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The Bankruptcy StrategistFeaturesBankruptcyLitigation

The How, What and Why of a Potential PG&E Bankruptcy

By John J. Rapisardi and Daniel Shamah
February 01, 2019

PG&E Corporation (Holdco) and its subsidiary, Pacific Gas & Electric Company (the Utility and together with Holdco, PG&E) announced on Jan. 13, 2019 that it expects to file for Chapter 11 bankruptcy protection on or around Jan. 29, 2019, right around the conclusion of a mandatory 15-day notice requirement under California law. See, Form 8-K of PG&E Corp. and Pacific Gas & Electric Co. (Jan. 13, 2019). Such a filing would represent the second time PG&E resorted to protection under the U.S. Bankruptcy Code.

PG&E filed for bankruptcy on April 6, 2001 and emerged three years later, on April 12, 2004. See, Case No. 01-30923-DM (Bankr. N.D. Cal.). The challenges PG&E has faced since wildfires began consuming large swaths of California are well known and has fueled speculation about a bankruptcy filing. But less well understood and appreciated are the legal and regulatory issues confronting PG&E and other similarly situated California utilities. As we'll see, those legal and regulatory issues present critical complications in a potential second PG&E bankruptcy.

Background on PG&E

PG&E, incorporated in California in 1905, is one of the largest combined natural gas and electrical energy companies in the United States. Based in San Francisco, it employs nearly 20,000 people. Its primary business is the transmission and delivery of energy — both natural gas and electricity — to nearly 16 million customers in Northern and Central California. The rates PG&E charges its customers are predominantly set by its principal regulator, the California Public Utility Commission (CPUC).

As noted above, PG&E has previously been through Chapter 11. In 2001, PG&E filed for bankruptcy after it piled on too much debt acquiring electricity as a result of a deregulation initiative under which PG&E was forced to buy more electricity, no matter the cost. As the market for natural gas drove electricity prices up, PG&E (and other California utilities) were placed under enormous financial strain. PG&E was ultimately forced into bankruptcy amid rolling blackouts and accusations of market manipulation. PG&E emerged from bankruptcy in 2004, but ratepayers saw higher electric bills for years after PG&E's emergence from Chapter 11.

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