Pacific Gas and Electric—the investor-owned utility that provides electricity and gas for approximately 16 million people across Northern California—announced Monday that it plans to file for bankruptcy. The move is perhaps not surprising for a company that was already an estimated $30 billion in the hole thanks to costs it’s faced in damage to its infrastructure and equipment in the past two years from wildfires across the state. The company has also been found responsible for at least 18 of the 21 large fires that blazed through California in 2017, and that doesn’t even count its possible liability for the Camp Fire, the deadliest conflagration in California history. November’s Camp Fire took the lives of at least 86 people in Butte County, turned the entire town of Paradise to ash, and consumed more than 14,000 homes in the area. Investigators have yet to determine the cause of the blaze, but PG&E did report damage to a 115,000-volt transmission line just minutes before the fire first sparked in the same location. If it is found to be at fault in the Camp Fire, the utility may face charges of homicide, according to a state attorney general.
So the plan to file for Chapter 11 bankruptcy protection isn’t necessarily surprising, but it could pose an enormous problem. Here in California, we’re still trying to figure out how to rebuild and help victims of fires that burned months and years ago. No one is sure which path forward will safely provide electricity to the millions of Californians who need it. The fires aren’t likely to stop. And a broke utility company filing for bankruptcy certainly doesn’t help, particularly because the federal bankruptcy judge who will rule on the potential filing will be obligated to prioritize the interest of PG&E’s creditors rather than ratepayers or fire victims.
PG&E has vowed that the lights will stay on even if the utility succeeds in its bankruptcy claim. “Services will still be provided,” said Mark Toney, director of the Utility Reform Network, a consumer advocacy group. “This is a reorganization; they aren’t going to close the store.” Any charges that are floated to ratepayers will need to be approved by the California Public Utilities Commission, the state regulatory agency that oversees PG&E, an essential protection in a market that will prioritize creditors over customers.
Interestingly, some experts, including Michael Wara, the director of the Climate and Energy Policy Program at the Woods Institute for the Environment at Stanford University, think a taxpayer-funded bailout for the utility company could be a good thing. Consumers in Northern California still need power. Providing that power will still be risky, thanks to a threat that is increasingly exacerbated by the effects of climate change, like drought and dying trees. A bailout could be used to extract sizable, necessary concessions from PG&E, including negotiations that protect ratepayers and promises that the company make good on its debt to fire victims. It could include plans to force the company to shut off service in fire-prone areas at high-risk times (a similar requirement was proposed by a federal judge on PG&E earlier this month). It could also be tied to a commitment to immediately invest more in lower-risk technology, such as solar installations and wind power. This would have the joint benefit of lowering the risk of fire—no more dangling power lines through forests—and bolstering California’s ambitious plan to transfer to 33 percent renewable energy sources by 2020.
“The basic problem,” Wara says, “is not the fires that have already happened. It’s that it’s unsafe to operate an electricity system in the way that these systems have been traditionally operated.” Wara suggested part of the conditions for receiving financial assistance or a bailout could be for PG&E or another electricity provider to guarantee that it will invest in becoming the kind of utility company the state needs given its unique risks—one that doesn’t depend on distributing power through lines that run through trees that could fall.
Opponents of a bailout say that PG&E doesn’t deserve taxpayer help. They point to the fact that the size of PG&E’s debt isn’t yet calculated. “Part of the challenge the bankruptcy court is going to have is how do we pay future debt that isn’t yet determined,” says Toney of Utility Reform Network. He further noted that the fault of the 2017 Tubbs Fire that left 22 people dead in Napa and Sonoma counties has yet to be determined. “We don’t know if PG&E is liable,” he says, noting that he thinks filing for bankruptcy before determining the scope of the debt would be premature. A bailout would also mean taxpayer dollars are being provided to prop up a for-profit company that has been caught falsifying records and appears to have dramatically failed to maintain its infrastructure, costing people’s lives. The evidence is not favorable to PG&E that it can be trusted to use taxpayer money responsibly, at least not without strong oversight.
As a private company, though, if PG&E is determined to declare insolvency, there’s nothing the state can do to stop it, says Sean Hecht, a law professor at UCLA and the co-director of the Emmett Institute on Climate Change and the Environment. It’s also true that there’s no guarantee a bailout would result in the type of greater oversight Wara envisions—without strong oversight it could end up meaning that the company still opts to divert focus from fire prevention for the upcoming season to recoup costs for the utility’s creditors.
PG&E has two weeks before it’s allowed to officially file for bankruptcy. If it decides to do so, this would not be the first time PG&E has turned to a bankruptcy court in the midst of a crisis. (The company filed for bankruptcy in 2001 following rolling blackouts that ultimately cost the state billions, and the debt was passed on to ratepayers.) A lot can happen in two weeks—newly inaugurated Gov. Gavin Newsom has only been in office for about one week. There’s no clear consensus about what course of action he could take to protect taxpayers, ratepayers, and current and future fire victims alike. All we can say for certain is that the cost of safely providing electricity in California isn’t going down anytime soon.