PG&E is not only California’s largest utility company but also the nation’s largest utility company with 16 million people using their services. It seems that PG&E, countless Californians, investors, and the California Public Utilities Commission (CPUC) are at a fork in the road; PG&E is liable for billions of dollars worth of damage from various California wildfires over the past couple of years, so what is the best solution for both the company and it’s customers? Can the giant electric company upgrade its equipment, pay out settlements, and still avoid bankruptcy or is the only solution to have customers foot this astronomical bill?
PG&E’s 2001 Bankruptcy
This isn’t the first time that PG&E has been in economic peril. In April 2001, PG&E filed for bankruptcy due to the struggling energy crisis. Back then, PG&E amassed $9 billion in debt buying electricity and their stock fell over 30%. At the time, this was the third largest bankruptcy filing in U.S. history and the State of California spent almost $5 billion to keep electricity flowing to its residents.
Now, almost two decades later, many people are left wondering how PG&E’s economic crisis will again impact Californians. Will PG&E file for bankruptcy due to the at least 16 wildfires that their faulty equipment has been allegedly linked to in 2017 and 2018? The company already owes as much as $15 billion in damages for the 2017 fires and unknown billions more for the 2018 disasters which caused their stock prices to fall an astounding 60%. Can this conglomerate survive without filing for Chapter 11?
Who Will Foot the Bill?
There are three clear problems that face PG&E financially: 1) they’ve maxed out their credit lines, 2) they owe billions to customers due to wildfires caused by faulty equipment, and 3) they owe billions of dollars in bonds that need to be paid back to investors. (On a side note, this means that creditors take equal priority to recouping their funds with those who have lost their homes. According to Bloomberg, “The utility company has $18 billion of bonds that are unsecured, meaning the debt would have equal priority to get repaid in a bankruptcy as the roughly $30 billion in potential liabilities that analysts have estimated from 2017 and 2018 California wildfires.”)
Another huge bill that the company must face concerns updating their equipment and safety practices to not only avoid future mass fires, but to also address goals such as carbon reduction and creating renewable energy. PG&E estimates that it will cost approximately $3 million per mile to relocate power lines underground and about $800,000 a mile to build new overhead lines. They have reportedly spent $300 million since 2012 to bury lines and approximately 25% are now underground.
With these expenses piling up, it’s no wonder that PG&E recently requested to increase transmission charges (the cost of implementing high-voltage lines that move power across large distances) up 9.5%.
So Will PG&E Go Bankrupt?
In September Governor Brown signed SB 901 into law. This bill, among other things, amended the Public Utilities Code to authorize the PUC, upon application by an electrical corporation, to issue financing orders to support the issuance of recovery bonds to finance costs, in excess of insurance proceeds, incurred, or that are expected to be incurred, by an electrical corporation, excluding fines and penalties, related to wildfires.
This means that catastrophic wildfires like the Camp Fire, while extremely costly to PG&E, are unlikely to lead to the utility declaring bankruptcy. Instead, the utility would ask the PUC for permission to issue bonds to cover the cost, which would likely be granted. This view was reinforced after the Camp Fire by the public statements by CPUC Chairman Michael Picker, who declared: “It’s not good policy to have utilities unable to finance the services and infrastructure the state of California needs. They have to have stability and economic support to get the dollars they need right now.”