Facing mounting litigation related to devastating wildfires, PG&E Corp. and primary operating subsidiary Pacific Gas and Electric Co., the largest combination natural gas and electricity utility in California, on Tuesday sought protection under Chapter 11 of the U.S. Bankruptcy Code.
In conjunction with the filings, PG&E filed a motion seeking interim and final approval to enter into a $5.5 billion agreement for debtor-in-possession (DIP) financing with J.P. Morgan, Bank of America, Barclays, Citi, BNP Paribas, Credit Suisse, Goldman Sachs, MUFG Union Bank and Wells Fargo acting as joint lead arrangers.
The DIP financing, when approved, would provide San Francisco-based PG&E with capital to ensure “essential maintenance and continued investments in safety and reliability for the expected duration of the Chapter 11 cases,” it said in the filing with the U.S. Bankruptcy Court for the Northern District of California.
In an emergency meeting late Monday, the California Public Utilities Commission (CPUC) paved the way for PG&E to obtain the loans. CPUC President Michael Picker warned that without regulatory support for PG&E, critical infrastructure, including hospitals and public facilities, could face power outages. “This commission faces a substantial risk that the public health and safety of California will be severely impaired, with potentially catastrophic results,” he said.
"Our most important responsibility is and must be safety, and that remains our focus,” PG&E’s interim CEO John R. Simon said. He previously served as general counsel. “Throughout this process, we are fully committed to enhancing our wildfire safety efforts, as well as helping restoration and rebuilding efforts across the communities impacted by the devastating Northern California wildfires.
“We also intend to work together with our customers, employees and other stakeholders to create a more sustainable foundation for the delivery of safe, reliable and affordable service in the years ahead. To be clear, we have heard the calls for change and we are determined to take action throughout this process to build the energy system our customers want and deserve.”
Through the voluntary bankruptcy process, Simon said PG&E would “prioritize what matters most to our customers and the communities we serve -- safety and reliability. We believe that this process will make sure that we have sufficient liquidity to serve our customers and support our operations and obligations.”
He noted that the corporation’s 24,000 employees remain focused on delivering “safe and reliable natural gas and electric service for the 16 million people across our service area.”
PG&E said it would remain committed to supporting an “orderly, fair and expeditious resolution of its liabilities resulting from the 2017 and 2018 wildfires” and would continue assisting customers and communities impacted by wildfires in Northern California.
As part of the filings, PG&E also filed various motions with the court in support of its reorganization, including requesting authorization to continue paying employee wages and providing healthcare and other benefits.
In addition, PG&E asked for authority to continue existing customer programs, including low income support, energy efficiency and other programs supporting customer adoption of renewable energy. As well, the company “intends to pay suppliers in full under normal terms for goods and services” beyond Tuesday’s filing.
To help support the company through the reorganization process, PG&E has appointed James A. Mesterharm, a managing director at AlixPartners LLP and an authorized representative of AP Services LLC, to serve as chief restructuring officer. In addition, PG&E appointed John Boken, also an AlixPartners managing director, to serve as deputy chief restructuring officer.
PG&E last week was absolved of blame in the 2017 Tubbs wildfireby the California Department of Forestry and Fire Protection (CalFire). The Sonoma County fire “was caused by a private electrical system adjacent to a residential structure,” CalFire officials said. Investigators “did not identify any violations of state law...related to the cause of this fire.” The fire, up until the Camp Fire last year, was considered the most destructivein California history.
“The comprehensive analysis underlying PG&E's decision to pursue reorganization under Chapter 11, conducted with the assistance of independent legal and financial advisers, took into account PG&E's longstanding belief based on available evidence that its equipment did not cause the Tubbs fire,” PG&E said.
“As such, PG&E continues to believe that the Chapter 11 process will facilitate the orderly, fair and expeditious resolution of the liabilities that have arisen and will continue to arise in connection with the 2017 and 2018 Northern California wildfires.”
In an open letter, major shareholder BlueMountain Capital Management LLC called the bankruptcy “deeply disappointing.” The fund, which controls more than 11 million shares of common stock, earlier in January called for ousting the board.
“We simply cannot recall a situation where such a valuable company filed for bankruptcy with such blatant questions about the necessity of doing so,” BlueMountain leadership wrote. The combination utility has “ample liquidity to operate” and its liability remains “uncertain and contestable.”
The bankruptcy petition “is the latest example of how the board continues to fail the company, wildfire victims, customers, employees, creditors, shareholders and the people of California,” BlueMountain stated. “We urge all stakeholders to support change at PG&E.”
Meanwhile, San Francisco Supervisor Aaron Peskin was slated to introduce a resolution calling on the CPUC to avoid passing the costs of wildfire damage to ratepayers and to update liability codes to “incentivize utilities to prioritize safety over profit.”
Resources for customers and other stakeholders, and other information on PG&E's filings, can be accessed by visiting PG&E's restructuring website. Court filings and other documents related to the Chapter 11 processare available on a separate website administered by PG&E's claims agent, Prime Clerk. Information is also available by calling (844) 339-4217 or by email.
Weil, Gotshal & Manges LLP and Cravath, Swaine & Moore LLP are serving as PG&E's legal counsel. Lazard is serving as its investment banker and AlixPartners is serving as the restructuring adviser.