How did Pacific Gas and Electric Corporation end up bankrupt and responsible for more than 1,500 fires in California? How has the utility emerged from its bankruptcy and what does the future hold as PG&E pays billions in reparations?
The woes besetting Pacific Gas and Electric (PG&E) are reportedly the result of years of mismanagement and lack of maintenance. As a result, the utility company is said to be responsible for more than 1,500 fires in California between 2014 and 2019.
Between June 2015 and December 2018, the following fires caused devastation across PG&E territory: The 2018 Camp Fire which killed 85 people – the fire was said to be caused by PG&E transmission lines. Fires in 2017 [Northern California wildfires], 2016 [Ghost Ship Fire] and 2015 [Butte Fire] are said to be responsible for an additional 66 deaths.
This article was originally published in Smart Energy International Issue 4-2020.
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The Camp Fire is said to be the deadliest and most destructive fire in California’s history. In 2019, PG&E told the US District Court for the Northern District of California that its system may have “contributed” to nine wildfires of 10 acres or larger in 2019, including two attributed to vegetation and one to equipment.
In June 2020, Pacific Gas & Electric’s then CEO Bill Johnson, pled guilty on behalf of the company to 84 felony counts of involuntary manslaughter stemming from the 2018 Camp Fire.
WE HEARD EVERY WORD AND WE WILL NEVER FORGET THEIR PAIN AND LOSS.
“Our equipment started that fire,” said Johnson, who apologised directly to the victims’ families. “PG&E will never forget the Camp fire and all that it took away from the region.”
Among others, a downed PG&E transmission line was ruled as one of the causes of the blazes which destroyed large swathes of northern California. The financial liabilities compelled the utility to file for Chapter 11 bankruptcy protection in January 2019 – the second time in its history.
After months of speculation and discussion, the beginning of July saw PG&E emerge from Chapter 11 bankruptcy. The largest utility in the US has completed its restructuring process and implementing a Plan of Reorganisation as confirmed by the United States Bankruptcy Court.
In June this year, Bankruptcy Judge Dennis Montali approved a $58 billion plan for the Californian utility giant to emerge from bankruptcy by 30 June, the deadline that the company had to meet to qualify for coverage from a $21 billion wildfire insurance fund created by California last year.
The decision cleared the way for PG&E to pay $25.5 billion for losses as a result of the devastating fires in 2017 and 2018. Dozens of lawsuits were settled, with $13.5 billion earmarked for more than 80,000 people who lost family, homes, businesses and other property in the fires.
Speaking at the time, Johnson said: “Today’s ruling in the Chapter 11 proceeding concludes the process of approving PG&E’s Plan of Reorganisation and is a critical milestone that brings us one step closer to compensating wildfire victims fairly and quickly and sets the course for PG&E’s future. We appreciate the extensive collaboration among a broad range of stakeholders that brought us to this point as we work to reimagine the company.”
“… we have heard the victims of the 2018 Camp Fire share their traumatic and tragic experiences in a Butte County courtroom. We heard every word and we will never forget their pain and loss. With respect and humility, we came before the court, the victims and the community to be held accountable and accept responsibility for our role in the Camp Fire. All 23,000 PG&E employees are committed to making sure our equipment never again causes another catastrophe.”
“No apology, no plea, no sentencing can undo that damage, and no passage of time can lessen the anguish we heard expressed in court. While nothing will repair the wounds caused by the Camp Fire, we hope the actions we are taking to reduce wildfire risk, harden our system and get victims compensated will begin to help restore the trust of our communities and their confidence that we are working to keep them safe.”
PG&E’s emergence from Chapter 11 is an important milestone for the company on several fronts. In addition to the implementation of the settlement and resolution of all wildfire claims as laid out in the reorganisation plan, PG&E will also participate in the State’s Go-Forward Wildfire Fund.
With the installation of a new board of directors, PG&E will also carry through all commitments regarding governance, operations, and financial structures with the objective being to prioritise safety. Finally, PG&E has retired expensive, high-coupon debt and replaced it with lower-cost debt, yielding significant annual savings for customers throughout the duration of the debt. The savings are estimated to be approximately $250 million annually.
“[This] announcement is significant for PG&E and for the many wildfire victims who are now one step closer to getting paid. Compensating these victims fairly and quickly has been our primary goal throughout these proceedings, and I am glad to say that today we funded the Fire Victim Trust for their benefit,” said interim chief executive officer, PG&E Corporation, Bill Smith.
“This is an important milestone, but our work is far from over. Our emergence from Chapter 11 marks just the beginning of PG&E’s next era – as a fundamentally improved company and the safe, reliable utility that our customers, communities and California deserve.”
