In its new reorganization plan, PG&E outlines strategy for emerging from bankruptcy with $35.4 billion in debt—65% more debt than the company holds today
San Francisco, CA—With evidentiary hearings underway this week on PG&E’s proposed plan of reorganization for exiting bankruptcy, the City and County of San Francisco has submitted testimony to the California Public Utilities Commission raising concerns about the tens of billions of dollars in debt the utility plans to take on—and casting doubt on whether PG&E can meet the standards of the state’s new wildfire liability law, including the law’s explicit “ratepayer neutrality” requirements, without identifying additional non-debt funding sources.
The City testimony, filed with the CPUC on February 21, includes detailed financial analysis of the PG&E plan that raises questions about whether the utility’s “post-bankruptcy financial condition” meets the requirements of AB 1054 (2019), the state’s recently adopted wildfire liability law. To qualify for the state’s new wildfire fund, AB 1054 requires PG&E to demonstrate to the CPUC before the law’s June 30 deadline that it has an “acceptable” governance structure in place for maintaining safety and financial stability—and that its plan is “neutral, on average, to the ratepayers.”
In both cases, San Francisco makes the case that PG&E’s plan falls short of these standards. Specifically, the City testimony states:
- “PG&E’s Plan does not provide PG&E with financial strength and flexibility, at emergence from bankruptcy or over the long term.”
- “PG&E’s Plan is not neutral, on average, to ratepayers, at emergence from bankruptcy or over the long term.”
Based on PG&E filings, the City concludes the utility is planning to take on $13.9 billion dollars of debt to satisfy its creditors—in addition to its existing $21.5 billion of debt. This $35.4 billion debt load reflects a 65% increase in the utility’s borrowing—an unusually high, unwieldy level of indebtedness that will hamper PG&E’s ability to operate as a viable entity as it exits bankruptcy.
“It is clear from a close financial analysis of PG&E’s proposed plan of reorganization that PG&E is much weaker financially than the company needs to be to operate as a viable entity after bankruptcy—and to meet the standards of the state’s new wildfire liability laws,” said San Francisco Public Utilities Commission (SFPUC) General Manager Harlan L. Kelly, Jr. “The City and County of San Francisco urges the Governor and the California Public Utilities Commission to carefully consider this as they review PG&E’s reorganization strategy—and to push for the structural changes and funding sources that will be needed to ensure PG&E can provide electricity safely, reliably, and affordably.
If PG&E’s current financial plans are approved, the City testimony notes that the utility’s high level of indebtedness will substantially increase borrowing costs, magnify PG&E’s exposure to unexpected disruptions, and raise the likelihood of default or failure to adequately fund capital needs.
Importantly, it will also force PG&E to raise rates that are already among the highest in the nation to support its operations. From the City testimony: “PG&E’s Plan requires substantial ratepayer contributions for PG&E’s Plan to succeed. The Plan is a financial restructuring that leaves PG&E highly leveraged upon its emergence from bankruptcy, and from there, is dependent on massive capital spending and rate base growth. This growth boosts shareholder earnings, which allows PG&E to de-leverage itself over time. PG&E’s return to financial strength is only possible through ratepayer contributions due to steady rate increases going forward.”
San Francisco is moving forward with its plan to take over PG&E’s local electric infrastructure assets and transition to public power—providing residents and business with cleaner, safer, and more reliable energy at lower cost than PG&E. In February 2020, the City launched its Our City, Our Power campaign to highlight the potential of public power—and demonstrate the City can operate its local power system better than the bankrupt, heavily indebted utility.
Other highlights of San Francisco’s CPUC testimony:
- PG&E plans to spend $1.8 billion this year on lawyers and financing costs: PG&E disclosed during bankruptcy proceedings that the utility expects to spend $1.8 billion in the bankruptcy case just on professional fees (lawyers and experts) and financing alone by the end of 2020.
- PG&E calls for “constructive” regulatory treatment to exit bankruptcy: PG&E in its reorganization plan has prefaced its ability to emerge from bankruptcy as possible only with “constructive regulatory application”—never explaining what will happen to electricity rates or state funds if its preferred level of regulation is not achieved. In response to recent data requests, PG&E has indicated what it means by “constructive,” with the utility stating in a November 2019 filing that “optimal public policy under the circumstances involves no imposition of monetary fines or penalties for prepetition conduct.” San Francisco contends that this places a huge burden on regulators and ratepayers to support PG&E’s financial position after bankruptcy, no matter what the cost.
- PG&E has overstated the amount of money it can save ratepayers through refinancing: While PG&E has made claims that it can provide $1 billion in ratepayer savings by refinancing existing debt, San Francisco says this claim is “overstated.” In fact, using PG&E’s own methodology, the City notes that ratepayer cost savings “could be essentially zero”—as PG&E has said in recent filings that it may use the refinancing tool to fund other obligations, including bankruptcy-related costs like financing-related fees.
- PG&E needs more funding to stay solvent—and San Francisco can help: San Francisco’s testimony includes a list of potential remedies for PG&E to better meet the requirements of AB 1054. Among them: “Require PG&E to consider asset sales and restructuring of long-term contracts that could improve PG&E’s financial condition upon its emergence from bankruptcy.” The City of San Francisco has made a $2.5 billion offer to purchase PG&E’s local electricity infrastructure assets serving the city. That offer remains on the table, with the San Francisco Public Utilities Commission and the Board of Supervisors both giving conditional approval in January 2020 to issue revenue bonds to fund the purchase.
The City of San Francisco’s full testimony w/attachments can be found here:
- Testimony: https://publicpowersf.com/s/I19-09-016-MMeal-Reply-Testimony-2-21-20.pdf
- Attachments: https://publicpowersf.com/s/I19-09-016-CCSF_Attachments_MMeal_Reply_Test-2-21-20.pdf
About the San Francisco Public Utilities Commission
The San Francisco Public Utilities Commission (SFPUC) is a department of the City and County of San Francisco. It delivers drinking water to 2.7 million people in the San Francisco Bay Area, collects and treats wastewater for the City and County of San Francisco, and generates clean power for municipal buildings, residents, and businesses. Our mission is to provide our customers with high quality, efficient and reliable water, power, and sewer services in a manner that values environmental and community interests and sustains the resources entrusted to our care. Learn more at www.sfpuc.org.