It's extremely disappointing and underscores the need for change at PG&E in both its leadership and corporate culture. Wildfire victims shouldn't have to deal with the uncertainty this causes, which in many respects re-victimizes them," he said.
Gov. Gavin Newsom said, "My administration will continue working to ensure that Californians have access to safe, reliable and affordable service, that victims and employees are treated fairly, and that California continues to make forward progress on our climate change goals."
Tom Dalzell, the business manager of the union International Brotherhood of Electrical Workers Local 1245, said, "At this point, we do not know exactly what the utility will look like once it emerges from bankruptcy.
"However, we remain fully committed to protecting our members' jobs, as well as the wages and benefits that they have earned, so that they can continue to provide safe and reliable gas and electric service to millions of Californians in thousands of communities across the state," Dalzell said.
The union representing PG&E's 3,700 professional and technical workers, IFPTE Local 20, said the bankruptcy "must not be allowed to impact the important safety and environmental programs which they are carrying out."
Local 20 Secretary-Treasurer Joel Foster said, "We just want to keep doing our jobs. There is a lot of work to do, and if we do not keep working then risks will increase."
PG&E also said Tuesday it has secured $5.5 billion in loans from several banks to pay its operating costs during the bankruptcy.
The path for that step was cleared on Monday when the California Public Utilities Commission gave the utility approval to borrow up to $10 billion for its operating expenses.
The bank loans will be given top priority for repayment and for possible liens on PG&E's assets, according to the utility's filings.
The utility filed a series of motions asking the bankruptcy court to allow it to continuing paying workers' wages and benefits, to continue paying suppliers and to promise the banks the priority in the repayment of the loans.
The filing will also allow PG&E to freeze its debts. It is the freezing of PG&Es debts that worries attorney Amanda Riddle.
Riddle represents several families whose homes burned in the Butte Fire in central California that destroyed 500 homes.
"I settled 24 fire cases from 2015 in late November. PG&E paid 13 of them, defaulting on the remaining 11," said Riddle. "PG&E did not tell us this was coming. And in fact we asked repeatedly whether or not they were going to be paying. PG&E refuses to give us a straight answer.
Last week, PG&E told a federal judge money is too tight to honor the settlements.
Federal law says the bankruptcy filing automatically puts on hold the thousands of claims by fire victims.
What's more, under Chapter 11, the bankruptcy lawyers get paid first, followed by banks and investors, and then finally the fire victims.
However, what's very disconcerting is that the bankruptcy attorneys PG&E has hired claim that they are going to be billing about $750 million. Which, according to our bankruptcy attorneys, is incredibly unreasonable and unheard of amount, said Riddle. So we hope that those bankruptcy attorneys work with us to streamline the processes so they will not need to overbill to that extent.
U.S. Bankruptcy Judge Dennis Montali scheduled a status conference hearing at 1:30 p.m. Tuesday to set future hearings on those motions. He said he did not plan to make any rulings on Tuesday.
Montali is the same judge who presided over PG&E's previous Chapter 11 bankruptcy in 2001. That bankruptcy came in the midst of billions of dollars of debt for spiraling wholesale electricity costs during the state's 2000-01 energy crisis.
It was for the most part resolved in 2004 with shareholders forgoing some dividends and customers paying surcharges for nine years.
© Copyright 2019 CBS Broadcasting Inc. All Rights Reserved. Bay City News Service contributed to this report.
