Bankruptcy Next, PG&E Says. Shares Down 90% in 15 Months. From “Investment Grade” to “Default” in Three Weeks?

California’s rate payers & taxpayers likely on the hook, as we know from PG&E’s first bankruptcy in 2001.

“PG&E remains committed to providing safe natural gas and electric service to customers as it prepares to initiate voluntary reorganization proceedings under Chapter 11 [of the bankruptcy code],” PG&E announced this morning. San Francisco-based, the regulated monopoly is one of the largest investor-owned utilities in the US and provides gas and electric services to 16 million Californians. It will file for bankruptcy “on or about January 29, 2019,” it said, following the 15-day advance notice required under California law.

During the bankruptcy proceedings, PG&E will conduct business as normal, it said. Customers will continue to receive services – indeed, power and gas are still working at our place in San Francisco – and employees will continue to get paid “as usual.” But that’s not much consolation for shareholders, as shares [PCG] plunged 48% this morning and are down nearly 90% from September 2017 (data via YCharts):

September 2017 marked the final days before the most destructive and deadly wildfires on record in California spread across PG&E’s service area. Numerous investigations and lawsuits have implicated PG&E’s faulty equipment and/or maintenance.

With the bankruptcy filing, the utility is holding a gun to California’s head – its lawmakers, regulators, and taxpayers. As we can surmise from PG&E’s last bankruptcy (2001), rate payers and tax payers will likely foot much of the bill, after shareholders get mostly cleaned out – they already have been, see chart above – but the sacred bondholders will likely be made whole.

The yet to be named banks that PG&E expects to provide $5.5 billion in Debtor in Possession (DIP) financing during the bankruptcy proceedings will make a bundle.

PG&E said that the bankruptcy process “will, among other things, support the orderly, fair and expeditious resolution of its potential liabilities resulting from the 2017 and 2018 Northern California wildfires, and will assure the Company has access to the capital and resources it needs to continue to provide safe service to customers.”

In addition, and this is a biggie, PG&E expects the filing to:

Allow the Company to work with regulators and policymakers to determine the most effective way for customers to receive safe natural gas and electric service for the long-term in an environment that continues to be challenged by climate change.”

This is where the bankruptcy filing becomes the gun held to the head of California’s lawmakers and regulators. PG&E will put pressure on them to change laws and regulations so that they will deflect liability from any wildfires its equipment might cause in the future away from the company.

PG&E’s service area extends from Santa Barbara County and part of Kern County in Southern California to nearly the border with Oregon, and includes the Bay Area (map via PG&E).

Unlike its first bankruptcy filing in 2001, which covered only PG&E the utility, and not the holding company, PG&E Corporation, this time around, the bankruptcy filings will be for both entities, the utility and PG&E Corporation.

Other large utilities have also filed for bankruptcy protection, including in 2014, Energy Future Holdings that included the Texas mega-utility formerly called TXU Corporation.

PG&E’s bankruptcy filing doesn’t come as a surprise – though the stock market acts totally surprised. See the plunge in shares today. But back on November 14, 2018, our utility experts and authors Leonard Hyman and Bill Tilles already assumed the company might have to file for bankruptcy to deal with the claims from the fires in 2017 and 2018, because at that time, it was already running out of financial options.

Yesterday, the day before the bankruptcy announcement, PG&E announced “the departure of Geisha Williams,” who had been promoted to CEO in 2017. She also “resigned from the Boards of both the holding company and the utility.” The company is now “conducting a search” for a new CEO. The Board promoted John Simon to interim CEO. He’d been Executive VP and General Counsel. He is a lawyer and former litigator.

Concerning the bankruptcy filings for the utility and the holding company, PG&E said the move “represents the only viable option to address the Company’s responsibilities to its stakeholders,” which include “wildfire victims, customers, employees, creditors, shareholders, the financial community and business partners.”

Last week, Moody’s cut PG&E’s corporate credit rating by five notches in one fell swoop, from investment grade to junk, following a similar cut by S&P Global Ratings. No telling why it took them so long, considering how long the bankruptcy issue has been kicked around. These downgrades to junk forced PG&E to post cash collateral, which removed any financial breathing room the company still had. The bankruptcy filing becomes the logical next step.

PG&E’s expected $5.5 billion in DIP financing will assure funding during bankruptcy and eliminates the problem caused by having to post cash collateral.

No later than the day PG&E actually files for bankruptcy (“on or about January 29″), the ratings agencies will cut their ratings to default. From investment grade to default in less than three weeks.

This follows the briefly successful efforts to manipulate up PG&E’s beaten-down shares two months ago, when California Public Utilities Commission President Michael Picker said in a November 15 investor conference-call organized by Bank of America that the PUC didn’t want PG&E to go into bankruptcy. The next day, shares skyrocket 35% to $24.40. OK, that was fun while it lasted. 
 

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  89 comments for “Bankruptcy Next, PG&E Says. Shares Down 90% in 15 Months. From “Investment Grade” to “Default” in Three Weeks?

