The filing triggers a complex, multi-forum struggle among creditors, energy providers, and many other diverse stakeholders.  The impact of the restructuring process will be far reaching, jeopardizing compensation to wildfire victims, the state's implementation of its ambitious climate and renewable energy policies, and the ultimate future of the utility as a partner in those efforts.

2017 and 2018 Northern California Wildfire Liabilities

Although California has always experienced wildfires, due to the trifecta of climate change-induced drought and excessive heat, poor forest health caused by bark beetle infestation, and increasing encroachment of development into the urban wildland interface, the past two fire seasons have been the most calamitous in California's history.

PG&E's significant liability exposure for wildfire damages is rooted in the California constitutional doctrine of inverse condemnation, which subjects privately-owned public utilities to strict liability when their equipment is a substantial cause of a plaintiff's damages.[1]  Investigations by the California Department of Forestry and Fire Protection (Cal Fire) into the 2017 Northern California wildfires implicated PG&E equipment as the cause with respect to a majority of the fires, although Cal Fire recently concluded that PG&E equipment was not the cause of the most destructive of them, the Tubbs Fire.

And while Cal Fire has yet to determine the cause of the devastating 2018 Camp Fire, which wiped most of the town of Paradise off the map, according to PG&E's own Form 8-K filing, utility equipment in the vicinity of the ignition point experienced problems shortly before the fire began and damage was observed to a PG&E transmission line later that day.Thus, despite Cal Fire's report on the Tubbs Fire, PG&E continues to face tens of billions of dollars in potential wildfire liability (before accounting for punitive damages, fines, or penalties), while possessing insurance coverage of an order of magnitude less.  Coupled with the prospect that the California Public Utilities Commission (CPUC) will ultimately disallow recovery of those costs from the utility's ratepayers, as it has in another case, these risks pushed the utility to the brink.

Stopping short of altering the doctrine of inverse condemnation, the California Legislature enacted Senate Bill (SB) 901 in 2018 due to the then-unprecedented level of damages and costs stemming from the 2017 fires.  SB 901 allows for securitization of 2017 liabilities in excess of what the utility can bear and changes the regulatory framework for consideration of whether post-2019 wildfire liabilities should be borne by the utilities' shareholders or ratepayers.SB901没有处理与2018灾难野火相关的责任问题,2018野火签署后短短数周开始。After the CPUC instituted a rulemaking to implement SB 901 that the utility believed would postpone its ability to securitize costs for the 2017 fires for several years, PG&E concluded that bankruptcy was the only viable option and in the best interests of all stakeholders.

PG&E's bankruptcy filing creates significant uncertainty for wildfire victims: PG&E announced just days before filing that it would stop paying negotiated settlement amounts to victims of the 2015 Butte Fires.  Due to the effect of the automatic stay, victims of the 2017 and 2018 fires are now barred from prosecuting their claims against PG&E in state court.As a consequence, regardless of where they are liquidated, the claims of victims of the state's deadliest wildfires are subject to the rules and statutes applicable to creditor recoveries in bankruptcy.

The Risk to Renewable Energy Contracts

Other than the wildfire victims, perhaps no group of stakeholders has received more attention from the Governor's office and Legislature than the renewable energy generators who provide the power needed for PG&E to meet its obligations under the California's Renewables Portfolio Standards (RPS) Program and climate change mandates.

Many of these power purchase agreements (PPAs) are now significantly above market rates, as the price of procuring renewable energy resources has declined precipitously in recent years.  At the same time, PG&E has experienced a substantial decline in demand for renewable energy due largely to the departure of its customers to Community Choice Aggregators (CCAs) within its service territory.  CCAs are projected to serve a significant and increasing percentage of load within PG&E's service territory in the near future, resulting in a corresponding reduction in PG&E's obligation to procure renewable energy resources to meet the RPS.  Although PG&E may still seek to reject many of its renewable energy PPAs or renegotiate them at lower rates under the threat of rejection, PG&E said in its filing with the court that it has not made "any decisions yet regarding whether to assume or reject any PPAs ...s/sanluisobispo.com/news/local/article22496960.htmlOnly a few days later, FERC granted the requested relief on January 25 and January 28, asserting that it has "concurrent jurisdiction" to review disposition of wholesale contracts and that its "approval is required" for PG&E to reject wholesale PPAs.  As FERC acknowledged in its orders, however, the jurisdiction issue is unresolved and has been decided differently by a federal appeals court and two district courts, with one of the district court decisions currently on appeal.

