PG&E Bankruptcy – Who Will Win or Lose?

By Anne Foreman

PG&E filed for bankruptcy on Jan. 29. What does this mean for California ratepayers? How will it affect California’s goal to have 100 percent of electricity come from renewable sources of energy (wind, solar and geothermal) by 2045? The short answer is “nobody knows yet.”

First, some background: PG&E already filed for bankruptcy in 2001 due to the Enron debacle. That settlement allowed PG&E to pass on about $7 billion in costs to California ratepayers via increased rates.

Now, PG&E has filed for bankruptcy again, this time because of the wildfires in 2017 and 2018 caused by its equipment. The company estimates it has $30 billion in wildfire claims. However, on Jan. 25, PG&E was cleared of liability for the Tubbs Fire in Sonoma County, which could have amounted to $8 billion in damages. The California Department of Forestry and Fire Protection found that private electrical equipment at a home was responsible for that fire, not PG&E.

Wild Fires Are Adding Up

In addition, the cause of the disastrous Camp Fire in Paradise that killed 86 people is still under investigation. It could be months more before officials reach a conclusion on that fire.

Even without liability for the Tubbs Fire and possibly without liability for the Camp Fire, PG&E estimates it is liable for tens of billions of dollars for other wildfires in 2017 and 2018. California officials say PG&E’s equipment caused at least 17 of 21 major fires in the state in 2017.

Is PG&E Approaching a Crossroads?

At the end of last September, the company’s assets exceeded its debt by about $20 billion and yet it claims that bankruptcy is its “only viable option.” PG&E is investor-owned and one has to wonder whose interests the company favors – its investors, or its ratepayers. PG&E doesn’t pay dividends, but its investors have “equity value” so anything that hurts its stock value hurts investors.

High Voltage Transmission Lines

Although investor-owned, PG&E is regulated by the California Public Utilities Commission. The Commission has proposed some interesting options: One is to break up PG&E into smaller companies; another is to convert PG&E into a public utility.

Some might cry “socialism” at this proposal, but, in my opinion, the safety and wellbeing of the residents is paramount and should be a higher priority than the interests of investors. A crucial need like electricity shouldn’t be hostage to the profit motive. I think converting PG&E into a public utility deserves serious consideration.

New California Governor Gavin Newsom has a vacancy to fill on the commission. He could make his appointee its president. So doing, he potentially determining whether the agency will tilt toward consumers or the utilities in its approach. In any case, PG&E will need the Commission’s approval for any bankruptcy plan that would impose new costs on ratepayers.

Bankruptcy’s Potential Losers

So, who are potential losers in this bankruptcy? Solar companies that supply electricity to PG&E are nervous because the bankruptcy could allow PG&E to renegotiate their contracts, paying them less than the original contracts stipulated. According to a California Solar & Storage Association spokesperson, a number of solar companies are in discussions with Newsom, stating their concerns about losing out in the bankruptcy settlement.

Other potential losers in the bankruptcy are PG&E’s workers, who could face pension losses, and, of course, ratepayers who could see their electricity bills skyrocket. Wildfire claimants may not get what they are owed, either.

Bankruptcy’s Potential Winners

On the winners’ side, PG&E has asked the bankruptcy court to approve roughly $130 million of 2018 bonus payments to employees, who stand to get $5,000 to $90,000 each. This does not include the bonuses for 12 senior PG&E executives. The company has not yet asked the court to approve payments to executives. Yet it noted that senior officers are typically eligible to receive bonuses in bankruptcy.

Also benefitting will be the lawyers, bankers and consultants who will work on the bankruptcy execution. PG&E’s last bankruptcy in 2001 cost more than $400 million in fees. The current case could cost a lot more, because lawyers’ hourly rates have gone up a lot since then.

Looking Forward

And on top of everything, climate change is here.

Rising global temperatures, driven by man-made greenhouse gas emissions are drying out California’s forests. In the future, wildfires will be even more intense and long-burning. Droughts, heat waves, rising seas and fiercer storms will put more stress on PG&E’s infrastructure. Undergrounding power lines, cutting back trees from power lines, installing insulated wiring, replacing aging equipment – all these mitigation measures cost money.

How the bankruptcy plays out will be a crucial test for Newsom. He promised to “ensure Californians have access to safe, reliable and affordable service.”  At the same time, he’s pledged continuing “forward progress on our climate change goals.”  Let’s hope he succeeds. So much depends on it.

Courtesy of Rossmoor News Feb. 13, 2019.  Email Anne Foreman at: anneforeman60@gmail.com

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