  1. Rza916
    Jan 14, 2019 at 2:31 pm

    If California doesn’t overturn inverse condemnation, it’s in for a world of pain and restructuring.

    How did it take credit agencies this long to rate them as junk?

    • Justme
      Jan 14, 2019 at 2:48 pm

      Please clarify, with dates of laws passed and/or other references that explain what you mean.

      • Jan 14, 2019 at 3:14 pm

        Bill Tilles, in his article of November, which I linked in the above article (and now below), cited PG&E concerning the impact of “inverse condemnation” in California law:

        “In a previous 8-K document filed with the SEC in late June, PCG’s President and CEO, Geisha Williams, claimed that fire “liability regardless of negligence undermines the financial health of the state’s utilities and has the potential to materially impact the ability of utilities to access the capital markets.” She blamed the state’s policy of inverse condemnation for the utility’s difficulties.

        “According to the utility, California is one of the few states where courts have applied the principle of inverse condemnation liability associated with investor-owned utility equipment. In this instance, a utility remains liable for all property damages and attorneys fees related to a wildfire even if all inspection and safety protocols have been observed rigorously.”

        https://wolfstreet.com/2018/11/14/will-pge-have-to-file-for-bankruptcy-protection/

        • OutLookingIn
          Jan 14, 2019 at 5:11 pm

          Status of PG&E CEO (since 2009) Geisha Williams.

          Resigned just prior to the filing of bankruptcy.

          Her severance package as being reported $2 – $4.5 million.
          She was paid $8.6 million compensation, mostly in company stock for just 2017 alone.
          Eligible for a pension of $3.1 million.

          Although the last two items might be worth zero, depending upon the outcome of the bankruptcy proceedings.

        • Accus
          Jan 15, 2019 at 8:35 pm

          What a concept. A corporation is responsible for the damage it causes. Amazing. How did that happen in the United Corporations of America? No wonder they are crying about how unfair it is that a corporation might actually be held responsible for the damage that it does.

    • GP
      Jan 14, 2019 at 3:46 pm

      We give a lot of credit to credit agencies.

      How soon we forget how many junk MBS were marked AAA by these very same agencies.

      They neither have resources or visibility to accurately rate so many instruments.

    • Jan 17, 2019 at 12:06 pm

      Just wait until they open the diversion tunnel and shut down
      Hoover dam…. Over 20 million will be without power, and
      prices will go up 1000%.

  2. Jdog
    Jan 14, 2019 at 2:46 pm

    20B in shareholder value gone. Insurance companies on the hook for PG&E’s negligence. Taxpayers will end up subsidizing this thing and the criminals who manage the company will profit. You got to love it.

    • Paulo
      Jan 14, 2019 at 6:17 pm

      You forgot the part where they abscond with employees pension investments.

  3. Pete in Toronto
    Jan 14, 2019 at 2:49 pm

    Wolf,

    Sure, the shares dropped 50% today to $9.

    But with bankruptcy imminent, I don’t understand why they aren’t trading for pennies.

    • Jan 14, 2019 at 3:06 pm

      There isn’t a lot of logic behind this: Sears Holdings is trading at $0.48 (pink sheets), which is higher than it was before it filed for bankruptcy. These shares will be cancelled. Yet there’s always someone trading them.

      But, unlike Sears, PG&E’s restructuring might not completely dispossess existing shareholders. Unlike Sears, it’s a functional business with solid demand (monopoly) and a lot of valuable assets. We don’t know yet how this will turn out, and there might be some crumbs left over for shareholders.

      • Bobber
        Jan 14, 2019 at 3:31 pm

        At $8-9 per share, it still has a market cap of $9B. I doubt that would qualify as “crumbs”. If the bankruptcy happens, I expect the market cap will drop to below $1B, if not zero. Current shareholders have no leverage that I can see. The company will function just as well without them. Plus, the public wants to see some people get punished. It’s not politically feasible to defend current shareholders.

        • BTilles
          Jan 14, 2019 at 4:12 pm

          Hi Bobber,
          I think we wlll see what is politically feasible rather soon as Gov. Newsom makes his views known.

        • Jan 14, 2019 at 4:49 pm

          Bobber, I’m with you. I’m definitely not a buyer of those shares, no matter what the price, until there is some clarity.

        • Jan 14, 2019 at 9:10 pm

          I wonder if they’ll be looking into making it a state owned & operated utility. I think state run anything is a popular idea among our elected representatives here in Cali.

      • alex in san jose AKA digital Detroit
        Jan 14, 2019 at 5:35 pm

        Wolf – Agree. You can get your tools and tough jeans and dishwasher at any of a number of other places. But PG&E has a monopoly and that’s worth something.

