Massive Debt and Shaky Assumptions

 

Five Things Californians Need to Know About PG&E’s Bankruptcy Plans

 

City experts have taken a close look at PG&E’s plans to exit bankruptcy. What we’ve found should concern every Californian who has to pay a PG&E bill and every policymaker who cares about the future of our energy system.

To exit bankruptcy, PG&E is planning to pile on huge new debt — $13.9 billion — and is making shaky assumptions about unreasonably low interest rates and permissive regulation. If those assumptions fail, it is PG&E’s ratepayers who will have to make up the difference with higher rates. Our five key takeaways about PG&E’s plan are below and our full analysis is linked here.

#1: PG&E plans to take on a staggering $13.9 billion in new debt.

 

The main feature of PG&E’s plan to get out of bankruptcy is to pile on new debt, at least $13.9 billion, which will bring PG&E’s total debt to a staggering $35.4 billion. Taking on this mountain of debt and stretching it out into the future allows PG&E to avoid real structural changes and shifts risks to ratepayers and our state.

#2: PG&E is making shaky assumptions to claim that electricity rates won’t go up.

 

Under California’s new wildfire liability law (AB 1054), PG&E’s plans must be neutral to California ratepayers. To qualify for state funds, PG&E’s plan can’t harm consumers to protect itself or its creditors. But PG&E may be doing just that, by relying on faulty assumptions now, and shifting costs to ratepayers when those assumptions don’t work out. For example, PG&E is assuming it can get a lower interest rate than it usually uses in its forecasts, even though it will be in a worse financial position. Also, when PG&E claims its plan is neutral to ratepayers, it means only that the bankruptcy plan does not include a rate increase. Analysis shows that PG&E’s weakened financial condition makes it highly likely rates will go up following the bankruptcy as PG&E attempts to pay creditors and invest in improving safety and service.

#3: PG&E says almost nothing about its plans to reorganize.

 

PG&E has claimed, vaguely, that it will adopt a more decentralized, regional structure to be more responsive. But their bankruptcy filings have only a brief, one-page summary of what this approach would entail. It also doesn’t factor in the up-front costs of making the transition.

PG&E also doesn’t explain why it is so resistant to cities like San Francisco taking on more responsibility for local power distribution, when the company sees value in localizing and decentralizing.

#4: PG&E is also vague about safety.

 

PG&E’s plans have a lot of specifics about finances, but do little to spell out the safety improvements it would make. The plan does not have specific safety metrics, claiming the metrics would be determined later. Again, it’s hard to say what the financial or safety impacts of these improvements would be, since they lack specifics.

#5: PG&E is also arguing it needs weaker regulation to survive.

 

In its filing, PG&E has also said that the only way it can emerge from bankruptcy is through what it calls a “constructive regulatory” approach—never explaining that this approach means higher electricity rates and/or greater risk to customers. PG&E has hinted at what it means by “constructive” in recent filings, with the utility stating in November 2019 that “optimal public policy under the circumstances involves no imposition of monetary fines or penalties for prepetition conduct.” Basically, it seems PG&E wants to shift financial burden and risk from shareholders to ratepayers, forcing them to support the utility going forward, no matter what the cost.

The best path forward is public power.

 

The City of San Francisco continues to believe that the best path forward — for PG&E, for fire victims, and for all of the company’s ratepayers — is for San Francisco to assume full control over electric power distribution within the city, allowing PG&E to reduce its wall of debt and giving San Francisco residents more responsive, focused service, and protection from PG&E’s future financial risk. Meanwhile, state leaders and residents should push for real reform and restructuring of PG&E.