PG&E reportedly considering bankruptcy or gas unit sale – By J.D. Morris and Roland Li (sfchronicle.com) / Jan 4 2019
The parent company of Pacific Gas and Electric Co. may be considering bold moves, including a bankruptcy filing or a sale of its natural gas business, amid extreme financial and public pressure due to the recent devastating California wildfires.
National Public Radio reported Friday that PG&E Corp. is envisioning a sale this spring of its natural gas division. The move could help pay for liabilities from wildfires that have put the utility’s future in doubt and prompted regulators and lawmakers to consider whether the company should be restructured.
PG&E’s gas operations have had their own problems unrelated to wildfires. The 2010 San Bruno pipeline explosion and its aftermath led to the utility’s criminal conviction on obstruction and other charges, and in more recent allegations, regulators have accused the utility of falsifying gas-safety records for years afterward.
Separately, Reuters reported Friday that the company was preparing a potential bankruptcy filing to seek protection from its financial liabilities. PG&E shares dropped 19.3 percent Friday to $19.70 in after-hours trading. Its shares are down almost 60 percent since the Camp Fire broke out in November, wiping out more than $15 billion in value.
In a statement Friday, the utility’s parent company, PG&E Corp., did not expressly confirm or deny the reports.
“PG&E’s board and management are working diligently to assess the company’s potential liabilities as a result of the wildfires and the options for addressing those liabilities,” company spokesman Andy Castagnola wrote in an email. “We recognize the need to balance the interests of many stakeholders while maintaining safe, reliable and affordable services for our customers, which is always our top priority.”
Pacific Gas and Electric Co. had previously filed for bankruptcy after California’s energy crisis of 2000-01. The threat of a new bankruptcy could be a tactic to put pressure on state politicians to provide more financial relief, Reuters reported, citing sources familiar with the matter.
PG&E also said Friday it is seeking new directors at both the parent company and the utility subsidiary, the first time it has aired such a specific step. PG&E wants new board members who provide “fresh perspectives” to enhance the board’s “existing expertise in safety, operations and other critical areas,” the company said. Several candidates are already being interviewed.
Divorcing the company’s core operations would be a fundamental change for PG&E, California’s largest investor-owned utility, which provides natural gas and electricity to 16 million people across a 70,000-square-mile service area.
But regulators have already put the idea on the table. The California Public Utilities Commission announced last month it would consider whether PG&E should split its gas and electric operations into separate companies, along with other major changes such as becoming a publicly owned utility or ousting board members or top executives.
According to NPR, PG&E began planning the gas-division sale after the 2017 Wine Country fires, many of which investigators have said were sparked by the utility’s equipment.
PG&E did not tell lawmakers it was considering selling the gas division, even as the Legislature debated a bill that allowed the utility to pass certain 2017 wildfire costs along to its customers. Gov. Jerry Brown signed that bill, SB901, into law in September.
The revelation did not sit well with state Sen. Jerry Hill, D-San Mateo, a persistent PG&E critic.
“Their narrative in Sacramento was bankruptcy or bailout — those were the choices,” Hill said. “The Legislature never looked at this option. They chose bailout.”
But Hill, whose district includes San Bruno, said he thought selling the gas side of PG&E was a “great idea” — albeit long overdue.
And the author of SB901, Napa state Sen. Bill Dodd, was not bothered that PG&E had not told lawmakers it was exploring a sale of its gas division.
“I don’t think there’s any smoking gun there. I think they’ve got to be looking at all options,” Dodd said in an interview.
Dodd noted his bill requires regulators to approve PG&E’s plan to use bonds its customers would pay off, and the utility would first have to show how much of the costs it can absorb before taking that step.
“From my vantage point, they don’t get any state money unless they can’t do it on their own,” Dodd said. “Part of 901 is a complete fiscal scrub of their books, trying to understand where all their cash is, how much money they can come up with before they go over the edge, which would be terrible for victims and ratepayers.”
PG&E has been under intense scrutiny from regulators, lawmakers, Wall Street and the public since the Camp Fire ignited Nov. 8 in Butte County.
The inferno killed 86 people and incinerated nearly 19,000 structures, making it both the deadliest and most destructive wildfire in California history. While the cause is still under investigation, PG&E has told regulators one of its transmission towers near the reported origin point malfunctioned just before the fire started and another distribution line had problems shortly after.
Separately, the California Department of Forestry and Fire Protection, or Cal Fire, has pinned 17 Northern California wildfires from 2017 on PG&E equipment. The cause of the worst of those fires, the Tubbs Fire, which devastated parts of Sonoma County, is still under investigation.
PG&E has also been exploring a potential sale of its downtown San Francisco headquarters and moving elsewhere in the Bay Area, real estate industry sources said. The company said in February, months before the Camp Fire, that it was evaluating its real estate holdings and had made no decisions.
The company issued a request for proposals from real estate companies to study options for its San Francisco headquarters, including a potential sale, according to sources with knowledge of the process.
Chris Foley, founder of brokerage Ground Matrix, said 77 Beale’s value would shoot up if PG&E vacated the building.
“It’s an incredible asset, an incredible location,” he said. “The real question is, does PG&E stay on as a tenant? If they move out of San Francisco, it’s a huge opportunity for a large group. Where do you get 1 million-plus square feet of vacant office in San Francisco? It’s worth a ton of money.”
The company owns two major office buildings at 215-245 Market St. and 77 Beale St., next to Embarcadero BART Station, according to property records. Foley said the two buildings could be worth more than $1 billion.
Kyle Kovac, a broker with CBRE who isn’t involved in the buildings, agreed the property would be desirable if PG&E decided to sell.
“There’s a premium to be on Market Street, more today than ever, given the proximity to public transit,” he said. “If it were to come to market, there would be a lot of interest.”
Google and Salesforce have been adding to their real estate holdings in the area amid a hiring boom in the city.
Separately, a federal monitor overseeing PG&E’s probation after its conviction on charges stemming from the 2010 San Bruno explosion filed a response, made public Friday, to the judge overseeing the case. The monitor, Mark Filip, wrote that he had expanded his work to include the utility’s electric operations after the 2017 fires, and had worked to “push and drive PG&E to become a safer organization.”