    • BTilles
      Jan 14, 2019 at 4:09 pm

      Hi Pete,
      Excellent question. Like Wolf says above there isn’t always a lot of logic in spasmodic share price moves like today’s. However, the equity market seems to saying this is worth something, perhaps not much, but something. Also since it is still a utility providing a vital service a traditional liquidation like Sears’ is out of the question.

    • Juanfo
      Jan 17, 2019 at 1:43 pm

      Insiders holding out for a bailout.

  4. Jan 14, 2019 at 3:38 pm

    SDGE turns off power to people in the back country when there is a high fire danger. How’s that for inverse mediation?

  5. Auld Kodjer
    Jan 14, 2019 at 3:53 pm

    Ah, the sanctity of the corporate veil, behind which hide the cowards and the villains. Promoting a scuttering lawyer as new CEO says everything one needs to know about how PG&E intends to manage its “stakeholder responsibilities”. Not all stakeholders are born equal, right?

    Break. It. Up.

    • Piercings
      Jan 15, 2019 at 8:38 pm

      Problem … a corporation appears to have massive problems in its maintenance and operations.

      American solution: Put a lawyer in charge.

  6. Howard Fritz
    Jan 14, 2019 at 3:56 pm

    I thought Enron taught California a lesson, I guess not.

    • BTilles
      Jan 14, 2019 at 4:15 pm

      Hi Howard,
      Enron reminded Californians that trading dimes for nickels times a hundred billion or so is a bad idea.

  7. titan28
    Jan 14, 2019 at 4:14 pm

    Is everyone certain that PG&E was negligent, or solely negligent? What about Moonbeam?

    Homeless people in encampments started several fires in CA. Did anyone go after their deep pockets? What about arsonists? Any of them pay up? What about people building houses where they shouldn’t?

    I’m not letting PF&E off the hook. Corporate officers and connected others will make out, taxpayers will get shafted….what, precisely, is the alternative? California, a fair bit of it, is wind-driven tinder.

    Sure, break up PG&E. But there is no way anyone is going to provide risk free electricity to those parts of CA subject to wildfires.

    Or am I missing something? What’s the better way?

    • Jan 14, 2019 at 4:56 pm

      titan28,

      You’re not missing anything. That’s the peculiarity of California law. PG&E is trying to get California lawmakers to address it.

      • Jack
        Jan 14, 2019 at 8:49 pm

        Afternoon Wolf, and everyone here,

        First , I want to thank You for the continued hard work that you do here. and for your replies to the questions.

        Second, I believe that when a country “any country for that matter “ delegates the running of it’s vital infrastructure to private Enterprises “ or those running as publicly listed, with grand views of ever expanding with No limits set on acquisitions of these infrastructure and the continued Failure of performance Auditing by the Regulators leads inevitably to these kind of quandary “

        Questions to answer here are;

        – for the regulators; why doesn’t it ring alarm bells when an outfit like a Utility Company Expands beyond its ability to manage a particular Geographical boundary?

        – for the average Joe, how can you hold anyone responsible for your choosing to live in a Fire / Flood prone area ( duty of care towards your Family and your life)

        – for the government, how long / how bad does it have to go to recognize that outsourcing ( Water, Electricity, Transport.., etc.) will ultimately lead to the public footing the bill?!

        Capitalism is Good, but it stops being so when it relies on Socilizing the Cost.

        Best wishes to all.

        • HMG
          Jan 15, 2019 at 12:51 am

          It just illustrates the continuing and expanding process of privatising the profits and socialising the losses. An issue linked closely to “too big to fail”.

          Until some responsibility for the losses (eg RBS) is put back on the Directors with limited share holdings in large PLC Companies the problem will never be solved.

          This problem particularly affects the USA and the UK.

        • robt
          Jan 15, 2019 at 1:01 pm

          Privatizing/outsourcing is not ‘privatizing’. Generally input costs are not regulated but selling prices are regulated for political reasons. Governments will typically privatize when they have run the utility into a state of collapse and failed to maintain capital assets, having preferred instead to maintain the illusion of low prices as well as lush pensions and salaries.
          It has nothing to do with capitalism.

      • Jack
        Jan 14, 2019 at 11:46 pm

        Wolf..
        My previous comment did not appear?!

        Was it received ?
        Was it within your guidelines?

        Thank You

        • Jan 15, 2019 at 12:41 am

          No problem. It got hung up in a tripwire while I was having dinner, and so it sat for a little while. When I saw it, I released it. Patience, dude :-]

    • BTilles
      Jan 14, 2019 at 4:58 pm

      Hi titan,

      Negligence of PCG is not at issue. The issue is whether liability for the fire can be assigned to them regardless of negligence. See inverse condemnation above.

    • KMOUT
      Jan 14, 2019 at 5:06 pm

      Two sets of laws.
      One for deep pockets (us and businesses),
      Another for the low life bum mascots of the left.
      None of the doomers mention the enviro lawyers (and other special interest lawyers) that are strip mining the obvious vulnerabilities of the citizen. After all, it’s us that ultimately foot the bill.
      In my town, the riverbed is an open pit sewer and trash dump site full of bums with illegal campfires every night.
      Ventura does nothing.
      No money there for the surfrider and sierra club lawyers.

