Pacific Gas & Electric (PG&E) Corp. has emerged from bankruptcy as a stronger company, with a financial plan that will enable it to get back to an investment-grade rating, interim CEO Bill Smith said during the earnings conference call Thursday, the first it has held since filing for Chapter 11 in January 2019.
The utility's parent company recorded a $1.97 billion loss in the second quarter, translating to $3.73 per share — compared to a $2.55 billion loss during the same period in 2019.
The company is also facing a tight liability insurance market and significantly higher insurance costs, according to Jason Wells, executive vice president and chief financial officer at PG&E Corp., and this trend is likely to continue.
PG&E emerged from bankruptcy on July 1, after a complicated Chapter 11 reorganization process that continued for more than a year. The utility negotiated a $25.5 billion payout to settle its liabilities from a series of wildfires that its power lines sparked in Northern California.
The company’s earnings report on Thursday marks a milestone, Smith said.
“The complex legal matters are now resolved and major regulatory cases establishing our revenues are either approved or settled,” he said, adding, “We also have a good line of sight on a regulatory framework for the next three years.”
Like many utilities across the country, the COVID-19 pandemic is impacting PG&E’s operations, especially as California is experiencing an uptick in cases, necessitating social distancing and other safety-related measures. The utility’s electric load from mid-May to July dropped by 3% compared to the same period last year, Smith said, while core gas load shrunk by 4% in the same period.
PG&E is also in the midst of sweeping leadership changes, and announced in a filing Thursday that the CEO of the utility, Andrew Vesey, would be leaving his position effective Aug. 1.
“I think during an emergence like this, a lot of times people re-evaluate what’s going on, and so this is not an unexpected situation,” Smith said, when asked by an analyst to comment on Vesey’s departure.
Additionally, the new board of directors is on the lookout for a permanent CEO for the holding company, PG&E Corp, and is aiming to fill the position by the end of the year. Previous PG&E Corp CEO Bill Johnson left the company earlier this year, after its reorganization plan was approved by the bankruptcy court.
Smith said he has the flexibility to stay on as interim CEO for as long as needed.
“We’re really looking for getting the next generation of the leadership team fully in place,” he added.
At the same time, PG&E is facing rising costs for liability insurance despite the financial support that California’s $21 billion wildfire insurance fund provides utilities. The company has secured a total of $1.4 billion in liability insurance, $757 million of which relates to wildfire claims, Wells said — at a cost of around $750 million.
“It’s obviously a significant increase over what we were doing several years ago, and I think it’s sort of reflective of what will be an ongoing trend of higher liability insurance costs going forward,” Wells said.
PG&E is investigating the origin of the 2019 Kincade Fire, which took place after the utility filed for bankruptcy and was not accounted for in its reorganization plan. State investigators say the fire was caused by PG&E transmission lines, but the California Department of Forestry and Fire Protection’s investigation report has not yet been made public.
The company believes that it could face a loss that’s greater than $600 million in connection with the fire, it said in its 10-Q filing. However, it has not yet had a chance to view Cal Fire’s report.
“We’d certainly like to see it. What I can tell you is that if in fact PG&E equipment is the cause of [the Kincade Fire], we would work for an expeditious resolution,” John Simon, executive vice president, law, strategy and policy at PG&E Corp., said on the call.
The company also provided an update on its wildfire mitigation strategies, saying that it is on track to meet its targets for system hardening, vegetation management and other measures this year. There were a few delays related to deploying weather stations and high-definition cameras, Smith said, but “we feel very solid about getting all of this program executed as scheduled.”
Stakeholders in California have raised concerns that the company is still exposed to the risk of wildfires in its service territory. PG&E plans to “harden” around 7,000 miles of its power lines in the next 12 to 14 years, April Rose Maurath Sommer, the Wild Tree Foundation’s executive and legal director, told Utility Dive in early July — out of more than 30,000 miles of lines located in parts of California prone to wildfires.