Report: PG&E considers breaking up company to avoid wildfire liability
- PG&E Corp. is considering a company restructure to shelter some of its units from the large amount of liability related to damage from the destructive California wildfires last year, Reuters reported Wednesday, based on anonymous sources.
- Reuters said PG&E hired the debt restructuring firm Weil, Gotshal & Manges to explore its options. Although no decision has been taken on a course of action, PG&E previously told state legislators that the company was at risk of risk bankruptcy or reorganization because of California's wildfire liability policy.
- PG&E and its subsidiary, Pacific Gas & Electric, recorded a $2.5 billion pre-tax charge related to the liability for the damage from the 2017 wildfires.
As PG&E is facing a tremendous liability over last year's fires, breaking up the company could mean that only one unit has to declare bankruptcy.
State legislators are debating the current law for utility wildfire liability, and Gov. Jerry Brown proposed changes to the policy July 23. Brown's proposal would direct courts to consider the utility's negligence or compliance with regulations regarding future fires.
California Assemblyman Bill Quirk, D, has proposed a bill that would allow a review of the deadly wildfires from last year, possibly allowing utilities to escape billions in liability. These proposals would be a major boon for investor-owned utilities, like PG&E. California courts currently place full liability on utilities for wildfires caused by their equipment, even if the utility was not negligent.
Some state legislators view the utility liability rules as a strong incentive for them to be reasonable and prudent, while others consider the law a looming threat to utility bankruptcy.
PG&E and other large investor-owned utilities in the state have pleaded for changes to the current interpretation of fire liability rules, as devastating wildfires are expected to continue or worsen in the state.
Although PG&E said it believes its vegetation management programs met the state's high standards, California's inverse condemnation rules would hold the utility liable for the fires. California's fire management agency said PG&E owned electric equipment caused 12 wildfires last year.
PG&E's wildfire costs amounted to $1.59 billion in the second quarter of 2018 alone, according to a company announcement last week. However, PG&E could be on the hook for up to $12 billion in liability, according to some analyst estimates.
PG&E previously declared bankruptcy for its utility unit in 2001, during the 2000-2001 California electricity crisis, and state lawmakers have said the company is floating that possibility again.
CORRECTION: A previous version of this story misnamed the wildfire liability policy. The courts currently apply inverse condemnation liability to events associated with investor-owned utilities' equipment.
Follow Iulia Gheorghiu on Twitter