      • Helmut Beintner
        Jan 14, 2019 at 6:05 pm

        It was like that always and will not change.Money and entitlements talk.
        Greed : enough is NEVER enough.

      • Gandalf
        Jan 17, 2019 at 11:42 am

        KMOUT,
        The Ventura River is dry most of the time but on average floods every 5 years and has a major flood every 14 years

        http://venturawatershed.org/wp-content/uploads/2011/12/VRWCPlan_Part_3-3_Hydrology1.pdf

        Go to p.63, section 3.3.2

        Why bother with cleanup when nature washes all the trash into the ocean for free every few years?

        With zero-growth forces driving housing prices up, housing becoming unaffordable for more and more people, great weather year round, better than even socialist homeless friendly San Francisco, Ventura is a perfect haven for California’s homeless.

        Most Venturans would much rather have the homeless camping out at the riverbed, out of sight, than hanging around inside the city. San Francisco should be so lucky.

        I was living in Ventura in 1992 when a major flood hit the river and videos of RVs and other debris getting washed down the river made national news. Concerned relatives called to make sure we were ok.

        Ventura’s city and county governments are way too frugal to set up shelters or other assistance for the homeless like SF did. Instead, private charities go around handing out blankets and coats to the River Bottom dwellers

        At one time, Fresno’s solution for its homeless was to have the police escort them to the bus station with one way tickets to San Francisco

    • alex in san jose AKA digital Detroit
      Jan 14, 2019 at 5:41 pm

      “Moonbeam” Brown got that nickname because back in the day ™ he proposed California launching a satellite of its own. Back in the day ™ only large nation-states launched satellites.

      The idea was that sooner or later we’re going to have “the big one” and it would be really useful to have a means of communication that a quake Earthside can’t mess up. Plus we’d lease satellite use to others, and it would spur development of better sat phones. It was a great idea.

      Brown’s been a good, fiscally conservative governor. He was elected on that platform and he’s carried it out.

      Newsome, our new guy, is actually doing the kinds of things one would think of a “Brownian”. More programs for the homeless, a health insurance mandate, etc.

      (I still have a real problem with forcing a person to buy something. I like how England installed the National Health. Just set it up, raise taxes a little if you have to but since those taxes are raised on everyone, it’s just a bit more, and ta-da no more outrageous health insurance premiums, and you can still go private if you like.)

    • Jdog
      Jan 15, 2019 at 11:18 am

      California utilities (all of them) are notorious for their poor maintenance of fire prone areas. Ever since deregulation came about, the budgets for maintenance have been cut time and time again. The only focus California utilities have had since deregulation is profit.

  8. Harvey Darrow Cotton
    Jan 14, 2019 at 4:27 pm

    Reuters headline: “PG&E bond prices fall; spreads widen on bankruptcy plan.”

    Yeah. Ya think?

  9. D. Bruce Turton
    Jan 14, 2019 at 4:28 pm

    Just curious: if many California taxpayers are going to be on the hook (again!) for this current bankruptcy, why not go ahead and make the utility a public possession? Or is that just too far for Americans to accept?

    • Jan 14, 2019 at 5:00 pm

      Excellent question. Many people are having the same thoughts. But I’m not sure how realistic this is, even in California.

      There are some publicly owned electric utilities in California, but none are very big.

      • BTilles
        Jan 14, 2019 at 5:23 pm

        Hi Wolf,

        Let me try this for a public vs private answer to the utility’s question. Inagine the identical company, minus shareholders. The additional financing all came from bondholders. The Chief Executive is appointed by the Governor answering to a Board of Directors comprised of senior industry experts and cuvil servants. Under this financial and mgmt structure howmuch would change.

        • Debt Wazoo
          Jan 15, 2019 at 4:54 am

          > The Chief Executive is appointed by the Governor

          That’s a stupid idea.

          In Washington the PUD commissioners are directly elected by the ratepayers.

        • Jdog
          Jan 16, 2019 at 7:29 am

          The problem with a deregulated utility is the incentive to profit from accounting instead of providing service. Utilities have 2 separate budgets, one is O&M which pays for the maintenance of the system. The other is Capital which pays for major purchases. Utilities are allowed to make higher returns on Capital than O&M so it gives them the incentive to spend money on things they do not necessarly need instead of maintaining the system. In the past Utilities were run by people who started in the field and worked their way up. Today they are run by MBA’s with no experience in the buisness, and who do not give a damn if the lights stay on, they just want to make profit. I know of one case where a utility purchased millions of dollars in transformers just to turn around and scrap them because they could make profit doing so.

      • Mike G
        Jan 14, 2019 at 5:53 pm

        Los Angeles Department of Water and Power does about $6 billion in revenue and has over 9,000 employees. Pretty big.

