By J.D. Morris
Pacific Gas and Electric Co. and its parent company followed through early Tuesday on their plans to seek bankruptcy protection because of the mounting toll they face from the past two seasons of devastating Northern California wildfires.
In legal filings, PG&E said the business wants to reorganize under Chapter 11 of the U.S. Bankruptcy Code because of the "actual and potential liabilities" of the company. Shares of parent company PG&E Corp. closed at $13.99, up 16.5 percent.
The court papers made official what PG&E told employees earlier this month due to a new California wildfire law that requires 15 days advance notice to workers before a change of control in the company, which the law defines to include filing for bankruptcy protection.
"The power and gas will stay on," PG&E wrote in a statement posted on its website. "We will continue to provide you with reliable electric and natural gas service, and that will not change as a result of this process. To be very clear, we are not 'going out of business,' and there will be no disruption in the services you expect from us."
PG&E Corp.'s filing listed $71.4 billion in assets and $51.7 billion in debt. Pacific Gas and Electric Co. accounted for almost all of those amounts, with its petition listing $71.2 billion in assets and $51.4 billion in debt.
Experts agreed the bankruptcy filing by California's largest utility won't affect its customers' ability to keep their lights on. But the process has potential to spur fundamental changes, such as a possible sale of the gas side of the business, as the company reorganizes. It could also eventually affect customer rates and delay or reduce the payments received by thousands of wildfire victims who have sued PG&E.
Gov. Gavin Newsom said PG&E's filing was the company's decision and does not deter his focus on "protecting the best interests of the people of California."
"My administration will continue working 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," Newsom said in a statement.
In the short term, the filing will place restrictions on PG&E's operations by putting the company under supervision of a bankruptcy court and limiting its ability to make any major decisions without the court's approval.
PG&E's interim CEO John Simon, the company's general counsel who stepped into the top role earlier this month following the resignation of Geisha Williams, told employees in an email Tuesday that the company expects the bankruptcy process to last about two years.
He stressed in the email, a copy of which was obtained by The Chronicle, that the 16 million people served by PG&E will continue receiving electricity and gas, and the company's workforce of approximately 24,000 will still be paid and receive health care benefits. He also said "there are bound to be surprises" as PG&E goes under supervision of the bankruptcy court.
"Throughout this process, our call to action is to further improve our operations and business practices so that we emerge from reorganization as a company that is positioned to serve our communities safely and reliably for many years to come," Simon wrote.
The bankuptcy proceedings opened Tuesday afternoon with a 75-minute hearing before U.S. Bankruptcy Judge Dennis Montali of San Francisco, who also presided over PG&E's 2001 bankruptcy. With every seat taken in his court and an overflow courtroom next door, Montali scheduled hearings for four days a month through April on PG&E's plans to reorganize and pay its debts and any competing plans submitted by wildfire victims and others with claims against the utility.
PG&E is planning a "smooth transition" into bankruptcy, with a filing that contains "nothing unusual except the numbers," attorney Tobias Keller told Montali.
The judge also scheduled a hearing Thursday to hear the utility's opening statement and short-term financing measures and any objections voiced by the U.S. bankruptcy trustee's office, an arm of the Justice Department.
The bankruptcy filing provoked a strong reaction from PG&E's largest union, IBEW Local 1245, which represents about 12,000 company employees. The union does not know what shape the company will take when it emerges from bankruptcy but indicated it opposed some of the major changes the process could produce, Tom Dalzell, the union's business manager, said in a statement.
"Parceling out the utility into smaller, weaker segments would unquestionably have a negative impact on the safety and stability of both gas and electric service, it would increase costs, and it would decelerate progress toward California's ambitious clean energy goals," Dalzell said in the statement. "Furthermore, selling or municipalizing some or all of PG&E's gas or electric transmission or distribution systems would not solve the overarching issue of climate change and the strict liability policies that have put PG&E and all other California utilities on an unsustainable trajectory."
PG&E has said its liability from 2017 and 2018 wildfires could exceed $30 billion, but that was before state investigators cleared the company of being responsible for one of the worst blazes, the Tubbs Fire, which devastated parts of Santa Rosa in 2017.
The California Department of Forestry and Fire Protection, or Cal Fire, issued a finding last week that said the wildfire was caused by privately controlled electrical equipment, not PG&E power lines.
Attorneys for fire victims said they can still argue PG&E was responsible for the Tubbs Fire and vowed to continue with their efforts. Cal Fire has said PG&E was responsible for a series of other fires that burned in Northern California in October 2017.
The most decisive wildfire problem for PG&E, however, has proved to be last year's Camp Fire, which killed 86 people and burned more than 18,800 buildings in Butte County, making it both the deadliest and most destructive fire in state history. PG&E has detailed two sources of malfunctioning equipment: a transmission tower near one suspected origin point for the fire and another distribution line in the area, fueling widespread speculation that the inferno will be blamed on the utility.
Shares of PG&E Corp. plummeted after the Camp Fire and took a nosedive after the company announced its plan to seek bankruptcy protection earlier this month.
The bankruptcy filing comes about 18 years after PG&E's utility subsidiary sought bankruptcy protection because of the early 2000s energy crisis. That case is still open, PG&E noted in its new filing. But the circumstances differ: PG&E's current financial problems stem from the future wildfire liability it's staring down, whereas the 2001 Chapter 11 filing was motivated by a more immediate cash flow problem caused by high electricity costs.
"It was quite a different situation, and it had nothing to do with liability," said Paul Patterson, an analyst with Glenrock Associates.
PG&E's dire financial straits today also involve more claims that the utility might be shown to be directly responsible for, allegedly by maintaining its equipment poorly, Patterson said.
Another significant difference is that the parent company is joining the utility in bankruptcy. In 2001, PG&E sought to keep its unregulated energy businesses separate from the regulated utility, but now, its utility is its primary business.
The need for PG&E's current bankruptcy filing had been questioned by some, including activists and some shareholders.
"We think that PG&E is being very irresponsible by filing for bankruptcy when it is financially solvent," said Mark Toney, executive director of The Utility Reform Network. "We really see the bankruptcy as a way for PG&E to try to duck its responsibilities and accountability for its criminal behavior."
PG&E has consistently said that the company viewed a Chapter 11 filing as the only viable path for the business.
Steve Malnight, the utility's senior vice president of energy supply and policy, said in an interview that the company faces a "massive potential liability" because of thousands of claims against it stemming from the 2017 and 2018 wildfires, with thousands more likely coming related to the Camp Fire.
That liability prompted multiple credit downgrades that limited PG&E's ability to access funding it needs to safely operate its system, Malnight said.
"That is something that we could not put at risk," he said.
The bankruptcy filing isn't the only wildfire-fueled obstacle in PG&E's path. The federal judge overseeing its probation from the 2010 San Bruno pipeline explosion has also proposed a sweeping fire prevention plan that PG&E has said is infeasible. A hearing is scheduled for Wednesday in San Francisco.
Chronicle staff writer Bob Egelko contributed to this report.
(c)2019 the San Francisco Chronicle