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PG&E still on hook for legal obligations from San Bruno blast during bankruptcy


Essential Energy Insights - February 2021


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Six trends shaping the industries and sectors we cover in 2021

PG&E still on hook for legal obligations from San Bruno blast during bankruptcy

As PG&E Corp. and its utility subsidiary move through Chapter 11 bankruptcy, the companies' protection from creditors will not extend to their legal obligations related to a deadly 2010 explosion and fire in San Bruno, Calif.

Pacific Gas and Electric Co., or PG&E, and the parent company have paid out their financial liabilities to the city and its residents for the catastrophic gas pipeline failure that destroyed a neighborhood and killed eight people. But PG&E remains on probation after being convicted in 2016 of six felonies related to the 2010 disaster. The terms of the five-year probation, which include remaining under the watchful eyes of a federally assigned monitor, do not get suspended even in a bankruptcy restructuring.

An automatic stay goes into effect in a Chapter 11 proceeding, halting creditors from going after a company's assets, noted Anne Fleming, a law professor at Georgetown University with a focus on bankruptcy law. "What the automatic stay doesn't do is it doesn't halt any ongoing criminal proceedings, assuming that the goal of the criminal proceedings isn't debt collection," she said in a Jan. 29 interview.

"I'm not aware of any bankruptcy case where a company has been able to modify an existing … court judgment," Fleming said. "The goal of the bankruptcy proceeding is to be able to reduce their liability so they can continue to operate going forward, but in terms of non-debt obligations that they have … I'm not aware of any mechanism that would allow them to get out from doing them."

The federal monitor showed no sign of slacking in oversight because of the bankruptcy. "[T]he federal monitor intends to fulfill his duty through the remainder of PG&E's probation (i.e., at least through early 2022)," the Jan. 29 filing in PG&E's bankruptcy docket said. "To that end, since PG&E announced it would commence these chapter 11 cases, the federal monitor has engaged with the [U.S. Attorney's Office] and PG&E — and it is the federal monitor's understanding that the [U.S. Attorney's Office] and PG&E concur with the federal monitor's view of this continued mandate."

The U.S. District Court for the Northern District of California concluded Jan. 30 that the company had violated the terms of its probation, which included a requirement not to break the law and to notify the court of any possible illegal conduct.

The presiding judge, William Alsup, found that the utility failed to tell the court about a settlement agreement with Butte County, Calif., related to the Honey Fire, one of a series of wildfires that started in Northern California in October 2017. The state concluded that a tree branch hitting a PG&E power line caused the fire and in May 2018 filed a report for potential misdemeanor prosecution. The unreported settlement agreement avoided criminal prosecution.

The violation and related discussion opened the door for additional probation requirements for the company.

Under the 2016 judgment, PG&E was found guilty of violating pipeline safety laws and obstructing a related investigation.

The city of San Bruno remains involved in a number of state regulatory cases dealing with PG&E's conduct, none of which should be affected by the bankruptcy proceeding, City Manager Jovan Grogan said Jan. 29.

In addition to the federal criminal case are state investigations into unlawful communications between former California Public Utilities Commission officials and personnel with PG&E Corp. and the utility and into whether the utility falsified gas safety records in 2012 through 2017.

"San Bruno has spent the last eight+ years rebuilding the Crestmoor neighborhood, holding PG&E accountable and assisting the community through the long recovery," Grogan said in an email. "Throughout the rebuilding process, the city of San Bruno and our legal counsel have been actively monitoring [CPUC] proceedings … and other PG&E activities, including the ongoing probation."

The San Bruno blast and its fallout caused more than $560 million in losses, including injuries and damage to private property and public infrastructure, according to the city.