PG&E Chaos: CEO Departs, Bankruptcy Looms, Tens of Billions in Liabilities
On November 8, the same day that the worst wildfire in California history broke out in Butte County, about 150 miles northeast of San Francisco, northern California utility PG&E Corp. (NYSE: PCG) alerted the California Public Utilities Commission (CPUC) that it had experienced an incident that may have caused the fire. Since then, the company’s stock has plunged, its potential liabilities have soared and, finally, the company was forced to come to grips with reality.
CEO Geisha Williams announced Sunday that she was leaving the company and was replaced by general counsel, John Simon, while the utility searches for a permanent chief executive. Williams had been CEO since March 2017.
Monday morning the company filed documents with the U.S. Securities and Exchange Commission (SEC) stating that it is preparing to initiate a voluntary Chapter 11 bankruptcy reorganization. According to the announcement, PG&E plans to file its petitions on or about January 29. The company indicated it is seeking $5.5 billion in debtor-in-possession financing. In addition to the notice of its plan to file for bankruptcy, PG&E outlined its position regarding liability and possible payments to settle claims against the company. These are some massive numbers.
First, some background. In 2017, the state legislature agreed to allow the company to issue state-backed bonds to pay off claims that may have totaled as much as $17.3 billion from 2017 wildfires. The legislature also authorized PG&E to issue similar bonds in 2019, but 2018 was not included. In general, the legislation gives the state’s utility companies a way to recover some costs from wildfire damages, provided that the fire damage was not caused by the utility’s negligence.
Last week, however, the CPUC brought the hammer down. The agency issued its interpretation of the section of the Public Utilities Code related to the process for any utility to recover costs for liability payments such as the legislature authorized for PG&E’s 2017 wildfires. In essence, the CPUC has ruled that PG&E cannot issue bonds to recover its 2017 costs until it has paid all the claims relating to the fires, filed an application for recovery of those costs and received a CPUC ruling that those costs are “just and reasonable.” PG&E hasn’t the money to pay, it can’t recover costs until it does pay and even then the CPUC may deny its claims.
PG&E interpreted that decision to mean that the company will not be allowed to issue bonds to recover the costs in a timely manner and “believes it likely would take years to obtain authorization to securitize any amounts relating to the 2017 Northern California wildfires.” The utility also may be liable for other costs, such as fire suppression, evacuations, medical expenses and personal injury damages. If PG&E were to be found negligent, even more liability for damages might follow.
As of January 10, PG&E said it is aware of approximately 700 complaints on behalf of at least 3,600 plaintiffs as a result of the 2017 fires. Six of the lawsuits are seeking certification as class-actions. Some 41 insurance companies have filed subrogation complaints against the utility alleging negligence, among other things, related to the 2017 wildfires.
Also in this morning’s SEC filing, PG&E said it would skip an interest payment due January 15 of $21.6 million on its 5.40% senior notes due in 2040. The company claims to have just $1.5 billion in cash and cash equivalents and that it has drawn its final $35 million from some $3.3 billion in revolving credit facilities.
At last look, PG&E stock traded down some 54% at $8.10 in Monday’s premarket session, after closing at $17.59 on Friday. The stock’s 52-week range is $15.78 to $49.42, but the low end is sure to collapse once the bell rings.