      • Jan 14, 2019 at 6:08 pm

        We had a mobile home park burn when a fire started on the freeway, probably a faulty catalytic converter, traveled half a mile to a mobile home park, and destroyed half the homes. Who is liable? The driver of the car who started the fire, the agency who should have known that during high fire danger this is a critical area, the people who own the open land between the freeway and the mobile home park, or the park owners for not creating defensible space? Or all of them? Juries typically award these things on a scale, so PGE deserves it’s day in court, even if the inverse condemnation law is in place they can go after the other parties. Only the lawyers get paid. It would be better for the state to step in and call a time out. The homeowners have to accept some of the risk as well but one gathers this is not a wealthy community. What happens in the inner city when a poor tenement house burns down? New York would have been broke years ago.

      • Paulo
        Jan 14, 2019 at 6:41 pm

        BC Hydro is a Crown Corporation and does a very good job as long as Govt does not raid their cash surpluses for general revenues (which they have done so in the past).

        Anyway, I know many many Hydro employees and they always speak very respectfully towards the ‘ratepayers’, (customers); those ultimate owners of the utility. We just had a massive windstorm that knocked out hundreds of thousands of customers off the grid over the holidays. Hydro worked tirelessly to restore service over Christmas and through New Years. Excellent service!!! Customers were bringing the linemen hot drinks and food to thank them for working in such crappy weather.

        BC Hydro rates:
        A small, daily charge that partially covers the fixed cost of services for things such as metering and billing.
        $0.1956 per day.

        Energy Charge

        Step 1
        $0.0884 per kWh for first 1,350 kWh in an average two month billing period (22.1918 kWh per day).

        Step 2
        $0.1326 per kWh over the 1,350 Step 1 threshold.
        Minimum Charge
        $0.1956 per day.Equal to the Basic Charge.

        PG & E rates include time of use charges with a hodge podge of different rates.

        Crown Corporations look pretty good compared to PG&E. I do not understand the fear so many Americans have towards pooling together in order to offer basic life neccesities. Why does shareholder profits have to be made on heat, lights, water, and health care. If your answer is efficiency and price PG&E doesn’t back up the argument.

        regards

        • sierra7
          Jan 15, 2019 at 12:11 am

          The problem in America is that those ideas are not allowed to spread. That is the fear of so many corporate entities, courts, politicians etc. The bugaboo of “the Commons” becoming attractive to the common people. Another grand “Red Scare” would have to be levied on the American people.

        • Debt Wazoo
          Jan 15, 2019 at 4:56 am

          It’s not “the commons”, it’s a natural monopoly.

          Homeowners would never tolerate a second set of ugly utility poles on every street. Especially since the second set provides no additional benefit.

          Utility poles (and underground ducts) are a natural monopoly.

        • MD
          Jan 15, 2019 at 12:23 pm

          What they ‘have against it’ is 40+ years of neoliberal propaganda, perpetrated by wealthy entities who don’t want to pay tax, which informs the masses that all state-owned institutions are corrupt, inefficient and malign in intent, and label anyone who thinks otherwise a ‘communist’.

          Of course these self-same folk are quite happy to suckle at the state teat when it benefits them…they’re different, see, and unlike you or I are not communists/socialists if they receive benefits from revenues gained via taxation, or state money creation.

          Different rule sets.

      • BTilles
        Jan 14, 2019 at 8:52 pm

        Hi Wolf
        If we expanded our search for publicly owned utilities we would find Seattle, the TVA, the state of Nebraska, and outside of the US a place called France.

        • Jan 15, 2019 at 12:33 am

          Bill,

          My own experience with public utilities in places where I lived that had them has been mixed from a consumer’s point of view (service & rates). I have no problem with them, if they’re well-run.

          The choice is a regulated investor-owned monopoly or a publicly owned monopoly. So the question for me is this: Are we better off being served…

          1. by a company whose top motive is to maximize profits and pay dividends, but that doesn’t have competition that forces it to offer better and cheaper services; and instead has regulators.

          2. or by a company whose top motive is to service its customers, who are voters, at a reasonable price and cost.

          If governmental corruption didn’t exist, I would go for #2. But reality being what it is, I’m not sure….

          EDF is an example of what not to do. Back in the day when it was 100% publicly owned, it always had a CEO who was a former minister that, after losing his job, was “parachuted” into the CEO job without knowing anything about the industry.

          The cover-ups about EDF’s nuclear contamination issues are now legendary… this involved the collusion of EDF, regulators, the elected government, and investigators, who all had essentially the same boss, which is always a real problem because it makes people involved feel like they can act with impunity.

        • MD
          Jan 15, 2019 at 12:30 pm

          EDF has done great out of expansion into other countries which have ‘liberalized’ their energy markets (such as the UK). The monies they collect from the other nations in which they operate go towards funding state pensions and democratic infrastructure of the French.

          So when you buy EDF energy outside France, it’s effectively picking up someone else’s tax bill.

