Pacific Gas & Electric Corp. filed for voluntary bankruptcy protection Tuesday as it braces for the impact of billions of dollars in liability claims for some of California’s deadliest wildfires.
The filing made PG&E a massive victim of climate change, unable to deal with years of drought that made dry forests kindling for damaged transmission lines. While other factors also pushed the company into bankruptcy, the utility’s fate served as a wake up call to other companies potentially vulnerable to climate change.
The biggest utility company in the country, PG&E was recently cleared of blame in the destructive Tubbs Fire, which blazed through Santa Rosa in fall 2017. But the company is still under scrutiny for its role in the Camp Fire, the worst wildfire in state history, which razed the small town of Paradise in November and killed 86 people.
Mired in lawsuits, PG&E now has more than $50 billion in liabilities, according to bankruptcy court filings. It listed its assets at a little more than $71 billion.
“Throughout this process, we are fully committed to enhancing our wildfire safety efforts, as well as helping restoration and rebuilding efforts across the communities impacted by the devastating Northern California wildfires,” John Simon, PG&E’s interim chief executive, said in a statement. “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’s bankruptcy announcement has garnered criticism from investors, government officials and the public, who fear that the company’s actions will send utility rates skyrocketing and leave wildfire victims without an avenue for recompense. The bankruptcy filing immediately puts a halt to the wildfire lawsuits and consolidates them in bankruptcy court, where legal experts say victims are likely to receive less money.
Wildfire victims have little chance of getting punitive damages or taking their claims to a jury in a bankruptcy proceeding. Instead, they will have to tussle with PG&E’s creditors, including bondholders, for a payout from the company.
“The PG&E bankruptcy, while expected, has far-ranging implications beyond just California ratepayers,” said John Kilduff of Again Capital. “California had led the way, opening up its electricity and natural gas market, and PG&E was a dominant force. The result were lower prices for consumers, and that model is now threatened. Insurance companies and those who did not have insurance on their homes will left holding the bag, as PG&E will escape a great deal of financial liability. “
The San Francisco-based company, which provides power to about 16 million people in northern and central California, is also asking the court to approve $5.5 billion in debtor-in-possession financing to fuel its operations while it undergoes bankruptcy proceedings. When it announced its intent to file bankruptcy, the company fenced off the entrance to its headquarters, bracing for public protests.
On the morning of Nov. 8, PG&E employees saw smoke near a utility tower that had abruptly lost power. Within 15 minutes, the first flames of the Camp Fire began roaring through the Sierra foothills. The company reported the overlap between the tower outage and the start of the fire to state regulators, who have yet to decide whether PG&E is to blame for the blaze.
Only California and Alabama hold utilities “strictly liable” for fires started by their equipment. The liability applies even if the company’s equipment was working correctly and met safety requirements at the time of an incident, a high standard that last summer PG&E officials lobbied the state legislature to lower. Company executives said at the time that “yesterday’s laws will not keep up with tomorrow’s risks.”
But many analysts also blamed PG&E for a lax corporate culture. “California needs radical changes from its largest utility. Frequent disasters (including wildfires and the deadly San Bruno pipeline explosion in 2010) continue to plague PG&E, and leadership changes have been slow to overhaul the company’s culture of safety,” Height Analytics, an investment advisory service, said in a note Tuesday morning. In the past month, the chief executive, three other senior executives and a member of the board of directors have resigned.
Utilities rarely go bankrupt, though a major subsidiary of PG&E filed for bankruptcy in 2001. The company then blamed government officials and regulators for California’s energy crisis, part of the fallout from the scandal involving Enron.
BlueMountain Capital Management, a key PG&E investor that was outspoken against the company’s earlier steps toward bankruptcy protection, called for the removal of PG&E’s current board of directors Tuesday in a statement.
“Today’s filing is the latest example of how the Board continues to fail the Company, wildfire victims, customers, employees, creditors, shareholders and the people of California,” the asset management firm said. “We urge all stakeholders to support change at PG&E and will be proposing a “New Slate” of highly-qualified and impartial directors.”
The bankrupt utility also faces claims from suppliers of renewable energy. Those payments cost PG&E $2.2 billion a year. Many of those contracts were made at above market prices to help the utility fulfill aggressive renewable energy requirements set by the state, and it is possible that PG&E will seek to renegotiate those contracts at lower prices. One of the biggest firms selling renewable energy to PG&E, NextEra, has appealed to the Federal Energy Regulatory Commission, which indicated that it might try to assert jurisdiction.
The company said it intends to pay suppliers in full for goods and services provided after the bankruptcy date. It has asked the court to authorize payment of employee wages, health-care and other benefits. It also asked for authorization to continue customer programs, including low-income support, energy efficiency and other programs encouraging clean energy measures, according to a news release.
PG&E’s stock jumped more than 17 percent in morning trading following the announcement.
Thomas Heath and Scott Wilson contributed to this report.