There’s a better way out of the PG&E bankruptcy

Pacific Gas and Electric Co.’s lawyers recently submitted a revised plan to take the company out of bankruptcy, masterfully sprinkling billions among the company’s most powerful stakeholders — hedge funds, shareholders and bondholders — along with perhaps $1 billion in fees to consultants, banks and, yes, attorneys. All will cheer the company’s procession out of bankruptcy court and over to the California Public Utilities Commission, again and again, for rate hikes.

But 73,000 wildfire victims and 16 million California ratepayers should not be cheering.

The wildfire victims deserve better. The utility will pay those claimants from a $13.5 billion fund financed half in cash and half in stock — PG&E stock. That’s right: The current plan tethers the victims’ financial futures to the performance of the company that burned down their homes. It also saddles those families with the risk of any future wildfires started by PG&E’s failing equipment. That’s chutzpah.

If the victims are worried about uncertain PG&E stock valuations, they should be. In the 23-month span over which the company’s wires ignited 18 wildfires — killing 107 people and destroying 15,700 homes — the company’s shares plummeted 90%. What about the next wildfire season?

Last year, a federal court monitor found evidence of shoddy work, poor record-keeping and falsified documents in the company’s vegetation maintenance efforts. More recently, PG&E resisted a judge’s efforts to tie executive bonuses to safety improvements.

The company must compensate wildfire victims entirely in cash, just as it pledged all-cash payments to insurance companies and other claimants. Opportunistic hedge funds gobbled up insurance claims at steep discounts and will reap steep profits on their $11 billion payout — in cash, not stock.

PG&E’s plan also unfairly dilutes the victims’ claims by committing to secure bondholders’ claims over theirs and by allowing the Federal Emergency Management Agency and other government agencies to recover funds from the victims’ allocation.

Millions of customers don’t fare much better under PG&E’s plan, which stands to leave us depending on a company with a junk-level credit rating to provide our power. The plan’s generous distribution of assets to powerful stakeholders will encumber the utility with heavy debts, and many observers doubt it will emerge with the financial soundness to issue investment-grade bonds. Junk-rated PG&E bonds would not only inhibit PG&E’s access to capital but also inflate its financing costs — a worrisome prospect for a company whose exit plan requires it to take on $38 billion in debt and pay billions of dollars a year in interest.

The result would be hefty rate hikes that force customers to pay hundreds of millions of dollars more to Wall Street through their monthly utility bills. PG&E optimistically projects that electricity rates will increase by a third over the next three years, but more realistic assumptions would push energy bills even higher. Company executives have little to fear, however: By turning wildfire victims into shareholders, they will have created a sympathetic bulwark against customer objections.

There is a better way: transforming PG&E into a customer-owned private company. A customer-owned utility has the best chance of restoring safe, reliable and affordable power delivery by aligning the company’s financial interest with the public interest and sharply reducing capital costs. The leaner capital structure of a customer-owned company would avoid billions of dollars in expenses for dividends, high-yield bonds and federal taxes. It would reinvest those savings in grid safety and reliability, compensating victims and dampening rate increases. And unlike a public takeover, a customer-driven buyout would avoid exorbitant costs to taxpayers and endless legal battles.

Getting there wouldn’t be easy. We would need a bankruptcy court willing to force shareholders and institutional funds to absorb the losses that any investor should incur in a bankruptcy. We would need a Public Utilities Commission willing to stand up to incessant industry pleas for excessive rate increases. And we would need Sacramento lawmakers to continue resisting company efforts to jam an inadequate plan through bankruptcy.

But we should not waste this crisis — or the opportunity it presents to transform PG&E into a responsible, responsive utility. Financial institutions stand ready to effectuate a buyout. We need the state’s leaders to embrace it — as nearly 200 local elected officials, representing more than 9 million Californians, have urged them to do.

Regardless of the outcome, ratepayers collectively face a burden of many billions of dollars in long-overdue investment in maintenance, upgrades, and microgrids. If customers are going to pay for PG&E, we ought to own it.

Sam Liccardo is the mayor of San Jose, the largest city in PG&E’s service area. He leads a coalition of 195 mayors, supervisors and other elected officials urging that PG&E become a customer-owned utility.

Originally published at on February 27, 2020.




Mayor of San José, California

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Sam Liccardo

Sam Liccardo

Mayor of San José, California

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