PG&E lost half its value on Monday after the troubled California utility, which faces huge liabilities over the state's deadly wildfires, said it would file for bankruptcy protection.Richard Drew/The Associated Press
One of the largest public utilities in the United States is planning to file for bankruptcy protection after being hit by soaring liabilities from years of deadly California wildfires.
PG&E Corp., California’s largest investor-owned utility company, said Monday that it will file for Chapter 11 by Jan. 29 and warned that it could be on the hook for as much as US$30-billion in costs related to wildfires in 2017 and 2018.
Filing for bankruptcy protection was “ultimately the only viable option to restore PG&E’s financial stability to fund continuing operations and provide safe service to customers,” the company said in filings with the Securities and Exchange Commission.
The news, which came hours after chief executive Geisha Williams abruptly stepped down Sunday night, sent PG&E’s shares plunging 50 per cent Monday.
The utility’s stock price is down more than 80 per cent since November, driven by fears that PG&E equipment was responsible for the wildfires that raged through Paradise, Calif., killing 86 people.
The Canada Pension Plan Investment Board is the largest of several Canadian investors in PG&E, which also include the Caisse de dépôt et placement du Québec and British Columbia Investment Management Corp.
PG&E also negotiated a US$350-million loan last April with Royal Bank of Canada and two Japanese financial institutions that is “payable immediately” in the event of a bankruptcy or insolvency, according to securities filings.
PG&E delivers gas and electricity to 16 million residents in Northern and Central California. The utility has faced intense criticism and regular public protests at its San Francisco headquarters over the role its equipment has played in a series of wildfires that have devastated California over the past two years.
The company said it is facing almost 50 lawsuits related to last November’s Camp Fire in Paradise, along with hundreds of lawsuits from fires in Northern and Southern California in 2017. State fire officials pointed to damage to PG&E poles and power lines as the cause of more than a dozen fires that year.
The utility’s deepening financial crisis is likely to be the first major political test for Governor Gavin Newsom, who took office this month in part on a campaign promise to tackle the rising threat of wildfires.
Mr. Newsom said in a statement Monday that he planned to work “on 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."
However, analysts warned the bankruptcy filing will likely lead to higher costs for consumers unless the state government is able to quickly restore investor confidence. “In the end, California regulators and politicians will have to balance PG&E’s financial health with customer costs,” wrote Travis Miller, an energy and utilities strategist for Morningstar.
The state legislature cleared the way for PG&E to securitize debts related to deadly wildfires in 2017, but that does not include the costs of last year’s blazes.
The California Public Utilities Commission began last month to look at a proposal to split PG&E into smaller, regional subsidiaries as part of a long-running investigation into the company’s safety culture.
California’s power companies have argued that climate change and urban development in fire-prone wilderness areas should shoulder much of the blame for the increasing number of fires in the state.
They have fought unsuccessfully for changes to a legal doctrine known as inverse condemnation, which holds utilities responsible for fires involving their equipment whether or not they were negligent.
Some financial analysts accused California of placing too much financial responsibility for fires on the shoulders of its utilities. “The price of having electric service in the state is the periodic ignition of fires, even for a well-run, law-adhering system,” J.P. Morgan analysts Christopher Turnure and Richard W. Sunderland wrote in a note to investors.
They warned that allowing the utility’s finances to collapse could threaten some of California’s most ambitious plans, including a goal to shift the state entirely to green energy by 2024 and a long-standing push to create an electrified high-speed rail network.
“Leaving utilities exposed to collapse creates the seeds for another … fire event years from now, and importantly, ends any chance of an environmental energy and transportation evolution so dear to the state,” they wrote.