What does PG&E’s bankruptcy mean for wildfire victims?

Pacific Gas & Electric Corp. filed for bankruptcy protection Tuesday in a move that could reduce the size of any payouts to fire victims.|

Under the weight of mounting liabilities tied to catastrophic wildfires, Pacific Gas & Electric Co. sought bankruptcy protection Tuesday to help the utility maintain gas and electric services for its 16 million customers and keep the company’s employees on the job.

The move, however, sets up an uncertain future for thousands of people suing the utility in the wake of deadly and devastating wildfires that have swept across Northern California over the past two years, including 17 infernos in 2017 the state has said were sparked by PG&E equipment.

Though the state last week cleared PG&E of blame for starting the Tubbs fire in Sonoma and Napa counties, many who lost homes here said they still held the utility responsible, making Tuesday’s bankruptcy another unwelcome blow. They cited the utility’s documented failures to maintain its power grid and prepare for significant weather-related events.

“I’m disgusted,” said Eric Edenfield, who lost his Coffey Park home in the Tubbs fire and then sued PG&E for damage to his property. “Who is looking out for us?”

The utility listed assets of $71.2 billion and debts of ?$51.4 billion in its bankruptcy petition. Two weeks ago when it signaled bankruptcy was forthcoming, PG&E had estimated wildfire liabilities at $30 billion, but it was unclear if that was included as part of the debts listed in Tuesday’s filing.

The utility’s legal maneuver puts a hold on all civil lawsuits against PG&E, while the San Francisco-based company undergoes a reorganization process that could take two years. Ultimately, the legal claims thousands of wildfire victims have leveled against the utility in state court could be settled through federal bankruptcy court.

“This is enormous. It’s one of the biggest bankruptcy cases of all time,” said Jared Ellias, an associate professor of law and bankruptcy expert at UC Hastings in San Francisco.

PG&E’s interim CEO and general counsel John Simon, who took the helm during a recent shakeup of the company’s top executives, said this legal step would ensure customers see no power interruptions while the company undergoes a transformation “to create a more sustainable foundation for the delivery of safe, reliable and affordable service in the years ahead.”

“The power and gas will stay on,” Simon said in a written message to the utility’s 16 million customers.

The company provides electric and gas services across 70,000 square miles of Northern and Central California and employs 24,000 people, including more than 700 in Sonoma County.

The company said the bankruptcy process will allow it to continue spending the money it needs to improve the safety of its electrical grid, which has been blamed by the state’s fire service for igniting 17 of the 18 major Northern California fires in 2017.

“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,” Simon said in a separate statement.

Tuesday’s petition to reorganize under Chapter 11 in U.S. Bankruptcy Court in San Francisco came two weeks after PG&E disclosed its plans as an effort to address a mountain of liabilities, including those tied to legal cases stemming from the 2017 and 2018 wildfires.

The utility was required to announce its plans in advance because of a new California law passed last year that created a way for PG&E to offset some of its wildfire liabilities through a bond program covered over time by customers.

In response to PG&E’s bankruptcy filing, Gov. Gavin Newsom said his administration would work to “ensure that Californians have access to safe, reliable and affordable service, that victims and employees are treated fairly, and that California continues to make forward progress on our climate change goals.”

The company said it secured a $5.5 billion loan from a group of banks to ensure it can operate its business on a daily basis while its debt reorganization moves through bankruptcy court.

The high-stakes case will be overseen by U.S. Bankruptcy Judge Dennis Montali, a veteran member of the bench who oversaw PG&E’s bankruptcy and restructuring in 2001 after California’s energy crisis. That case is not yet closed.

The new bankruptcy petition is more extensive with a longer list of creditors - a number PG&E said Tuesday was between 50,000 and 100,000 - including bondholders, credit holders, shareholders, employees, state regulators and wildfire victims.

Bankruptcy gives the company several legal tools to manage its growing debts, starting with the bank loan to stabilize the business operations. From there, the court will begin evaluating the company’s debts. Wildfire victims will have a voice in the proceedings through creditors’ committees that also will include all the other stakeholders.

