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PG&E files for bankruptcy. Here's why that could mean bigger electricity bills
PG&E Corp., which owns California's largest electric utility, filed for bankruptcy protection Tuesday in anticipation of huge legal claims, starting an unpredictable process that could take years to resolve and is likely to result in higher energy bills for the millions of Californians who depend on Pacific Gas & Electric for power.
PG&E said a Chapter 11 bankruptcy filing, which allows the company to continue operating while it comes up with a plan to pay its debts, was the only way to deal with billions of dollars in potential liabilities from a series of deadly wildfires, many of which were sparked by the company's power grid infrastructure.
"Through this process, we will prioritize what matters most to our customers and the communities we serve — safety and reliability," interim Chief Executive John R. Simon said in a statement. "We believe that this process will make sure that we have sufficient liquidity to serve our customers and support our operations and obligations."
Energy experts say PG&E's rates probably will increase when the utility emerges from Chapter 11 protection because bankruptcy inevitably makes it more expensive for a company to borrow money and creates large legal and other bankruptcy-related costs. The utility passes such expenses along to its customers.
"It's almost impossible to see a way out of this that doesn't have some short-term cost increases," Ralph Cavanagh, co-director of the energy program at the Natural Resources Defense Council, said in a recent interview.
(Score: 4, Interesting) by Thexalon on Wednesday January 30 2019, @04:58PM
I'd be more sympathetic if PG&E hadn't boosted dividends each of the previous two years, both times prompting a nice increase in their stock price. That's an indication that upper management was more interested in paying investors and probably themselves than they were in either purchasing the necessary insurance or equipment upgrades.
The problem with not punishing the people responsible for causing the problem is that it creates a substantial incentive to skimp on risk management efforts like insurance, maintenance, and equipment upgrades and instead claim higher profits in the short-term. The investors see the lowered expenses and thus higher profit margins, the managers responsible get nice big bonuses and promotions, and everybody's happy until it turns out those risks were actually a problem.
An example of this happening in a different economic sector: Between 2000 and 2008, a division of AIG which had previously been a sleepy backwater of the company started selling insurance against losses in mortgage-backed securities. The manager of that division was lying about how risky this was to his superiors (according to my brother-in-law's dad who worked there at the time), and so upper management saw the big jump in sales but not the big risks they were taking on and gave him appropriate raises and promotions commensurate with his huge success. This was great for all involved, until everyone simultaneously realized in 2008 that the mortgage-backed securities and thus all the related derivatives were worthless, and pushed AIG beyond its ability to pay claims, and that was one of the major reasons the entire global economy tanked ruining millions of people's lives and wrecking a couple of countries in the process (Greece and Spain). Whoopsie-daisy. But in the meantime, the guy who had been in charge of this just waltzed away with his millions. And now you see the problem.
The only thing that stops a bad guy with a compiler is a good guy with a compiler.