A series of devastating wildfires that killed more than 100 people and scorched hundreds of thousands of acres in California over the course of two years just brought one of the nation’s largest utilities to its knees.
PG&E, California’s biggest power company, on Tuesday filed for Chapter 11 bankruptcy in Northern California bankruptcy court as investigators probe whether its equipment ignited the deadliest fire in state history. The San Francisco company listed more than $50 billion in estimated liabilities. A Chapter 11 filing allows a company to keep operating while it works out a plan to turn the business around and pay off creditors.
California’s wildfires have in the past saddled utilities with millions of dollars in damages, but never have the blazes exacted such a huge financial toll from a company - creating one of the country’s largest utility bankruptcies of all time.
Since November’s camp fire, which destroyed the town of Paradise, PG&E has seen about three-fourths of its market value wiped out, its chief executive leave, its bonds plunge to junk status and estimates of its fire liabilities swell to more than $30bn.
The only other time the company ever faced such dire financial straits was during the 2001 energy crisis when it was forced to place its utility unit in bankruptcy protection.
The utility giant’s financial crisis had some of the biggest names in the investment world working up last-minute financing packages that would rescue the company from insolvency to no avail. A consortium including Paul Singer’s Elliott Management was said to have sent a proposal to PG&E backed by $4bn of bonds that could convert into shares. At least one other group that included Ken Griffin’s Citadel and Leon Black’s Apollo Global Management was said to be pitching a rival plan.
PG&E’s demise serves to underscore the increasing vulnerability utilities face to natural disasters such as wildfires and hurricanes that are becoming more extreme. That’s especially the case in California, where state law holds utilities liable for damages even if they aren’t found to be negligent.
While the company’s been cleared of fault for the deadliest of the wildfires that devastated California’s wine country in 2017, investigators have tied PG&E’s equipment to more than a dozen of the other fires and are looking at its power lines as a possible ignition source for the Camp fire, which killed 86 people.
State officials including governor Gavin Newsom had said it would be in the state’s best interest to keep the utility healthy and financially viable. PG&E is considered a linchpin in helping achieve California’s ambitious climate goal of getting all its electricity from carbon-free sources by 2045. At the same time, Mr Newsom chose not to take measures drastic enough to avoid a bankruptcy filing, and regulators actually began a process to evaluate whether to break up or take over the utility.
A bankruptcy will probably result in higher bills for customers because it will be more expensive for PG&E to borrow the money it needs to make infrastructure investments and keep the lights on. The company supplies natural gas and electricity to about 16 million people in northern and central California. PG&E said January 22 it expects the bankruptcy to take about two years to resolve and arranged $5.5bn to fund its operations during the process.
“With utilities, bankruptcies take multiple years,” said Kit Konolige, an analyst for Bloomberg Intelligence. “There is no such thing as a quick utility bankruptcy. And it creates a lot of uncertainty for everybody involved.”