Pacific Gas and Electric says it expects to become more profitable than ever after it emerges from bankruptcy and pays off more than $25 billion in losses sustained in catastrophic wildfires ignited by its outdated equipment.
The nation’s largest utility shared its rosy outlook this week, along with its sobering results for 2019.
PG&E wound up losing nearly $7.7 billion last year, widening from its previous record loss of $6.8 billion in 2018. Last year’s loss included a $3.6 billion setback during the October-December period that included an $86 million charge for refunds to customers who had their power shut off to minimize the chances of sparking more wildfires last fall.
The dismal numbers marked a low point the San Francisco company’s 114-year history as it cleaned up a financial mess caused by its liability for a series of deadly fires in 2017 and 2018. The crippling burden prompted PG&E to file for bankruptcy protection 13 months ago, marking its second stint in bankruptcy in two decades.
The losses reported this week primarily stemmed from the cost of covering various settlements reached with PG&E’s wildfire victims as part of the company’s effort to meet a June 30 deadline for getting out of bankruptcy.
Besides accounting for its past, PG&E also provided a glimpse at the road ahead. The outlook comes as PG&E tried to counter intensifying pressure from California Gov. Gavin Newsom to come up with a plan that gives it the financial muscle to make badly needed improvements in its decaying electrical grid to reduce wildfire risks.
Newsom holds unusual leverage over PG&E at this point because the utility needs its bankruptcy plan to be blessed by the state by June 30 to qualify for coverage from a wildfire insurance fund created by California last summer. The Democratic governor so far has rejected PG&E’s blueprint as unacceptable, partly because he believes the company is taking on too much debt to afford the necessary upgrades to its system.
The tensions could eventually play out in bankruptcy court, where Newsom’s lawyers have indicated they may want to grill PG&E about its finances.
PG&E also is still trying to navigate an escalating battle over whether the Federal Emergency Management Agency and state government agencies should be entitled to recover some of their wildfire costs from a $13.5 billion fund set up for more than 70,000 individuals who lost family members, property and businesses in the blazes. U.S. Bankruptcy Judge Dennis Montali ordered the bickering parties to work with a mediator to resolve their differences.
The projections released by PG&E envision the company rebounding this year with a profit of $454 million, with a slight 2021 loss caused by some accounting provisions stemming from its bankruptcy. By 2024, PG&E expects to post a full-year profit of nearly $2.4 billion. By comparison, it earned nearly $1.7 billion in 2017 before it was hit by the first wave of wildfire claims.
As part of its recovery, PG&E is counting on a big helping hand from the roughly 16 million Northern Californians in the utility’s sprawling service territory. The forecast envisions rates rising by 8 percent each year through 2024, far faster than the expected rate of inflation.
And as it makes more money, PG&E is also promising to spend $37 billion to $41 billion on equipment upgrades and other improvements during the five-year period.
To pay for that, in addition to the money owed to wildfire victims, PG&E plans to issue nearly $16 billion in additional stock and take on $38 billion in debt as part of its bankruptcy plan. The debt will cause PG&E’s annual interest payments to rise by 50 percent between this year through 2024 when it will be doling out about $2 billion to its lenders, according to the company’s projections.
Investors’ growing optimism about PG&E’s ability to bounce back from bankruptcy has already lifted the company’s stock by about 50 percent so far this year. The stock peaked at $71.57 in September 2017 before PG&E’s wildfire losses sent the company into a downward spiral.