Tuesday, September 22, 2020

PG&E glides toward bankruptcy exit now that state is focused on virus

Mar 20. 2020
Pacific Gas and Electric headquarters in San Francisco on Jan. 14, 2019. MUST CREDIT: Bloomberg photo by David Paul Morris.
Pacific Gas and Electric headquarters in San Francisco on Jan. 14, 2019. MUST CREDIT: Bloomberg photo by David Paul Morris.
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By Syndication Washington Post, Bloomberg · Mark Chediak · BUSINESS, US-GLOBAL-MARKETS

The deepening coronavirus crisis has shifted nearly all attention away from what had been one of California's most pressing issues: the fate of embattled utility PG&E Corp.

Now, the company is quietly edging closer to exiting the largest utility bankruptcy in U.S. history, largely intact as an investor-owned power giant.

A long-threatened state takeover is likely off the table as PG&E makes progress in talks with Gov. Gavin Newsom and his administration devotes more resources to fighting the pandemic. This week, he dropped objections to PG&E's $23 billion financing plan, citing market turmoil. The company also won bankruptcy court approval to start sending materials to creditors who will vote on its $58 billion reorganization proposal.

PG&E's filed for bankruptcy more than a year ago after its equipment was linked to wildfires that killed scores of Californians, triggering widespread public outrage and calls for the utility to be broken up or in put in the government's hands. But as the coronavirus emerges as an even more urgent public issue for state and local officials, the company's path toward proceeding with its own plan and exiting by a state deadline of June 30 is becoming clearer.

"The governor has had opportunities to forcefully object if he really wanted to stop this plan or initiate a state takeover, so his absence to do so speaks volumes," said Philip Brendel, a credit analyst for Bloomberg Intelligence. "I believe he's moved on to the next state crisis -- the coronavirus."

PG&E climbed as much as 6.2% Friday as stocks gained broadly.

California has been one of the U.S. centers of the coronavirus outbreak, trailing only New York and Washington in cases. Newsom on Thursday took the dramatic step of ordering all residents to isolate themselves at home to limit the virus's spread, the country's strictest effort so far.

An official with the Newsom administration said it remains focused on reforming PG&E, and that it continues to hold talks with the company. The administration's preference is to keep it as investor-owned utility, but a state takeover is still an option if PG&E falls short of demands for reform, the official said.

PG&E said in a statement that discussions continue with the governor's office and it's making "good progress."

Newsom still has some sway over PG&E because the utility needs state approval of its bankruptcy plan to qualify for coverage from a state wildfire insurance fund. He has said he wants changes to PG&E's governance and management, including replacing the utility's entire board. He also raised issues with the company's capital structure. The Newsom official said PG&E has made progress in meeting some of the administration's demands.

The utility has pledged reforms including replacing some directors, tying executive pay more closely to safety metrics and dividing up its operations into regional units to better respond to local concerns. PG&E has also said it's open to a proposal that would let California regulators take greater control of the company if it gets into trouble again.

Still, the pandemic means the governor is less inclined to make a drastic move now, said Barry Moline, executive director of the California Municipal Utilities Association.

"He needs to focus his attention on this public-health crisis and societal disruption, and taking action on PG&E would probably be seen as a distraction," Moline said. "It doesn't take away from the reality that the bankruptcy deal with PG&E may not be the best for California, is filled with risk and guaranteed higher prices for residents."

There have been other attempts to reshape PG&E beyond Newsom. Even as its budget is being hit by the coronavirus, San Francisco says it still wants to buy the company's grid within the city. And a proposal by a group of a more than 200 city and county officials, led by San Jose Mayor Sam Liccardo, to turn PG&E into a giant customer-owned cooperative is still on the table.

A bill that would make PG&E a government-run entity is pending with the state legislation, said California State Sen. Scott Wiener. Still, he conceded that the coronavirus is making that effort more difficult. The state legislature is suspended until April 13, giving lawmakers a small window to step in.

"Obviously, it was always going to be a hard, uphill climb to turn PG&E into a publicly owned utility, but we were giving it our best shot," Wiener said in a telephone interview. "Covid-19 just made it a heck of a lot harder given the need for a laser-like focus on the pandemic."

The governor's office is pressing for additional concessions, including putting mechanisms in place to ensure PG&E improves safety operations in the near term. The governor also wants changes to its financing plan to make sure the company can fund as much as $40 billion in infrastructure upgrades.

That could be a much heavier lift if the virus continues sending credit markets into a tailspin.

"The company is going to come out of bankruptcy financially hobbled," said Jared Ellias, a professor at the University of California Hastings College of Law, who has been following the case. "They won't have the financial flexibility they would have if they emerged with a clean balance sheet with less debt."

PG&E said in filing with state regulators that the company's plan will "put it back on solid financial footing, with sufficient resources to invest in wildfire mitigation."

Given the crisis and market disruption, the Newsom administration likely understands that it's best for the state and PG&E to get the company out of bankruptcy before wildfire season, said Michael Wara, a climate and energy policy professor at Stanford University.

"I think the Newsom administration thinks they aren't going to get a better deal that's on the table and they are trying to lock it in," Wara said.

 

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