The bankruptcy judge will have wide-ranging power to make judgment calls on everything from allowing the company to borrow more money to adjudicating wildfire claims, Ellias said.

“We can expect that the bankruptcy judge here is going to want to wield this power judiciously and aggressively to make sure PG&E comes out better,” Ellias said.

Out of the gate Tuesday, PG&E asked the judge to allow the company to back out of contracts it had with two green energy companies, NextEra Energy and Exelon.

The utility also asked the court to approve about ?$130 million in bonus payments to employees - a figure that doesn’t include a likely future request for bonuses for 12 senior PG&E executives.

One consequence of bankruptcy is that it will siphon money from the utility’s creditors - including wildfire victims - because the company will be obligated to pay attorneys’ fees for all parties involved, said Mike Kelly, one of the three main lawyers a state judge put in charge of managing the lawsuits filed by California wildfire victims and local municipalities including Santa Rosa and Sonoma County.

Plaintiffs in the individual wildfire cases were working toward settlements with PG&E and this action by the company likely will mean people who lost their homes, lost family members or suffered significant injuries could receive far less than they would in a civil setting.

“First and foremost is it means their recoveries will be delayed,” Kelly said. “This is fundamentally a litigation tactic.”

PG&E’s bankruptcy filing comes less than three months after the November Camp fire in Butte County, which destroyed 15,000 homes in and around the Sierra foothill community of Paradise and killed 86 people.

The Camp fire’s cause is still under investigation, but early reports suggested power equipment issues may have started the devastating blaze - the state’s most destructive and deadly fire. It surpassed the ?Tubbs fire that erupted near Calistoga in October 2017 and burned into Santa Rosa, killing ?22 people and destroying 5,636 structures, including 4,651 homes.

Legislators Tuesday were harsh in their rebuke of PG&E’s Chapter 11 petition, in light of the ongoing needs of fire victims, utility customers, as well as a company track record, they said, that has not promoted safety above all else. They did not know, however, how to move forward with potential laws until more details are available on how the bankruptcy judge may manage PG&E’s debts.

“This process, bankruptcy, is going to take time,” state Sen. Bill Dodd, D-Napa, said. “I think there’s plenty of time for the Legislature to be working on three things: safety, reliability and cost-effectiveness of the grid going forward. We can look to help victims once we know just how big and bad the problem is.”

Dodd rejected the notion that any state legislation would have prevented PG&E’s decision to seek bankruptcy protection. Beyond the increasing liabilities - estimated at $30 billion from the last two years of wildfires alone - it was the company’s inability to cover the cost of daily operations that contributed to seeking Chapter 11 protection from creditors Tuesday, he said.

A union representing roughly 12,000 PG&E employees urged state leaders to work with the company, its unions and regulators to ensure the utility remains operational and to avoid any breakup of the company. The biggest threat to PG&E is a California law holding utilities responsible for damage caused by its equipment regardless of fault, said Tom Dalzell, the union’s business manager.

In investor reaction to the bankruptcy filing, PG&E’s stock increased by 16 percent, closing Tuesday at $13.99 per share on the New York Stock Exchange.

Andy Smith, utilities analyst with Edward Jones Investments in St. Louis, Missouri, said PG&E’s bankruptcy was the first he could recall for a major utility company in at least seven years. He could not account for why the stock price would rise on a day of such company turmoil and called share purchases based strictly on investor speculation.

“No one knows what the financial liabilities will be,” Smith said. “At this point, it’s people speculating that there will still be equity value at the end of the process. There’s still a lot of uncertainty and a lot up in the air financially. What happens, your guess is as good as mine.”

Meanwhile, New York-based hedge fund BlueMountain Capital Management, a major PG&E stockholder, persisted in questioning the company’s need to file bankruptcy. In a statement, BlueMountain said it was “deeply disappointed” the utility has ignored calls “to abandon its reckless and irresponsible plan” seeking Chapter 11 protection.

“Today’s filing is the latest example of how the Board (of Directors) continues to fail the company, wildfire victims, customers, employees, creditors, shareholders and the people of California,” the statement said. “BlueMountain believes a new board is in the best interest of all PG&E stakeholders.”

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