Tens of billions of dollars in liabilities from California’s devastating wildfires drove the state’s biggest power utility toward insolvency this week, as Pacific Gas & Electric announced it intended to declare bankruptcy. The decision could affect billions of dollars in utility programs to cut carbon and shift toward energy efficiency, electric vehicles, and renewables.
In a filing Monday with the U.S. Securities and Exchange Commission, the mammoth utility said bankruptcy was “ultimately the only viable option to restore PG&E’s financial stability to fund ongoing operations and provide safe service to customers.”
The company cited “the significant increase in wildfire risk resulting from climate change” as a reason to declare bankruptcy, rather than considering other financial alternatives. PG&E “has been blamed for dozens of major California fires that have started when trees have fallen on power lines, sending sparks onto dry grass or other trees,” the Washington Post reports.
The news of the filing drove the company’s shares down 52% Monday, to US$8.38.
The last two years of wildfires in California, “which have killed dozens of people and destroyed thousands of homes, have led to a surge in insurance claims,” the Post explains. “PG&E estimates that it could be held liable for more than $30 billion, according to the SEC filing, not including potential punitive damages, fines, or damages tied to future claims. The company’s wildfire insurance for 2018 was $1.4 billion.”
Reorganizing PG&E “promises to be more complex and political than most bankruptcies, pitting fire victims, ratepayers, bankers, insurance companies, and renewable energy providers against one another,” the Post adds. The casualties could include billions of dollars in state decarbonization programs.
“PG&E is the state’s largest investor in energy efficiency and electric vehicle infrastructure alone, with annual commitments well in excess of $1 billion,” NRDC energy efficiency specialist Ralph Cavanagh told the paper. “Other threatened initiatives involve grid upgrades, small-scale ‘distributed’ resources, and technology innovation.”
Bankruptcy proceedings could also affect PG&E contracts with renewable energy providers. “Many of the power contracts are above market price,” said S&P Global utilities analyst Gabe Grosberg, and renegotiating those deals “is something the bankruptcy judge will take a look at.”
In the days leading up to the SEC filing, PG&E CEO Geisha Williams and three other senior executives resigned, following weeks of harsh criticism of the utility’s corporate culture, including its “safety culture”.
“The report of PG&E’s likely bankruptcy is deeply concerning news for the state, fire victims, and ratepayers,” California State Assembly member and one-time PG&E ally Chris Holden. “We don’t want to see the victims victimized again.” Governor Gavin Newsom said he would seek “a solution that ensures consumers have access to safe, affordable, and reliable service, fire victims are treated fairly, and California can continue to make progress toward our climate goals,” adding that PG&E should “honour promises made to energy suppliers and to our community.”
But those suppliers and communities “will join others with unsecured claims,” the Post notes. “Much of the power over how much they receive depends on how much higher the California Public Utilities Commission is willing to raise rates, PG&E’s revenue source.”
Cavanagh said driving PG&E into bankruptcy wasn’t the way to address the utility’s problems. “All Californians sympathize deeply with the victims of our recent catastrophes, which caused dozens of deaths and wreaked unprecedented destruction across the state,” he told the Post. “But victims’ interests won’t be served by pushing utilities into bankruptcy, converting wildfire sufferers into one more class of frustrated creditors pursuing inadequate funds.”