Faced with massive suits over California wildfire damages, PG&E files for bankruptcy protection


Faced with potentially ruinous lawsuits over California’s wildfires, Pacific Gas & Electric Corp. filed for bankruptcy protection Tuesday in a move that could drive up rates for customers of the U.S.’s biggest utility and reduce the size of any payouts fire victims receive.

The Chapter 11 filing allows PG&E to continue operating while it puts its finances in order. But the bankruptcy was seen as a possible glimpse of the financial toll that could lie ahead as a result of global warming, which scientists say is leading to fiercer, more destructive blazes and longer fire seasons.

In addition to leading to higher bills and smaller wildfire damages, it could jeopardize California’s ambitious program to switch entirely to renewable energy sources.

PG&E cited hundreds of lawsuits from victims of fires in 2017 and 2018 when it announced earlier this month that it planned to file for bankruptcy.

The blazes include the U.S.’s deadliest wildfire in a century — the one in November that killed at least 86 people and destroyed 15,000 homes in Paradise and surrounding communities. The cause is under investigation, but suspicion fell on PG&E after it reported power line problems nearby around the time the fire broke out.

Last week, however, state investigators determined that the company’s equipment was not to blame for a 2017 fire that killed 22 people in Northern California wine country.

The bankruptcy filing immediately puts the wildfire lawsuits on hold and consolidates them in bankruptcy court, where legal experts say victims will probably receive less money.

The victims have little chance of getting punitive damages or taking their claims to a jury in a bankruptcy proceeding. Instead, they will have to compete with PG&E’s creditors, including bondholders, for a payout from the company.

“My administration will continue working to ensure that Californians have access to safe, reliable and affordable service, that victims and employees are treated fairly, and that California continues to make forward progress on our climate change goals,” Democratic Gov. Gavin Newsom said in a statement.

Consumer activist Erin Brockovich, who took on PG&E in the 1990s, had urged California lawmakers not to let the utility go into bankruptcy because it could mean less money for wildfire victims.

PG&E faced additional pressure not to move forward with the bankruptcy after investigators said a private electrical system, not utility equipment, caused the 2017 wine country blaze that destroyed more than 5,600 buildings in Sonoma and Napa counties. Newsom’s office estimated that more than half of the roughly $30 billion in potential wildfire damages that PG&E said it was facing was from that fire.

While the investigators’ finding reduced PG&E’s potential liability, it wasn’t enough to reassure investors. Its stock is 70 percent from a year ago.

Legal experts say the bankruptcy will probably take years to resolve and result in higher rates for PG&E customers. The company provides natural gas and electricity to 16 million people in central and northern parts of the state.

A bankruptcy filing would not affect electricity or natural gas service but allow for an “orderly, fair and expeditious resolution” of potential liabilities from the wildfires, the company has said.

PG&E would not speculate on any changes to customers’ bills, noting that the California Public Utilities Commission sets electric and gas rates.

PG&E also filed for bankruptcy in 2001 during an electricity crisis marked by rolling blackouts and the manipulation of the energy market. It emerged from bankruptcy three years later but obtained billions in higher payments from ratepayers.

California has set a goal of getting 100 percent of its electricity from carbon-free sources such as wind, solar and hydroelectricity by 2045. To reach that goal, utilities must switch to buying power from renewable sources.

PG&E made agreements in 2017 to buy electricity from solar farms. But because of the utility’s bankruptcy, some experts have questioned its ability to pay what it agreed to, or to make the investments in grid upgrades and batteries necessary to bring more renewable energy online.

“PG&E’s bankruptcy is going to make it a lot more costly for California to meet its environmental goals, and could make it more challenging just to get the infrastructure built to help cut emissions and increase renewable energy,” said Travis Miller, an investment strategist at Morningstar Inc.