By Russell Gold, Sara Randazzo and Rebecca Smith
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 16, 2019).
PG&E Corp.'s plan to file for bankruptcy protection has
enormous repercussions for everyone from the homeowners suing the
utility for California wildfire damages to the companies that
furnish it with green energy.
California's largest utility said Monday it was preparing to
file for Chapter 11 protection before the end of the month as it
faces more than $30 billion in potential liability costs related to
its role in sparking wildfires in recent years. Electricity and
natural gas would continue to flow to homes and businesses,
PG&E said.
But a bankruptcy process would complicate attempts to recover
wildfire damages and likely affect the state's plans to reduce
carbon emissions, according to lawyers, legislators and energy and
bankruptcy experts.
The more than 750 civil suits brought by thousands of homeowners
and insurers suing PG&E over wildfire damages would be
immediately halted and resolved in a bankruptcy proceeding along
with other claims.
Meanwhile some of the long-term contracts PG&E struck to buy
electricity from wholesale power providers could be dissolved in a
bankruptcy. Many of the contracts to buy power from wind and solar
farms are well above current market rates because PG&E was
among the first utilities to buy large quantities of green power,
when it was far more costly than it is today.
PG&E declined to comment for this article.
PG&E has $34.5 billion worth of renewable energy contracts
for electricity deliveries between now and 2043, according to a
filing with the Federal Energy Regulatory Commission. In 2017, it
said it procured about $3.3 billion worth of electricity, mostly
wind and solar energy, and related services from Consolidated
Edison Inc., NextEra Energy Inc. and other suppliers.
ConEd said it was monitoring PG&E developments. NextEra
declined to comment.
Jan Smutny-Jones, head of the Independent Energy Producers
Association, a California trade group that represents power
suppliers, said he expects a significant percentage of PG&E's
renewable energy contracts could be torn up because they are
expensive. He expressed frustration with California's response to
the crisis.
"Basically PG&E is lying on the ground clutching its chest
and the regulator is saying, we'll figure out what's wrong in a
proceeding," he said.
Two renewable energy projects have already had their debt
ratings downgraded in recent weeks because they rely on PG&E
for the bulk of their revenues, including Topaz Solar, owned by
Berkshire Hathaway Inc.
"Maintaining credit-worthy California purchasers for renewable
projects is important to meeting the state's renewable goals," said
Berkshire Hathaway Energy, its utility unit.
California Gov. Gavin Newsom urged PG&E to honor its
contracts with power providers even in bankruptcy. The impending
PG&E filing is emerging as the first major challenge for the
new Democratic governor, who took office this month.
"We would like to see it avoided, but we are not naive, and it
is not at all costs," he told reporters regarding a PG&E
bankruptcy Monday.
PG&E's announcement that it is planning for bankruptcy came
hours after Chief Executive Geisha Williams said she was stepping
down. Shares plummeted 52.4% Monday to close at $8.38, down 82.9%
since the middle of October.
That shares didn't fall further is a sign that some investors
believe there is a chance of a political deal that would preserve
some value for stockholders. Under a new state law, PG&E had to
provide a 15-day notice before filing for bankruptcy protection. So
PG&E's announcement starts the clock on a period during which
politicians, regulators and the company can make a last-ditch
attempt to find a solution outside of bankruptcy court.
However, several state lawmakers said that there was little
appetite in Sacramento for a financial rescue. Public pressure has
been building over the past few weeks against any sort of bailout.
PG&E said Monday that it had concluded a bankruptcy filing was
its only real alternative because state rescue efforts would likely
take years, and it was running out of time due to deteriorating
finances.
State Sen. Bill Dodd, who sponsored legislation that allows
PG&E to pass along some of the costs of 2017 wildfires to
utility ratepayers, said there likely won't be any similar bills to
help the company deal with fallout from the 2018 fires, adding that
the costs were just too large.
"Moving forward, our eye is going to be focused on making sure
the victims aren't victimized yet again and that ratepayers aren't
crushed," he said.
California fire investigators have determined that PG&E
power lines sparked 18 wildfires in October 2017 that burned nearly
200,000 acres, destroyed 3,256 structures and killed 22 people. The
state is investigating whether a PG&E high-voltage transmission
line started last year's Camp Fire, which killed 86 people in
November, making it the deadliest fire in state history.
For plaintiffs suing PG&E, resolving the litigation through
bankruptcy rather than the traditional court process has pros and
cons, experts said. Wildfire victims should have equal priority to
subsidiary bondholders in a bankruptcy.
Money could be paid out faster than through a drawn-out
litigation process, but "the bargaining power they have by suing
will be greatly diminished," said Jared Ellias, a law professor at
University of California Hastings College of the Law in San
Francisco.
James Frantz, a California attorney representing around 2,000
wildfire victims, said he was unconcerned about resolving the
claims through a bankruptcy. Mike Danko, an attorney with about
2,000 other clients affected by wildfires, took a dimmer view.
"They want to avoid compensating the victims," Mr. Danko said of
PG&E.
--Katherine Blunt, Alejandro Lazo and Nicole Friedman
contributed to this article.
Write to Russell Gold at russell.gold@wsj.com, Sara Randazzo at
sara.randazzo@wsj.com and Rebecca Smith at
rebecca.smith@wsj.com
(END) Dow Jones Newswires
January 16, 2019 02:47 ET (07:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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