Along with its Chapter 11 filing, PG&E also commenced an adversarial proceeding requesting a declaratory order that the bankruptcy court has exclusive jurisdiction over its rejection of contracts and that it is not required to seek or obtain FERC approval of any rejection of its contracts.  PG&E also asked the bankruptcy court to enforce the automatic stay provisions of the bankruptcy law and enjoin FERC from enforcing its orders in the NextEra and Exelon cases.  FERC will almost certainly oppose PG&E's filings, as it has done in the First Energy bankruptcy pending in the Sixth Circuit.FERC must file its answer by March 5 in the Adversary Proceeding before the bankruptcy court, and the court has scheduled a status conference on the automatic stay motions for March 26.  The resolution of this jurisdictional dispute will have significant implications for renewable energy providers that are party to contracts with PG&E, with the potential for FERC to act as a significant check on PG&E's ability to reject and renegotiate its contracts.

Impacts May Ripple Broadly Across the Energy Sector

Beyond the impacts on renewable energy providers, PG&E's January 29 filing may result in potential financial exposure and disruption for a diverse group of stakeholders, including:

• CAISO market participants, which may be required to fulfill PG&E's share of grid management payments in the event PG&E defaults and its collateral is exhausted.
• CCAs, for which PG&E continues to manage customer billing and transfer of customer payments back to the CCAs, which may face interruptions in cash flow as payments are held up as a result of the bankruptcy filing.
• Electric vehicle charging infrastructure investments, which, while already authorized by the CPUC, may face delays or suspension as the bankruptcy process continues to unfold and other issues and expenditures are prioritized.
• Producers and consumers of energy, who may need to take up the slack and achieve even deeper reductions in their own emissions to keep the state on track towards its climate targets if PG&E should default on its expected share of reductions.

Indeed, the prospect of PG&E halting its heavy investments in energy efficiency, transportation electrification, electric system decarbonization and grid modernization could realistically put the state's attainment of its ambitious climate goals at risk.  More broadly, due to California's outsized role in climate change mitigation, the outcome of the Chapter 11 case could realistically influence the progress that other states and subnational jurisdictions are making to address climate change and decarbonize their energy sectors.

[1] See Cal.康斯特艺术I,§19em>Barham v南卡尔市Edison公司 ,74CalApp.4th744,753 (1999) (控股私有电商为公有实体逆判)

On March 7, 2014, the Federal Energy Regulatory Commission ("FERC") directed the North American Electric Reliability Council ("NERC") to develop new standards for the protection of critical elements of the bulk-power system from physical attacks.  In recent years there has been considerable attention paid to the potential for cyber-attacks against the transmission grid.  Following a recent high-profile news report of an April 2013 event involving multiple gunshots fired at a California substation, the potential for physical attacks that disable critical elements of the high-voltage transmission system has become an area of significant focus by regulators and transmission providers.

In February 2014, reports emerged of an organized assault on a Pacific Gas & Electric electrical substation near San Jose, California.  Early in the morning of April 16, 2013, unknown attackers cut telephone cables to the site and then opened fire with automatic rifles.  17 transformers were knocked off line after having been pierced by bullets.  Law enforcement investigators found over 100 shell casings at the site.  A former FERC official described the attack as "the most significant incident of domestic terrorism involving the grid that has ever occurred."  It took 27 days to repair the damage from the April 16 attack.

The nature of the attack was not widely publicized at the time, although federal officials were alarmed at the event and began an immediate investigation.  Following the initial media reports, the possibility of large scale outages caused by acts of terrorism or other physical attacks on the transmission grid have received significant attention in the media and from regulators.

The March 7 FERC Order was issued pursuant to Section 215 of the Federal Power Act, which requires FERC to oversee development of Reliability Standards for the Bulk-Power System.  In prior orders NERC has been designated as the entity charged with developing standards for ensuring grid reliability.  The March 7 Order will significantly expand the scope of NERC-developed reliability standards to include physical security of transmission facilities, in addition to existing standards that include cybersecurity and vegetation management.

Despite the initial role of the media in bringing these concerns to the attention of the public, the Acting FERC Chairman issued a statement on March 12 criticizing the Wall Street Journal for publishing a follow-up article reporting on an internal FERC assessment of the potential damage to the grid that could be cause by physical attacks.  The need to balance confidentiality versus public discussion of the potential risks and the best ways to strengthen the grid was also the subject of a concurring opinion to the March 7 Order by Commissioner Norris.  Commissioner Norris also warned against overreacting to the April 2013 incident through a futile attempt to increase physical security at thousands of sites nationwide.  In his view, developing a more agile "smart" grid utilizing new technologies would respond to the threats of various types of grid disruptions while also resulting in more efficient operations.

Physical security of the nation's electric grid will remain an area of intense focus in the coming months.