The California utility’s bankruptcy filing sets up a complicated legal case that could raise electricity rates and hurt power suppliers while generating hundreds of millions in lawyers’ fees.Pacific Gas and Electric’s bankruptcy filing sets up a complicated legal case. Some investors who own the company’s stock have argued that the utility does not need bankruptcy protection to solve its financial problems.CreditRichard Drew/Associated Press
By Peter Eavis
Facing tens of billions of dollars in wildfire liabilities, Pacific Gas and Electric on Tuesday filed for bankruptcy protection, a step that the company has said was its “only viable option.” But some PG&E investors, elected leaders in its home state of California and public interest groups contend that bankruptcy is not needed and will hurt millions of ratepayers and anybody who owns shares in the utility or does business with it.
That fundamental disagreement about the company’s financial healthis one of the main reasons the utility’s bankruptcy case could drag on for months. The filing will create uncertainty for the company’s creditors and people who have lost homes and loved ones to fires that were started by PG&E’s equipment and are seeking compensation from the company. The case could also cost the company hundreds of millions of dollars in fees, to Wall Street and white-shoe law firms.
PG&E’s bankruptcy could have consequences far beyond its immediate winners and losers. The bankruptcy could shape California’s response to climate change and the threat of catastrophic wildfires.
Why did PG&E file for bankruptcy protection?
At first glance, PG&E appears to be solvent. At the end of September, the company’s assets exceeded its debt by about $20 billion. What is at dispute is just how much the company owes for starting wildfires in 2017 and 2018. The utility says it could be on the hook for $30 billion.
But right now, investors seem to be betting that PG&E can go through bankruptcy, meet wildfire claims and still have money left over for shareholders. That is why PG&E’s stock price closed up more than 16 percent on Tuesday afternoon, giving the company a market value of more than $7 billion. Bankrupt companies typically have a negligible market value.
And investors may be optimistic because they believe PG&E will end up paying substantially less than $30 billion in wildfire claims. One reason for that outlook is that the California Department of Forestry and Fire Protection concluded last week that PG&E equipment was not at fault for the Tubbs Fire, which killed 22 people and destroyed over 5,600 buildings. Had it been found responsible, the company could have been liable for $8 billion in damages.
Bankruptcy could also help ease the financial pressure on PG&E. By delaying some payments, and taking on new loans, the company hopes to avoid running low on cash and not being able to afford improvements that reduce the risk of future fires. That is because loans a company takes on while it is in bankruptcy court are typically paid before the company’s other obligations.
Originally posted 2019-01-30 19:15:32.