California

‘PG&E is going to have to pay.’ Sympathy is gone for utility facing bankruptcy

The first time it went bankrupt, in 2001, PG&E could label itself a victim — of the California energy crisis, runaway electricity prices and a disastrous deregulation plan that allowed companies like Enron to manipulate the power grid. PG&E emerged from bankruptcy three years later with its business operations and credibility more or less intact.

PG&E’s 2019 bankruptcy might wind up a lot differently.

Angered by PG&E’s inability to prevent deadly wildfires, legislators and regulators are openly talking about breaking up the utility or engineering some other kind of restructuring. Although PG&E cites climate change as a major factor in the Camp Fire and the wine country fires of 2017, “the perception is that PG&E has pretty much brought this on themselves,” said Mark Toney, director of The Utility Reform Network advocacy group.

This dramatic change in the political dynamic could make life difficult for PG&E — and the public officials who must figure out a resolution to the utility’s crisis.

Lawmakers want wildfire survivors who lost everything to be made whole. But, after giving PG&E partial protection for some of the wildfire liabilities from 2017, they’re leery about putting ratepayers on the hook for paying the enormity claims filed by other survivors, including those impacted by the Camp Fire of 2018.

These same lawmakers might be in the mood to punish PG&E — but have to make sure the company is financially and operationally healthy enough to keep the lights on while its future is resolved. PG&E is already facing a judge’s order to dramatically ramp up its inspections of its equipment before the next fire season begins in June.

“We’re going to have to figure this out even though PG&E’s not a sympathetic actor,” said state Sen. Bob Hertzberg, D-Van Nuys, who was Assembly speaker when PG&E went bankrupt in 2001. “This thing is so hard.”

In at least one respect, this crisis is easier. Unlike 2001, when power generators were deliberately withholding electricity and causing blackouts, this time there’s plenty of juice to go around.

“We are not in a position where we’re worried about our lights turning out,” Gov. Gavin Newsom said Monday.

For the most part, though, the new PG&E bankruptcy figures to be extraordinarily difficult. “This is going to be a very complex process and there are many different stakeholders whose interests need to be balanced,” said Steve Malnight, the company’s senior vice president of energy supply and policy.

PG&E already was seeking a $1 billion rate hike, with about half the money to be spent on improving its tree-pruning program and other fire-safety measures. Separately, the federal judge overseeing PG&E’s criminal probation in the San Bruno disaster has threatened to order PG&E to inspect every inch of its power grid — which spans 106,000 miles of distribution lines — before the 2019 wildfire season.

Now comes the bankruptcy case, potentially adding another degree of difficulty to a crisis that’s seemingly mushrooming out of control.

Giving 15-day notice, as required by state law, PG&E announced early Monday it will file for bankruptcy in late January. The Chapter 11 filing is designed to give PG&E some breathing room to figure out its finances, but the company is also surrendering much of the control over its own future.

To a large degree, PG&E will be at the mercy of a federal bankruptcy judge, the Legislature and the state Public Utilities Commission over the next few years. Those various entities won’t necessarily be on the same page. While lawmakers and the PUC want to keep rates down, bankruptcy judges are in the business of getting creditors paid, said UC Berkeley energy economist Severin Borenstein.

The outcome could boil down to a negotiated settlement among state officials, PG&E and its creditors, with the bankruptcy judge having final approval.

“Should the gas (division) be broken off? Should electric service be broken up regionally? And should any of those companies be converted to government-owned?” Borenstein said.

Legislators gave PG&E a partial bailout in September by approving SB 901, which gave the company the ability to pass some of its wildfire liabilities onto ratepayers for the 2017 fires. But the law says nothing about the fires of 2018, and in the wake of the Camp Fire — the deadliest in California history, with 86 fatalities — legislators are in no mood to provide additional protection to the company and its investors.

“I just don’t think it’s a viable alternative at this time,” said state Sen. Bill Dodd, D-Napa, who authored SB 901.

It doesn’t help PG&E’s cause that, as Newsom said Monday, it has lost much of its credibility. The PUC recently accused the utility of falsifying natural gas pipeline inspection records — a stunning allegation in the wake of PG&E’s criminal conviction in connection with the deadly 2010 pipeline explosion in San Bruno.

But if ratepayers don’t shoulder the bulk of the wildfire claims, who will? PG&E says it doesn’t have the financial capacity to handle fire liabilities that could exceed $30 billion — that’s why it’s seeking bankruptcy protection. The company owes another $18 billion to bondholders.

Borenstein said wildfire victims and bondholders might end up with less than full satisfaction of their claims on the company. “There isn’t enough money to go around,” he said. “All of the parties, when you go into bankruptcy, generally take some sort of haircut.”

Republican Assemblyman James Gallagher, who represents the area burned by the Camp Fire, said, “Ultimately PG&E is going to have to pay (Camp Fire survivors). How is that going to get paid? They’re bankrupt.”

But he added “they have a lot of assets” and PG&E could end up having to sell some of its parts to raise cash for fire victims. Published reports have said PG&E might unload its natural-gas division.

Whatever happens, the solution can’t be “a complete burden on the ratepayer,” Gallagher said.

PG&E’s stock price has fallen 80 percent since November, when a company disclosure showed that its equipment might have caused the Camp Fire. The stock fell to $6.44 a share on Tuesday, the lowest its been since its first bankruptcy filing in April 2001.

Back then, PG&E imploded when the energy deregulation scheme approved by the Legislature a few years earlier went off the rails.

Deregulation forced investor-owned utilities like PG&E to buy power from independent companies that had gained control over much of the utilities’ generating capacity. Prices soared as companies like Enron found ways to manipulate the market. In many cases, investigators found, generators were withholding supplies at strategic moments to force prices even higher — resulting in a handful of blackouts that rolled through PG&E territory and the rest of the state.

The Public Utilities Commission granted PG&E a rate hike to keep up with the generators’ prices, but the company said it wasn’t nearly enough. By the time it filed for bankruptcy on April 6, 2001, it had lost an estimated $10 billion in a few months’ time.

PG&E’s decision infuriated then-Gov. Gray Davis — who had outlined a recovery plan on live TV the night before PG&E’s bankruptcy lawyers headed to the courthouse — and state officials remained reluctant to grant the company more rate hikes. But most of the players in the drama recognized that this was a crisis manufactured by others, and PG&E was able to negotiate a complicated settlement with the PUC that put ratepayers on the hook for billions of dollars in higher rates to pay the debts to the generators.

The plan was approved by the bankruptcy judge and PG&E left bankruptcy three years after it started, on April 12, 2004. By that point, it had regained profitability and its stock price was four times higher than the day it went Chapter 11.

The company’s CEO at the time, Robert Glynn Jr., said the end of the bankruptcy case “puts the energy crisis behind us.”

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