PG&E Files for “Chapter 22” Bankruptcy
Pacific Gas & Electric filed for “Chapter 22” as California’s largest utility was again forced into Chapter 11 bankruptcy due to the state’s social justice regulatory structure.
Facing $300 million a month in unreimbursed power costs under California’s 1996 “deregulation” law that gave the state control of wholesale electric power purchases, Pacific Gas & Electric (PG&E) filed for bankruptcy under Chapter 11 of the US Bankruptcy Code in April 2001 in San Francisco court, listing $9 billion in debt.
The three-year reorganization cost the state between $40 to $45 billion and was directly responsible for the recall of California Democrat Gov. Gray Davis on October 7, 2003.
But following a Monday approval by the California Public Utility Commission (CPUC) to borrow $10 billion in “debtor in possession” financing, PG&E filed its second federal reorganization in the same San Francisco court and under the same Chapter 11 Bankruptcy Code listing $50 billion in assets and liabilities.
PG&E claimed that court administered reorganization would support “the orderly, fair and expeditious resolution of its liabilities resulting from the 2017 and 2018 wildfires,” while allowing continued “reliable electric and natural gas service to customers.”
Although CPUC Commission Chairman Michael Picker told an angry crowd on Monday that, “Nothing in this decision allows PG&E to increase rates,” everyone at the meeting knows that the goal of the filing is to dump the wildly insolvent utility business on the state’s wildly insolvent balance sheet, or jack up utility rates that are already sky-high.
The latest filling is due to California utilities being subject to CPUC strict return of capital limitations on the rates they are allowed to charge customers, while having unlimited financial liability since the 1999 California Court of Appeal's opinion in Barham v. S. Cal. Edison Co. established “inverse condemnation” for any weather-driven power line sparking risk causing a wildfire, despite lack of any negligence by the utility or its staff.
As a result, PG&E has strict and unlimited liability for dry vegetation set-backs along its 18,466 circuit miles of interconnected electric transmission lines, 6,438 miles of transmission pipelines, and 42,141 miles of natural gas distribution pipelines.
Despite PG&E’s limited profit capability already facing $20 billion in potential wildfire liability, Gov. Brown signed Senate Bill 100 in September 2018 mandating California utilities convert the remaining 75 percent of fossil fuel electrical generation to renewable sources by 2045. The move could result in up to a doubling of residential utility rates.
During the debate on passing the virtue signaling full embrace of a zero-carbon future, PG&E warned: “We believe customers must be protected from unreasonable rate and bill impacts.” PG&E added, “If it's not affordable, it's not sustainable.”
The US Energy Agency latest report for November reveal California is already ranked fifth most expensive state for residential electric rates at 19.53 cents per kilowatt-hour (KWH). Alaska, Hawaii, and two small New England states have higher rates; but other West Coast residential electric rates are half what Californians pay with 10.95 cents per KWH in Oregon and 9.46 per KWH in Washington.
California Democrats’ progressive base is advocating a utility nationalization. Although “PG&E was in part the victim of the effects of climate change,” they argue public utilities are a “sound investment for those who desire a regular income.” But Democrats have been silent about cost for unlimited liability and maintaining a 67,000-mile infrastructure.
The federal bankruptcy court will “stay” any inverse condemnation lawsuit proceedings for wildfire loss of life and property damages. But there will likely son be a huge political firestorm when the court “in the normal course” grants PG&E huge residential rate increases to pay for state’s politically-mandated renewable energy conversion.