The largest utility company in California, Pacific Gas and Electric, or PG&E, filed Chapter 11 last week, listing over $50 billion in assets and $50 billion in debt. This bankruptcy might have repercussions far beyond the ordinary business bankruptcy, even one of a large retailer or manufacturing company.
As a utility, PG&E is highly regulated. The reason for that is economies of scale. In order to adequately provide utilities, such as gas and electricity, to millions of consumers, a utility must be huge. Additionally, the first entrant into a market has an enormous advantage over other businesses providing the same service. As a result, competition in the utilities industry is almost non-existent. To protect consumers, utilities are regulated by state agencies.
This means PG&E’s filing will be subject not only to bankruptcy court approval but also to that of the regulatory agency. This creates an administrative and logistical nightmare for PG&E and its legal team.
Because the services PG&E provides, delivery of electricity and gas to businesses and consumers throughout California, is so ubiquitous, it’s not a stretch to say that virtually every person in California could be affected by this bankruptcy filing. Unlike a filing by, say, an automobile manufacturer, there are no alternatives for consumers. A list of some potential groups affected:
- Suppliers of all of PG&E’s materials.
- Commercial landlords and tenants in unexpired leases of real property with PG&E.
- Any users of gas or electricity supplied by PG&E.
- Entities in pending litigation with PG&E, or those holding claims. Utilities are always being sued.
- Energy service providers.
- Employees of PG&E who hold claims for unpaid wages
- All of PG&E’s creditors.
PG&E’s filing wasn’t accompanied by a proposed plan. That means this is probably not a pre-packaged bankruptcy where the debtor (PG&E) has already worked out a resolution of its debt situation with its creditors and just needs bankruptcy court approval. Rather it means that PG&E faces the task of creating a plan that will be accepted, or that it can force to be accepted, by its creditors. In the meantime, anyone involved with PG&E is facing an uncertain future. For more insight on the causes of PG&E’s filing, see this article in the New York Times.
This is PG&E’s second bankruptcy since 2000. In 2001 it filed because it had purchased power for more than it could resell that power to consumers for. The resulting 2-1/2 year legal proceedings cost PG&E an estimated $400 million in legal fees