Bankruptcy Chapter 11by Nick Youngson
As explored in “PG&E Under Flame,” California’s top utility is proving be a fascinating and frustrating case study of what happens when companies put profit over people. To recap; state authorities are heavily investigating PG&E’s role in causing the Camp Fire that claimed at least 87 lives in November. Alongside a crisis of reputation, the company is facing billions of dollars in damages.
Amidst this turmoil, PG&E will likely file for bankruptcy in the next two weeks. The utility announced on Monday that they are indeed exploring filing for bankruptcy protection (after much speculation), and their stock quickly tumbled by over 50%. While in the best of cases bankruptcy should be providing protection for as many parties possible, in this case it unfortunately may have the worst impact on the most vulnerable — fire survivors, workers, and in general the 16 million people PG&E serves. Here’s how:
1. Customers and victims of negligence won’t see justice.
There are currently over 100 survivors filing lawsuits against the company for damages. If the state approves bankruptcy, however, wildfire victims could face a full stop in their lawsuits against PG&E during the proceedings. As Sacramento-based bankruptcy attorney Steven Felderstein adds, “[victims] can ultimately have their claim determined outside of the bankruptcy court, but it still is a claim of the bankruptcy… So if the creditors only end up getting paid a percentage of the amount they are owed, then that would affect the injured parties as well.”
In addition, ratepayers would ultimately have to pay back PG&E’s debt if they want to keep the lights on. The utility has already “sought permission from U.S. energy regulators for a 9.5 percent increase in transmission charges due to the higher risk of wildfires”… translating to a cost increase for the average customer. And if history repeats itself, it’s worth noting that PG&E’s 2001 bankruptcy closed in a settlement that allowed the utility to pass on about $7 billion in costs via increased rates to loyal customers. Legally, the federal bankruptcy judge who will rule on the filing may be “obligated to prioritize the interest of PG&E’s creditors rather than ratepayers or fire victims,” as articulated by Slate.
Looming bankruptcy is also causing tension between newly elected representatives and their constituents, as these officials will ultimately decide whether “part of the solution will be raising already high electricity rates.” One could imagine particular stress on Gov. Gavin Newsom, who made a promise on Monday to achieve a “solution that ensures consumers have access to safe, affordable and reliable service, fire victims are treated fairly, and California can continue to make progress toward our climate goals” — a big promise for an even bigger problem.
2. Workers could pay the price while executives take the cash.
The reality is that workers often have to fight for their own rights for fair treatment under bankruptcy (check out the hard fought battle that Toys “R” Us workers found themselves in last month, when the company closed 700 stores). If PG&E reorganizes in court, utility workers could risk their pensions with no say in the matter. This is because under bankruptcy, a company has the opportunity to modify labor agreements in the name of “cutting costs” and “freeing up assets” — often making life more comfortable for those already at the top of a company.
Fortunately in this story, those at the top are seemingly feeling the heat more than everyday workers. This past weekend, PG&E announced the departure of chief executive, Geisha Williams, who had led the corporation since 2017. A recent post on the company’s website also declared that no changes are expected to health or life insurance benefits or the company’s tax-qualified pension plan. Under a recently passed federal law, PG&E would be required to give employees 15 days’ notice of any proposed effects on their livelihood, so as not to blindside any workers.
Other workers of major corporations don’t receive the same message of assurance. To give one example: last month Westmoreland Coal Company — the country’s sixth largest coal producer — presented to the U.S. Bankruptcy Court in Houston. In their petition, they proposed $1.5 million worth of bonuses to incentive “mid and senior-level employees from jumping ship during the bankruptcy.” Where would this $1.5 million come from? A cut in retirement benefits from mine workers.
3. Shareholders would see their stock value disappear.
Bankruptcy is an unwelcome gamble for shareholders. Generally, when a publicly-owned company goes bankrupt, their shares becomes worthless. Shareholders may be entitled to liquidated assets, “depending on which shares they hold and how much liquid assets are left over.” It’s too soon to tell what would be left over for shareholders once all of PG&E’s mounting debts are paid — about $18.6 billion in long-term debt, that is.
According to Morningstar, PG&E is not your “typical utility investment,” as it pays no dividends, and is going to be highly speculative when it comes to equity value. At this moment shareholders face extreme risk, according to Bank of America analyst Julien Dumoulin-Smith. Others more bluntly refer to them as the big losers.
4. The environment loses, too.
In an already unsafe environment, bankruptcy may mean that the utility won’t be focused on performing preventative work like trimming branches around power lines, which prove to be fire hazards in the first place. Additionally, as the state’s major natural gas and electricity player, PG&E’s bankruptcy would make it much more difficult for California to reach is 2045 clean-energy goals — where they are aiming for “100 percent of electricity to be powered by renewable resources such as wind and solar, as well as zero-carbon energy sources such as nuclear power.”
This is particularly troubling as projections suggest that California is likely to face more fires in years to come in the Bay Area and the Sierra Nevada foothills. “State-of-the-art climate projections estimate that annual average daily temperatures are expected to increase by three to five degrees Celsius in the next few decades, increasing how fast fuels will dry out. Higher temperatures and drought combine to create fuels that are dry and highly flammable. Extreme rainfall events, which contribute to post-fire flooding, erosion, and even debris flows, are also expected to increase in frequency and intensity.” Taken together, not only will fires be more frequent in the state, but the length of the fire season and size of the flames will be more severe.
So if bankruptcy would be an “easy way out” for the company itself, and dangerous for everyone around it – what’s the alternative? As of this writing, the California Public Utilities Commission has proposed that PG&E be broken up or socialized into a public utility, to “empower California through access to safe and affordable utility services and infrastructure.” However, with less than two weeks to file, bankruptcy is more likely than not on the horizon — with company representatives even naming it as “the only viable option.” One thing is for sure: there’s no painless outcome in sight.
Thank you to Jasmine Rashid for her contributions on this article!