          Same with Statoil in Norway – over 80% of the oil remains state-owned and they’ve used the revenue from selling it to build a massive sovereign wealth fund which means the Norwegians are per capita the wealthiest people in the world (or were in the last figures I saw).

          Just imagine how wealthy the USA would now be if it had done the same! Instead it went into the pockets of the wealthy (mostly) – then straight into tax havens.

          Just like the wealth of every other third-world nation in fact.

      • Debt Wazoo
        Jan 15, 2019 at 4:53 am

        Most counties here in Washington have their own Public Utility District. It is awesome, especially the ones that do the smart thing and put up fiber wherever they put up transmission lines.

        Hilariously, it’s the few wealthy Puget Sound counties (King, Snohomish, Whatcom) that couldn’t figure out how to create PUDs.

        • Debt Wazoo
          Jan 15, 2019 at 5:02 am

          Also:

          1. Because PUDs are County creatures (not State-level) there is a natural and small limit to how big they can get. Like depository banks in the 1980’s before interstate banking was allowed.

          2. To make this work you have to have the ratepayers directly elect some person or people whose only job is running the utility. If you let the governor appoint the utility’s managers/commissioners they can install some moron and then make up for it by their other governating. When you’re electing somebody solely to run the utility and the utility isn’t running right they don’t have a lot of options for winning the next election.

          Same reason why police chiefs can be sadistic assholes but sheriffs can’t — the sheriff has to stand for an election and be judged solely on their sheriffing.

      • Jdog
        Jan 15, 2019 at 11:24 am

        Re-regulation would be a better alternative. Since deregulation rates have skyrocketed and maintenance and investment in the grid has become secondary to corporate profit.
        When it comes to a monopoly, you cannot expect corportate conscience to do what is in the publics best interest, they need to be strictly regulated or they will be the fox in the hen house.

      • Gadi
        Jan 15, 2019 at 12:21 pm

        I think the private utility is a good deal. Under the current model, the loss is shared between equity holders, bond holders, and tax payers.

        If tax payers owned the utility, they would have to foot the entire bill.

        • MD
          Jan 15, 2019 at 12:35 pm

          If it were state-owned, it wouldn’t have to use ‘financial engineering’ to keep stockholders happy (eg loading up on debt). So I doubt it would be in this position in the first place…

          Once you’re subject to ‘market forces’ you need to increase stock price and dividend by all and any means possible. State-owned entities have no such compulsion.

        • Jan 15, 2019 at 2:31 pm

          Gadi,

          Yes, I agree with your theory, but the problem with this theory is reality. In reality, utility bondholders are sacred. They will be bailed out at taxpayer and ratepayer expense. They were last time in California. And by the looks of it, bondholders will get bailed out again this time. They got paid to take the risks, and when haircut-time arrives, it turns out that the losses are being shuffled to taxpayers and ratepayers.

        • Jdog
          Jan 15, 2019 at 4:42 pm

          Another example of private profits and public loses…
          I guess it works for the wealthy…

          If taxpayers owened the utility, there would be no incentive to not to do the maintenance on the lines….

  10. Bruce Kowal
    Jan 14, 2019 at 4:39 pm

    If PG&E becomes a “public” corporation, it will be the Mother of all patronage pits. Awww, what the Heck, California? You know you want to “nationalize” the power company. Go for it. Single-Payer Health Insurance, and now single provider power company. What can possible go wrong?

    • BTilles
      Jan 14, 2019 at 4:56 pm

      Hi Bruce,

      In terms of what can go wrong or right I suggest you look at the public power agencies that have existed for some time, LADWP and in Sacramento, SMUD.

      • MCH
        Jan 14, 2019 at 7:29 pm

        Oh man, BTilles, SMUD is just one letter off. Where do people come up with those acronyms? heh heh.

        But I do agree, having a public utilities company might not be a bad thing. In my earlier years when I lived in Santa Clara, they did have their own public utility, and it was quite affordable then. I don’t remember the details of how they worked or where they got their power from, I wonder if they bought it from PG&E or had it their own power generation source. But I was sorry to have to switch to PG&E.

        But I think for it to make sense, the utilities might have to become more local, and not some overarching giant that lords over half the state. That’s just a different recipe for too big to fail. Basically, kind of like your local sewer and water supplies. (although I have to say, those are being hit with rate hikes pretty much every year, so I’m not sure how efficient they really are)

        • Atu
          Jan 14, 2019 at 8:09 pm

          I had to look up SMUD as I’m not a local and came up with Stand-off Munitions Disruption and a french orchestra, which both sound about right?

          My experience of public utilities or pooled service is very very varied. In Oz car insurance was (is?) government run and it is very straightforward, tying into mot and registration etc. Then going to water suppliers in southern Europe, some regional, some national, and there there is obvious mismanagement, from lack of maintenance through to very poor service… with ups and downs depending on if they are tendered out or government workers etc. etc. etc. . That brings me round to the larger cycles in this all, say the UK PPI schemes where they hybrid out once public services with unhappy results, or liberalisation in Europe same.

