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U.S. utility Pacific Gas and Electric Company (PG&E) disclosed on Monday that it will file for bankruptcy. US’ largest energy utility firm with a market cap of $13+ billion said that the decision was forced by the wildfires which destroyed lives and property in California in 2017 and 2018.
Per a BBC report, the utility firm faces liabilities that could reach $30 billion. Already, investigators have concluded that the firm’s equipment caused a minimum of 17 major wildfires in 2017.
This includes California’s deadliest fire on record which killed 86 people and destroyed around 14,000 homes. If PG&E’s equipment is found to have caused this fire, it could face significant liabilities far exceeding its insured amount.
Sharp Drop in Share Price
The news sent the company’s shares tumbling by nearly 50% in Monday’s early trading.
PG&E, which is more than a century old, has had its debt downgraded to junk status.
According to the interim CEO of PG&E, John R. Simon, filing for Chapter 11 bankruptcy is the best path forward:
We believe a court-supervised process under Chapter 11 will best enable PG&E to resolve its potential liabilities in an orderly, fair and expeditious fashion. We expect this process also will enable PG&E to access the capital and resources we need to continue providing our customers with safe service and investing in our systems and infrastructure.
According to Bank of America Merrill Lynch, the move to file for Chapter 11 bankruptcy is an ‘accelerated attempt to stem forthcoming claims and place existing claims in tandem with unsecured creditors’.
The energy utility has also assured customers that services will continue as normal. Currently, PG&E serves around 15 million people in the state of California. The energy utility which boasts of 20,000 employees, also assured the workers that they would continue to get paid during the Chapter 11 process:
PG&E expects that the Chapter 11 process will, among other things, support the orderly, fair and expeditious resolution of its potential liabilities resulting from the 2017 and 2018 Northern California wildfires, and will assure the Company has access to the capital and resources it needs to continue to provide safe service to customers.
Besides employees and customers, other parties that are bound to be affected by PG&E’s bankruptcy are its suppliers. This includes the second biggest pipeline operator in North America, Kinder Morgan, according to Reuters.
The bankruptcy announcement follows a tumultuous weekend which the company’s chief executive, Geisha Williams, vacated both the CEO position and the board seat. Simon, who replaced Williams in an acting capacity, was the firm’s general counsel.
Featured image from Shutterstock.