PG&E Seeking $14 Billion in Restructuring Plan

Pacific Gas & Electric (PG&E) reportedly will soon file a restructuring plan that includes more than $14 billion in equity commitments, as the utility looks to recover from billions of dollars in liabilities tied to its role in California wildfires that caused the company to file the largest utility bankruptcy in U.S. history.

Bloomberg on September 5 reported that PG&E’s plan, due to be filed September 9, will use a combination of debt and equity to cover the claims from wildfires that state officials determined were caused by the utility’s equipment. PG&E has not provided an estimate for those claims, though Bloomberg reported that the company has assurances from financial groups that it could raise as much as $40 billion in debt and equity to cover the wildfire claims and other bankruptcy-related costs.

The report said PG&E’s plan will commit to settling fire claims, continuing current power purchase agreements (PPAs), and exiting bankruptcy without increasing electricity rates. The company wants to exit bankruptcy by June 30, 2020.

PG&E recently asked a California judge to support the utility’s restructuring of PPAs that would allow it to cut contract prices and save PG&E about $20 million. That filing came just weeks after California Gov. Gavin Newsom signed into law a measure to create a $21 billion state wildfire fund, designed to help the state’s three investor-owned utilities pay for damages resulting from wildfires in the state.

Allan Marks, a partner in the Los Angeles office of global law firm Milbank LLP, working in Milbank’s Project, Energy and Infrastructure Finance practice, told POWER, “In general, [the wildfire fund] is designed to provide liquidity if utilities aren’t able to handle wildfire claims without becoming insolvent.”

Reorganization a Work in Progress

PG&E, based in San Francisco, in a statement Thursday said, “PG&E has made significant progress in further refining a viable, fair, and comprehensive plan of reorganization” to pay wildfire claims and protect ratepayers. The statement reiterated that PG&E plans to file a reorganization plan no later than Monday.

PG&E is California’s largest electric utility. It filed for Chapter 11 protection in January, saying its liabilities for damages from a series of wildfires in 2017 and 2018 could top $30 billion. (Read more about how PG&E’s bankruptcy is a unique situation, and whether utilities should be responsible for wildfire damages.)

The company wants to come up with its own plan for reorganization to at least partly protect current shareholders. Bondholders for PG&E, including Pacific Investment Management Co. and Elliott Management Corp., have said they have their own plans, which reportedly would mostly wipe out the stake of current shareholders.

As part of its restructuring, PG&E hired former Tennessee Valley Authority executive William “Bill” Johnson as its new CEO earlier this year, replacing former CEO Geisha Williams, who was ousted from her role two weeks before the company’s bankruptcy filing.

Exact Liabilities Are Unknown

PG&E has tried to complete a reorganization plan despite the fact that a judge outside of the bankruptcy process has taken on the role of estimating the utility’s costs to settle wildfire claims. The company will not know its actual liabilities until that process is finished. PG&E has said it will secure funding to pay claims authorized by the court.

The new California wildfire fund could help in that regard; it is designed for utilities to recover uninsured claims. “The utilities must still have insurance,” said Marks. He noted that “$10.5 billion is coming from the state … at some point it’s passed back to ratepayers. The second $10.5 billion is coming from the three utilities, they’ve all opted in.” The bill created conditions for PG&E to participate in the fund, including setting a June 30, 2020, deadline for the utility to have a confirmed reorganization plan.

“For the three large investor-owned utilities, with respect to them, this provides a pool of pretty significant capital for claims, losses, and infrastructure upgrades,” said Marks. “That is what the money is for … to get safety certification, encourage or incentivize safety, spend it prudently for wildfire risk and prevention. It would enable the utilities to tap this fund and not have to pay it back.”

And PG&E also was seeking financial relief with more legislation, though that bill has been put on hold until at least next year. The company and its shareholders lobbied state lawmakers to pass a bond measure that would allow for the issuance of as much as $20 billion in debt, with PG&E seeing the measure as a way to raise money more quickly to pay wildfire claims. Creditors, though, are against the plan; they say it would only protect the company’s shareholders.

The bill’s sponsor, Republican Assemblyman Chad Mayes, on September 6 said he would shelve the legislation for this year, saying he expects to make the proposal a “two-year bill” and bring it back up for consideration next year.

— Darrell Proctor is a POWER associate editor (@DarrellProctor1, @POWERmagazine).

(Note: This article has been updated with the information that the bond measure sponsored by Chad Mayes was shelved for this year.)