Faced with potentially ruinous lawsuits over California’s recent wildfires, Pacific Gas & Electric Corp filed for bankruptcy protection Tuesday, in a move that could lead to higher bills for customers of the nation’s biggest utility and reduce the size of any payouts to fire victims.
The Chapter 11 filing allows PG&E to continue operating while it puts its books in order. But it was seen as a possible glimpse of the financial toll that could lie ahead because of global warming, which scientists say is leading to fiercer, more destructive blazes and longer fire seasons.
The bankruptcy could also 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 and tens of billions of dollars in potential liabilities when it announced earlier this month that it planned to file for bankruptcy.
The blazes include the nation’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.
“They’re going to have to take some sort of haircut on their claims,” said Jared Ellias, a bankruptcy attorney who teaches at the University of California, Hastings College of the Law. “We don’t know yet what that will be.”
In a bankruptcy proceeding, the victims have little chance of getting punitive damages or taking their claims to a jury. They will also have to stand in line behind PG&E’s secured creditors, such as banks, when a judge decides who gets paid and how much.
But legal experts also noted that state officials will be involved in the bankruptcy, and that could soften the blow to wildfire victims.
The California governor, Gavin Newsom, said in a statement that his administration will work 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.”
Legal experts said the bankruptcy will probably take years to resolve and result in higher rates for customers of PG&E, which provides natural gas and electricity to 16 million people in northern and central California.
PG&E would not speculate about the effect on customers’ bills, noting that the state public utilities commission sets rates. It said the bankruptcy filing will not affect electricity or gas service and will allow for an “orderly, fair and expeditious resolution” of wildfire claims.
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% of its electricity from carbon-free sources such as wind, solar and hydropower by 2045. To achieve that, utilities must switch to buying power from renewable sources.
PG&E made agreements in 2017 to buy electricity from solar farms. But because of its 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.
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 seek 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 $30bn 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 did little to reassure investors. Its stock is down 70 percent from about a year ago.