          Meaning? Well sometimes it looks like whatever the political flavour of the day is holds sway, or that change in opposite direction is a solution once the previous setup starts to fail – you go from nationalised to denationalised to nationalised to hybrid to…. etc.

          So Paulo mentions Canadian utilities working, along with a good attitude, and that is fine, but that sort of framework only comes with a deeper sense of civility in society maybe – not just the workers but voters and politicians. As far as I can tell a solid framework is usually built up over a long long time, to the point it is a tradition almost. I don’t know if it can easily be repeated in today’s world where nationalisation is often run by flash outfits in corrupted governments that are often all but responsible.

          So what is the ethic of our times really, seems very chaotic to me.

        • MCH
          Jan 14, 2019 at 8:54 pm

          Atu, replace D with T and you get what I mean.

          We are right now in the age of extremes. It’s utterly idiotic if you ask me. But north extremes lead to the same result. Too big to fail. Taxpayers are hosed.

        • Debt Wazoo
          Jan 15, 2019 at 5:06 am

          > But I think for it to make sense, the utilities might have to become more local

          It works in Washington. PUDs can’t grow bigger than their home county.

    • KMOUT
      Jan 14, 2019 at 5:09 pm

      You got it buddy,
      The ultimate goal.
      Keep pounding away on the government sanctioned tax collectors of the citizen ( corporations) until they are ruined then nationalize it.

    • KFritz
      Jan 14, 2019 at 5:37 pm

      Regarding B. Tilles information, if you go to the Wikipedia article for either utility, you can find a dropdown infobox with a full listing of all municipal utilities–in California.

      • KFritz
        Jan 14, 2019 at 5:38 pm

        Oops. Scroll down to the bottom of the page to find the infobox.

    • timbers
      Jan 14, 2019 at 9:52 pm

      “Single payer” and “health insurance” are mutually opposite as used in practice. I believe California mandates not healthcare, but insurance.

      Insurance isn’t healthcare.

      If you have a national or state program, using a middle man – insurance companies – doesn’t make sense unless you want to waste a lot of money.

      If a program is national or statewide, you in effect absorb the risk anyway, therefore “insurance” is redundant because you’re already paying for it all by assume full liability through funding.

      And insurance companies do not have “single payer” power to get best prices especially against monopolies such as drug companies, like the government does.

      Medicare for all would be closer to single payer (although Congress and Presidents have repeating blocked Medicare form using single payer on rich gigantic monopolistic drug companies…it is estimated it costs you and me and the rest of us about $300 billion/year because of that).

      The undisputed Gold Standard in healthcare recognized throughout the world, is universal single payer fully funded by government – socialized medicine, Medicare for all, what have you.

      Insurance mandates are an invention of the right wing conservative Heritage Foundation, proposed by Dick Nixon, rejected by Ted Kennedy, Bob Dole campaigned on it, Mitt Romney passed it in my state of Massachusetts, and Barack Obama nationally.

      The primary beneficiaries of insurance mandates are rich gigantic insurance corporations, and the skyrocketing CEO bonuses in the medical and insurance industry that occurs when insurance mandates are enacted.

      That’s why established Dems fought so hard to block single payer.

  11. Art
    Jan 14, 2019 at 6:02 pm

    No doubt, the sate of California will provide sanctuary for PG&E’s bailout.

  12. MF
    Jan 14, 2019 at 6:08 pm

    As of September, Blackrock owned 48.5k shares worth $2.2b. It will be interesting to see how much they sold during the fire. If they held, the value has dropped by $1.8b. What are the chances they held though?

    Meanwhile, small investors holding PG&E stock in a bundled “conservative” product in their 401k are getting killed and don’t even know it.

    This sort of thing illustrates the folly of economic theories that “the market” treats all actors equally. Their arguments are 100% self-serving and should be seen as such. Information is never perfect, is always asymmetric, and always favors the largest, most powerful actors.

    • MF
      Jan 14, 2019 at 6:09 pm

      Correction: 48.5m, not thousand.

    • BTilles
      Jan 15, 2019 at 6:22 am

      Hi MF,

      My hunch is that Blackstone never sold a share. They would hold whatever some index told the to. Now that the stock price has declined significantly, its weighting in the reference index will,have declined. Now they will begin to receive a sell signal

  13. GJP
    Jan 14, 2019 at 6:58 pm

    I wonder how one applies for the job of CEO there. From Geisha Williams wiki page, she sounds like the LAST person who would be qualified to run a company the size and complexity of PG & E…leading my wife to think she was likely a stooge.

    From a business standpoint, it would be relatively easy to sort out the various interests…recognizing what each party needs. Underlying the whole political mess, the bottom line is that the lights need to stay on.

    If E Musk can get 5 billion to build his toy cars, the FEDGOV and STATE are going to cough it up sooner or later. At the same time, the GOV can fix the problem in a WEEK without costing the stakeholders squat…but they lack the vision to do this.

