Pacific Gas and Electric (PG&E) announced its intent to file for Chapter 11 bankruptcy next week, primarily due to the costs and liabilities stemming from the 2018 Camp Fire and 2017 Napa and Sonoma Country fires. What should consumers expect from this filing? Will PG&E still be held accountable for the fires it started? Or will consumers ultimately pay the price?

PG&E Has Announced Consumers Can Expect Costs and Benefits

According to PG&E, there are a few costs and benefits consumers can expect. The first is a rate hike. They have already asked the Public Utilities Commission to be able to raise rates by 6.4 percent in 2020, which would generate an addition $1.1 billion annually. Consumers can also expect to see the company investing in infrastructure to more safely provide power to consumers and businesses. Consumers can expect that they will continue to receive electric and natural gas from PG&E, though the company has insinuated it could sell off its natural gas business. Will there be further rate hikes? And what about the lawsuits filed by fire victims?

California Legislature Has Already Granted Protection to PG&E and Burden to Ratepayers

Last year, SB901 was passed by the California Legislature. This bill provides some degree of limited protection to PG&E against wildfire lawsuit claims, so claimants can expect that their ultimate payouts may be somewhat less than historical figures, based just on this law.

Bankruptcy Court Could Further Increase Consumer Burden and Minimize Fire Victim Settlements

The concept behind Chapter 11 bankruptcy is to help a corporation pay off its debts without having to liquidate. Creditors are paid out according to a repayment plan created by the bankruptcy judge in light of the rules of priority. The first parties to be paid, of course, is the United States Bankruptcy court for its filing fees. Next, secured creditors are paid. Those are entities that have a lien on the company’s assets. Next in line are unsecured creditors, which are generally administrative cost centers. Next in line is general unsecured creditors.

Once PG&E heads into bankruptcy, expect legal and administrative costs to escalate, both of which will likely be passed on to consumers. After all, as the old saying goes, you can’t squeeze blood from a turnip. Ratepayers will be expected to absorb those costs. According to Mark Toney, executive director of The Utility Reform Network in San Francisco, ratepayer interests would be cast aside by the courts. “It puts the decision in the hands of a bankruptcy judge whose first priority is paying creditors off. The ratepayers are the last priority.”

Related Resources:

  • Victims of California Wildfire Sue Utility Company (FindLaw Injured)
  • Chapter 11 Bankruptcy Reorganization Process: an Overview (FindLaw Free Enterprise)
  • Chapter 11 vs Chapter 7: What Small Biz Owners Should Know (FindLaw Free Enterprise)

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