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PG&E stock plummets ahead of looming bankruptcy filing

Reuters logo Reuters 1/14/2019 Liana B. Baker and Mike Spector
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PG&E Corp, the owner of the biggest U.S. power utility by number of customers, said Monday it is preparing to file for Chapter 11 bankruptcy for all of its businesses as it faces potentially crushing liabilities linked to catastrophic wildfires in 2017 and 2018.

The company's shares were down nearly 50 percent in midday trading.

PG&E faces widespread litigation, government investigations and liabilities that could potentially reach $30 billion, according to the company, accounting for damage from fires last year and in 2017.

PG&E, the biggest power company in the United States with customers, said it planned to file for bankruptcy protection around Jan. 29, and was giving a 15-day notice to employees to comply with California law.

PG&E said on Sunday its chief executive was leaving and being replaced by General Counsel John Simon on an interim basis.

The utility holding company said the bankruptcy process will not impact to electric or natural gas services for 16 million customers.

PG&E is reeling from the November Camp fire that swept through the California mountain community of Paradise and killed at least 86 people in the deadliest and most destructive blaze in state history. PG&E said in November it could face "significant liability" in excess of its insurance coverage if its equipment was found to have caused the Camp fire.

The state could find PG&E responsible for the 2018 wildfires. Under California law, utilities are exposed to liability from wildfires regardless of their negligence.

The company decided to file for bankruptcy in part to address that issue, known as “inverse condemnation,” and questioned in its regulatory filing whether it could continue to operate in the years ahead as a private company exposed to that risk. A federal judge has also been putting restrictions on PG&E to shut down unsafe power lines.

Energy companies that supply PG&E could be hit by its bankruptcy. One of the most exposed is Kinder Morgan Inc , the second largest North American pipeline operator, analysts said.

BOARD MEETING

The company's board decided to oust CEO Geisha Williams and undergo a restructuring at a meeting this weekend in San Francisco, according to a source familiar with the matter.

Faced with liabilities from wildfires and a host of related issues, PG&E’s board felt the company had no choice but to seek bankruptcy protection, according to two people familiar with the deliberations.

The legal requirement to alert employees ahead of bankruptcy filing accelerated the board’s decision. PG&E, which drew down remaining amounts on credit lines totaling $3.3 billion in November, had about $1.5 billion of liquidity as of Friday. A notice to employees about a pending bankruptcy could potentially dry up PG&E’s access to capital.

PG&E said it is in discussions with lenders about receiving

roughly $5.5 billion in debtor-in-possession financing to help it operate while navigating through bankruptcy.

Advisers expect it may take up to two years for the company to emerge from bankruptcy.

The company has been under pressure from the California Public Utilities Commission to make operational changes. It said on Jan. 3 it was reviewing its structural options and searching for new directors with safety experience.

PG&E's Chairman Richard Kelly said "a Chapter 11 reorganization for both the utility and PG&E Corporation represents the only viable option to address the company’s responsibilities to its stakeholders." Now it will be able to work with everyone ranging from wildfire victims, customers, employees and creditors in one court-supervised process.

The pace at which California officials would address PG&E’s financial straits also weighed on the board’s decision to seek bankruptcy protection, the company said. California enacted a law allowing PG&E to pass on fire liabilities to customers to help it grapple with 2017 blazes, but the measure does not address the 2018 disaster.

PG&E said in a filing it could potentially raise more money and avoid filing for bankruptcy, but argued such financing would be complex, uncertain and expensive.

A bankruptcy could help the company deal with some fundamental problems, including the prospect of continually being exposed to financial fallout from future wildfires, the company said. Many PG&E customers live near dry forests where rain has become increasingly rare, stoking conditions for potential future blazes.

PG&E serves 5.4 million electric customers and 4.3 million natural gas customers in northern and central California.

Law firms Weil, Gotshal & Manges LLP and Cravath, Swaine & Moore LLP are its legal advisers while Lazard is its financial adviser and AlixPartners LLP is its restructuring adviser.

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