    • BTilles
      Jan 14, 2019 at 10:15 pm

      Ms Williams was a highly accomplished utility executive recruited from Nextera based in Miami.

  14. clay dennis
    Jan 14, 2019 at 7:17 pm

    This is what the future looks like. As insurance companies and other parties see increasing losses due to aging infrastructure, an outdated power grid, rising sea levels and increased storm activity they will be looking to find someone else to pay the bill. Ultimately we will run out of counterparties and tax payers to cover the costs and will have to Triage where people live and do business. People in the boonies will be cut off from the grid, property on the waters edge in Florida will not be insurable at any price, etc. In the meantime financial carnage will run amok until we realize the world is changing.

  15. Scott
    Jan 14, 2019 at 7:36 pm

    Another question which some coworkers raised to me is the impact that this bankruptcy will have on renewable energy companies who have PPAs with PG&E. Many of these were signed years ago at prices that are now well out-of-market for similar deals. In bankruptcy, the future of these contract is unpredictable and they might be canceled. If they are cancelled by the bankruptcy judge, then what will happen to the renewable companies? Will the markets or new PPAs be able to cover the financing costs for the SPVs which own the projects? Will it affect financing costs and expected returns for any future renewable projects in California even if the counterparty is a different utility?

    • BTilles
      Jan 14, 2019 at 9:59 pm

      Hi Scott,
      Typically, all out of the money contracts can or should be rejected in bankruptcyin the interest of future solvency.

  16. roddy6667
    Jan 14, 2019 at 9:35 pm

    I a person or utility is liable for damages whether he follows the law or not, why would anybody obey the law?

    • Debt Wazoo
      Jan 15, 2019 at 5:09 am

      To prevent damages, for which they are liable.

      Duh.

    • BTilles
      Jan 15, 2019 at 6:18 am

      Hi Roddy,
      Because the law only applies to a realtively few corporate entities already doing business in the state.

  17. Lion
    Jan 14, 2019 at 9:37 pm

    In the end, taxpayers pick up the remaining tab one way or another. Maybe PG&E will try to make a secret deal like SCE. Though SCE’s secret deal, actually conducted in Poland with the State of California, didn’t go over too well once the public became aware of it.

    https://www.sandiegouniontribune.com/news/watchdog/sd-me-settlement-deal-20180130-story.html

    Should be a good year for the lawyers.

  18. Jack
    Jan 15, 2019 at 2:01 am

    .. Wolf,

    Thank you, I am Not as pissed I was 5 Minutes ago!! :))

    Cheers.

  19. Rob
    Jan 15, 2019 at 4:28 am

    why no reinsurance to spread the risk beyond PG&E’s balance sheet?

    • BTilles
      Jan 15, 2019 at 6:09 am

      Good question. They did carry some, a modest amount, but it was far less than they needed. My guess is that it was unavailable at affordable prices.

  20. Jan 15, 2019 at 9:46 am

    First Energy Corp (Akron, OH) filed for bankruptcy last year (well, “FirstEnergy Solutions”–the coal and nuclear divisions of FirstEnergy), as Coventry League Capital Partners pointed out last week in its blogentary titled, “Fraying Grid: Predictable Outcome Manifests.”

    It hinted at the further imminent collapse of PG&E, too (the stock has a $6 handle at open today, Tue. 15 January 2019, and is falling fast).

    The blog also suggests that there’s more to come with other utilities (co-ops, too) given the terrible conditions of our electrical grid, poor management in general, and small grid alternatives. It includes a good comparison to other developed nations as well.

  21. Fred
    Jan 15, 2019 at 10:23 am

    Unlike Toyr-R-US we know PG&E will not cease to operate, and will live to fight another day.

    Will all the shareholder equity vanish or is there a way to play this to profit? If I buy shares of PG&E when it is 25 cents, will the shares be re-born into a new entity or will the shares be 100% wiped out?

    Since the company is probably widely held by pension funds I wonder if PG&E will get a different deal from regulators than a common toy company.

  22. Sadie
    Jan 15, 2019 at 10:30 am

    I wonder if Moody’s held off on their bonsai five notch ratings cut until the shorts were securely in place….

    Stan Druckenmiller said he made greater gains going short that being long when the risks were binary and in his favor. When the infamous bet to break the pound was placed he said they looked at the risk reward ratio and the upside was pretty much flat with the downside profit potential having a lot lower risk than the upside. I know this seems over simplified but I’m sure they had already calculated out the odds of weathering the short squeeze before the bottom fell out. Plus Soros had the capital to weather the volatility until the trade played out in their favor.

  23. vap
    Jan 15, 2019 at 8:29 pm

    Meanwhile Germany is having enormous economic problems.
    China has already seen a 20% reduction in car sales, with startup car companies on the verge of bankruptcy soon too. Hence China startup NIO.

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