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Analysts see PG&E bankruptcy as unlikely, despite company's warning to lawmakers

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Essential Energy Insights - February 2021

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Six trends shaping the industries and sectors we cover in 2021

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Analysts see PG&E bankruptcy as unlikely, despite company's warning to lawmakers

PG&E Corp. can absorb $12 billion to $15 billion in wildfire liability claims over several years without losing its investment-grade ratings, CreditSights analysts said in a June 17 research note. That contradicts comments reportedly made by company officials to California lawmakers indicating that the utility may seek court bankruptcy protection unless the state legislature steps in to help the utility recover its costs.

The analysts pointed to a CBS Sacramento station report quoting lawmakers saying that PG&E subsidiary Pacific Gas and Electric Co. warned them that it may need to seek Chapter 11 bankruptcy protection if it is forced to pay out huge claims and penalties associated with wildfire damages. Sen. Jerry Hill, a Democrat from Northern California, told the station that PG&E executives have been meeting with lawmakers and warning them "they're going to go bankrupt ... and they're creating a lot of fear in the Capitol."

Hill, a frequent critic of PG&E, is sponsoring legislation that he said would protect consumers from PG&E's negligence.

However, CreditSights analysts said in a June 17 report, "We are not overly concerned with the bankruptcy story as it makes sense utility executives are highlighting their predicament of having to pay out wildfire claims and not being able to recover those costs from ratepayers."

The analysts said that the primary concern for the parent corporation's bond ratings is less the fallout from the October 2017 fires that swept Northern California's wine country than how damages from future wildfires will be addressed. Calif. utilities need legislation, such as Senate Bill 1088, that would remove or significantly hinder the Public Utilities Commission's ability to block utilities from recovering wildfire costs from ratepayers, the analysts said. The bill has passed the Senate and is in a committee in the Assembly.

Investors sue PG&E

Alternatively, removal of the courts' "inverse condemnation" doctrine would address the issue, but the analysts do not see that as likely. In California utilities can be held liable for wildfire damages from electrical equipment even if they obey all laws and take proper precautions to prevent fires.

In addition to at least 200 complaints that have been filed on behalf of 2,700 parties concerning loss of life and property damages from the wildfires, at least two class-action lawsuits have been filed against PG&E and its officers, alleging that the company's shares declined precipitously because it failed to lawfully maintain its transmission and distribution facilities to prevent the wildfires. Both cases were filed in U.S. District Court, Northern District of California.

According to Jon Paul Moretti vs. PG&E Corp., a class-action suit filed on June 14, electric power lines caused 12 wildfires and evidence showed eight of those wildfires resulted from violations of state law. The wildfires killed 44 people, consumed thousands of homes and resulted in an estimated $10 billion in damages, the lawsuit stated.

In response to S&P Global's request for comment on the suits, PG&E representative Ari Vanrenen issued a statement saying, "Nothing is more important to us than the safety and well-being of our customers and communities we serve. Our thoughts are with everyone impacted by these devastating wildfires. We are aware that lawsuits have been filed. We're focused on doing everything we can to help these communities rebuild and recover."