Despite some positive news, PG&E poised to file bankruptcy

Will the announcement by the California Department of Forestry and Fire Protection that Pacific Gas & Electric Company is not liable for the 2017 Tubbs Fire make any difference over whether the company files bankruptcy? An answer could come as soon as Tuesday, the first day PG&E is eligible to file for bankruptcy after a 15-day legally mandated delay.

But financial analysts say it is likely the Chapter 11 filing with go forward, noting both the steps PG&E has already taken and its still-poor financial prospects.

A PG&E spokesman reached Friday declined to specifically say if the Tubbs Fire finding would change their plans. But he pointed back to the company statement released Thursday that strongly implied it would not.

“Regardless of today’s announcement, PG&E still faces extensive litigation, significant potential liabilities and a deteriorating financial situation, which was further impaired by the recent credit agency downgrades to below investment grade,” the company statement said. “Resolving the legal liabilities and financial challenges stemming from the 2017 and 2018 wildfires will be enormously complex and will require us to address multiple stakeholder interests.”

Cal Fire on Thursday blamed the Tubbs Fire on “a private electrical system adjacent to a residential structure.” Estimates of the potential damages from the fire that devastated parts of Santa Rosa have varied widely, anywhere from $6 billion to $11 billion or more.

“The Tubbs report certainly improves PG&E’s long-term position,” said Travis Miller, director of utilities research at Morningstar Inc. “But the short-term position remains the same. PG&E needs cost-effective capital to be able to operate, and they just can’t get that from the market right now.”

Miller added that a buying spree on company stock after the news broke was largely driven by investors seeking quick profits and does not provide the kind of capital a utility needs for long-term planning. He also said a large, heavily-regulated utility can’t change direction quickly.

“There is still general consensus a bankruptcy filing is imminent,” Miller said.

Then there’s the matter of the $5.5 billion in debtor in possession financing the company has arranged, money specifically invested to get the company through a bankruptcy proceeding. PG&E filed documents with the Securities & Exchange Commission on Wednesday related to those funds.

“That money has priority over both unsecured bonds and the tort claims,” said Robert Rasmussen, a USC Gould School of Law professor who teaches courses on bankruptcy.

Rasmussen also said the news does little for PG&E’s prospects for getting help from the state.

“From what I see up in Sacramento, there’s not much of an appetite to bail them out,” he said. “Hypothetically, if it turns out that there’s so much tort liability claimants will only get paid half of what they’re owed, there might at that point be more political will to help the tort victims.”

Gov. Gavin Newsom basically said as much while speaking to reporters on Thursday, saying uninsured or underinsured Tubbs victims could be left with no one to file claims against.

The Cal Fire report did not place the blame on any particular individual. But based on prior information releases, the “residential structure” in question is widely believed to belong to a 90-year-old woman who is in no position to cover even a fraction of the claims.

Newsom also summed up Sacramento’s current attitude toward the utility this way: “That said, PG&E was found liable for 17 other fires in 2017.”

Then there’s the matter of the 2018 fire that now stands as the largest in state history: the Camp Fire that destroyed Paradise. While blame has not been assigned in that blaze, a fact frequently noted by PG&E, it started near the company’s equipment.

Multiple individuals and insurers have already sued PG&E over the Camp Fire. Five more cases against the company were filed in Sacramento County Superior Court last week alone.

PG&E shareholders and attorneys for fire victims are still urging the company to try to avoid a bankruptcy that could leave them last in line for compensation.

“They essentially found $11 billion,” said Michael Danko of Danko Meredith APC in Redwood City, who represents about 200 victims of Tubbs fire and other blazes. “Why are they filing for bankruptcy?”

Meanwhile, a major institutional investor announced a shareholder revolt last week. In a series of letters to PG&E, BlueMountain Capital Management LLC said it planned to nominate a new board of directors by Feb. 21 and urged the company to put off any bankruptcy filing until after the company’s annual shareholder meeting in May.