PG&E has decided to declare bankruptcy due to upcoming lawsuits from the recent California fires they caused, and it is going to cause our electricity rates to increase. The last time PG&E declared bankruptcy, in 2001, our rates went up by 40%. They have climbed an additional 5% every year since then in a fairly steady pace. This information is right on PG&E’s website.
In this case, rates are going to climb for many reasons. The Federal District Court is demanding that PG&E clear trees on all 106,000 miles of their power lines by this summer. This increased work will have to be paid for by ratepayers. More about this will be brought out by January 30, 2019, which is the date that the Federal Judge gave PG&E to come back to him with a plan.
PG&E had said in earlier press releases that rates will not climb very much because they were going to float bonds to pay for the damages caused by their equipment. However, with the news coming out about the huge size of the impending lawsuits which caused the stock price of PG&E to plummet along with this bankruptcy notification, PG&E has been reduced to junk bond status. That means there will be no bonds unless the State of California underwrites them. This is not completely out of the realm of possibilities, but is not something that would be a matter of standard business for a state government. It has been reported that major changes in the structure of PG&E would have to occur before the state would consider such a liability.
According to the rules of bankruptcy, a judge will examine the financial state of the company, and the claims and relative importance of the various stakeholders in the company and its services. Continued electric service to its customers and trimming trees is going to be fully funded. Employees will all be compensated, with no reductions in pay or benefits. The shareholders who own stock in the company will be given no importance. What happens to shareholders in a bankruptcy is not a concern of a bankruptcy judge. The existing bondholders and the new litigants seeking damages from PG&E are lumped together as unsecured liabilities of the company. They will be paid out at a rate, say $0.20 on the dollar, of what they are owed. That is why PG&E is now in junk bond status. Lastly, the ratepayers are given very little consideration. These are all existing laws that are simply followed out by the bankruptcy judge. This has nothing to do with politics, no pleading or begging will change this simple rule of law.
If all the services are to continue, the employees are all to remain whole, tree trimming is going to be greatly increased, new liabilities from the fires are to be paid, all the while with little consideration for ratepayers, it is safe to conclude rates are going to spike just like last time.
In the fall of 2018, lawmakers passed a law that would put the cost of the 2017 fires on the ratepayers, even when PG&E was proven to be negligent. The utility companies were moving quickly to get another bill passed that would do the same for 2018 fires, but this declaration of bankruptcy has stopped that effort. Therefore, PG&E will be liable for fires as it has been for its first 110 years, which on the surface means rates will have to go up to pay for them. PG&E was listed as the cause of 1700 fires in 2017.
You can read in the news how PG&E has gone from $30 billion in value to $3 billion due to its stock price. Lawsuits are climbing, as more and more law firms get in on the feeding frenzy that is available to them. Amounts of these lawsuits vary but range from $7 billion to $30 billion. You can see why the stock is so low. The company potentially owes more than it was ever worth.
How did things get so bad for PG&E? Some people blame global warming, which is causing dry forests, but it is much more than that. Other utility companies have not had this trouble. PG&E has let their system get in an unsafe condition due to the policies of the management. There are many tools available to help sense wind-related vibrations on the power lines, trees hitting power lines, and other safety issues, that automatically cut power to the affected lines before they even hit the ground. Electricity travels at the speed of light, after all, and this news would therefore travel fast. Other utilities have been using these tools and products for decades.
At literally every power line in rural PG&E territory covered by trees, you will see trees that could fall into power lines. When this happens, with nothing to cut the power once it happens, you have a flammable object causing a direct short between two sources of very high voltage and power. This voltage and power can cause arcs for many feet. Just look at the length of the insulators on the poles and you can see how far they have to protect the poles from this voltage and power. To say their power grid is a ticking time bomb is an understatement. That is why PG&E, one of the largest utilities in the country, is considered the worst managed.
Rates are going up. There is literally nothing in the way to stop this from happening.