Smith has taken over from Johnson, who stepped down at the end of June 2020, after 14-months at the helm. “I joined PG&E to help get the company out of bankruptcy and stabilize operations. By the end of June, I expect that both of these goals will have been met,” Johnson said when news of his resignation broke.
Smith joined PG&E’s board in 2019 and brings 37 years of experience from AT&T with him. He was previously president of network operations. Smith will serve as PG&E’s CEO until a permanent CEO is hired.
The PG&E board is made up of 14 members, 11 of whom are new. Members bring expertise in key areas including utility operations
and management, safety and environment, risk management, customer engagement, innovation and technology, regulatory affairs (state and federal), audit and finance, corporate governance, nuclear operations and decommissioning, and human capital and executive compensation.
“We know that actions speak louder than words. As new Interim CEO and on behalf of PG&E’s newly appointed Board, I can assure you we are fully committed to continuing to implement comprehensive and meaningful changes to position PG&E for the long term,” said Smith.
Fire Victim Trust
The Fire Victim Trust has received 476,995,175 shares of PG&E common stock and the first cash instalment of $5.385 billion as provided for in PG&E’s Plan of Reorganisation.
The formation and funding of the PG&E Fire Victim Trust was approved by the Bankruptcy Court to provide compensation to individual wildfire victims, including families and businesses, and certain other parties with wildfire-related claims.
The funding schedule for the trust is as follows:
- $5.4 billion in cash on 1 July 2020;
- An additional $1.35 billion in cash in two instalments in 2021 and 2022;
- PG&E Corporation common stock representing 22.19% of the outstanding common stock plus certain other rights;
- A $700 million payment scheduled for 2022 will be accelerated if the CPUC approves the rate-neutral securitisation application PG&E filed on April 30, 2020.
PG&E has also now funded two additional wildfire settlements, paying approximately $1 billion to satisfy the wildfire claims of certain cities, counties, and other public entities, and paying an $11 billion settlement to insurance companies and other entities that paid claims by individuals and businesses related to wildfires in recent years.
State Wildfire Fund
PG&E’s participation in California’s Go-Forward Wildfire Fund has been confirmed with the deposit of approximately $5 billion into the Wildfire Fund. This represents PG&E’s initial and first annual contributions.
Commitment to safety
As part of its ongoing commitments to safety, PG&E will, working with the California Public Utility Commission’s president Marybel Batjer and the Governor’s Office, to implement the following:
- Strengthen PG&E’s governance and operations, and commit to enhanced regulatory oversight and enforcement;
- Appoint an independent safety monitor;
- Establish newly expanded roles of chief risk officer and chief safety officer, with both reporting directly to the CEO;
- Form an independent safety oversight committee to provide an independent review of operations;
- Reform executive compensation to further tie it to safety performance and customer experience;
- Agree not to reinstate a common stock dividend until it has recognized $6.2 billion in non-GAAP core earnings;
- Commit not to seek recovery in customer rates of any portion of the amounts that will be paid to victims of the 2015, 2017, and 2018 wildfires under the reorganisation plan.
The changes to the risk and safety leadership structure split the responsibility between two senior leaders: a chief risk officer and a chief audit officer. Additionally, the position of chief safety officer will be elevated to that of a senior vice president role.
“Our new leadership structure is consistent with the commitments we made to the Governor’s Office and the California Public Utilities Commission to help improve our safety culture and our operational outcomes,” said Smith. “We are bolstering our leadership team so we can further integrate industryleading risk management approaches across all of our business.”
Sumeet Singh, who previously led PG&E’s wildfire safety efforts, is returning to PG&E and has been appointed senior vice president and chief risk officer (CRO), effective 1 August 2020. Singh will have oversight over all risk management related to PG&E’s operations and public safety. This includes risks associated with wildfires, nuclear, dams, natural gas and natural disasters, as well as other strategic risks confronting utilities, including cyber-attacks, pandemics and other catastrophic events.
Singh will also be responsible for evaluating risks associated with the controversial Public Safety Power Shutoff programme (PSPS).
Francisco Benavides, who currently serves as PG&E’s vice president and chief safety officer, has been elevated to senior vice president level. Benavides was appointed to the role in February 2020 and will continue reporting to Smith.
“PG&E is squarely focused on maintaining safe operations and improving our operational performance,” said Smith. “Sumeet and Francisco are talented leaders with the knowledge, experience, and commitment to help our teams drive our safety performance and culture forward. I look forward to working closely with them in their new roles as all of us at PG&E work to keep our customers and communities safe.”