Devastating forest fires force California's largest electricity company to plan the sale of its gases: NPR

NPR learned that, faced with a series of deadly fires, the parent company of California's largest public service was seeking to bear huge liability costs because of its potential guilt.

Internally, Pacific Gas & Electric nicknamed this "Project Falcon" strategy. Under this plan, the company would sell its natural gas division this spring. After years of deadly mistakes and breaches in security, the utility giant is looking for ways to cover the costs of liability and avoid bankruptcy, a senior NPR official said. company and a former employee who knows the plan.

All net proceeds from the sale of PG & E's Gas Division would be used to create a fund to pay billions of dollars in potential losses related to forest fires, sources said. They asked for anonymity because they were not allowed to speak in public.

The company also plans to sell key real estate assets, including its head office in San Francisco, and to transfer its operations elsewhere to the San Francisco Bay Area,

. On Friday, the company announced that it would "review the structural options" in order to best position it to meet customer needs and operational requirements. In addition, PG & E stated that it was looking for new directors so that its directors could "strengthen its existing security expertise".

PG & E refused to make any comments on the Falcon project available to senior management. In a written statement by spokesman Andy Castagnola, "PG & E does not comment on rumors or market speculation, and as a company, our priority is the safety of our customers and the communities we serve." In 1965, the state fire agency, Cal Fire, determined that the PG power equipment & E had been at the origin of the spread of at least a dozen major fires in northern California in 2017. And now, the regulators are investigating whether the # PG & E equipment set off in November ] Camp fire, the deadliest and most destructive in the history of the state

The company may have to pay billions of dollars in legal actions arising from the 2017 and 2018 forest fires.

] Stock Market Analysts Predict Forest Fire Damage at PG & E could exceed PG & E's market value and insurance coverage. An analyst at Citigroup believes that the company might have to pay up & # 39; 15 billion in damages.

Insurance companies Allstate, State Farm and USAA sued PG & E, accusing the public service of causing the camp's fire.

The strategy is expected to be approved by the California Public Utilities Commission, the state's regulatory body, which has already expressed serious concerns about PG & E's poor safety record, lack of transparency and past efforts to pass on the costs of liability to state taxpayers.

Up to now, regulators and legislators have been kept out of the PG & E planning process for the Falcon Project, named after a group of Peregrine Falcons nestled on the roof of the company's headquarters.

Current and former representatives of PG & E say that they talk to NPR out of fear, senior management is not acting in the best interest of taxpayers, security and the state . "There is an element of public trust in the utility monopoly," said the company's senior official.

The bailout?

PG & E is not legally required to disclose its internal discussions about ways to avoid bankruptcy. . But considering the potential impact on taxpayers and taxpayers if the utility eventually needed a bailout, Michael Wara, a lawyer and researcher at Stanford University, calls the lack of transparency " extremely disappointing ".

"They need to think very seriously about how to create security for Californians rather than make money for shareholders when they are not fully transparent, especially in the current context. of lack of trust and so many people affected by PG & E's infrastructure, "said Wara. .

Wara added, "What California urgently needs from its public services is difficult thinking about how to better protect communities from fire. Wall Street also wants to think hard

Steve Fleishman, Senior Public Services Analyst and Managing Director of Wolfe Research, says PG & E's plan to fight future fires is not clear. "They clearly seem to be more at risk for this," said Fleishman. "This kind of risk profile is not sustainable."

PG & E shares are down from # 39, about 50% since the camp was burnt on November 8.

Consumer monitoring groups want everything to be done in a transparent way.

"Anything PG & E wants to propose do it in an open and public way and to me put in place a comprehensive and coherent forest fire strategy, "said Mark Toney, executive director of The Utility Reform Network (TURN).

Anger reigns in the state over poor safety record of PG & E. Demonstrations have erupted at recent public control meetings and at the company's headquarters in San Francisco, where environmentalists and activists read the names of the more than 100 people who died in the combined camp and the wildfires last year in Napa and Sonoma counties. In a customer service center, the company has installed a new bulletproof glass.

"Serious Security Concerns"

At the end of December, regulators indicated that they were considering several proposals in response to current concerns about the role of the utility in a deadly gas explosion in 2010 and more recent forest fires.

"PG & E has had serious safety problems with both its gas operations and many years of electricity "said the California Public Utilities Commission in a statement.

Among the changes proposed by the Commission are the division of gas and electricity divisions and the transformation of society into equity in safety performance.

"We must be cautious and practical," said Commission President Michael Picker in a statement released last month. "This process will look like repairing an airliner while it's in. Having crashed a plane to make it safer, it's not good for passengers."

The commission declined to comment further on this article. A spokesman said that only state regulators were considering a range of options for public service.

Incidentally, Attorney General Xavier Becerra, a senior law enforcement official, said in court late December, PG & E could face to criminal charges of murder he is responsible for the deadly fires recently declared fatal in California.

PG & E was convicted of crimes related to the safety of crime during the explosion of a gas pipe in 2010 in a suburb of San Francisco people and destroyed a neighborhood . The federal judge supervising the five-year public service probation period in this case had asked Becerra whether the possible role of PG & E in the recent fires was a violation of probation conditions.

The Issues

A sale would have: Great implications for society, which provides electricity and gas to more than 5 million Californian households and has more than 20,000 employees. PG & E's natural gas assets represent 20 to 30% of the company.

The company's sources, who spoke to NPR and provided supporting documentation, indicate that planning for the Falcon project began shortly after the fires in the vineyards of 2017 and resumed. determined that PG & E was responsible for at least a dozen of these fires. According to the sources, planning is accelerated after the camp fire in November.

The sources also indicated that the company would like to submit its own plan before regulatory authorities impose it.

California is one of only two states with a law. known as "reverse conviction", which makes public services liable for damage caused by equipment, even if the service is not negligent.

Structuring the Transaction

Shareholders and Institutional Investors of PG & E can accept the sale of gas as a means of covering, at least in part, liabilities related to fire forest.

As part of the gas sales plan, all the gross proceeds from the sale would go to the forest fire fund with "no direct cash profit for the shareholders," according to the PG & E source. But shareholders could acquire new shares in the company that buys the gas group.

Regulators and legislators can argue that an agreement must be structured to benefit only the victims of the fires, and that any agreement must include protections for taxpayers.

"We have to ask tough questions as a state to find out if a bankruptcy settlement would be better than something we get through this gas sale," warns Wara, the Stanford researcher.

Internal sources say that the company hopes to be able to get between $ 10.7 and $ 15.5 billion for its gas assets. Given the company's security, its responsibility and the political challenges – including new allegations last month that the company allegedly broke the rules of safety – – the Analysts say it's not at all clear that they would get this on the open market.

– In December, the supervisory authorities found that PG & E had systematically falsified safety documents and breached the safety regulations for its natural gas business over a period of 5 years.

At the time, PG & E spokesman Matt Nauman said in a statement sent by email. NPR states that the company "is committed to accurate and complete accounting and record keeping, and we have not kept this commitment in this case".

This follows a $ 1.6 billion fine from the regulators – the largest in state history – and six convictions of crime after the San blast Bruno in 2010.

Travis Miller, Morningstar's chief public equity strategist, is skeptical about a possible gas sale to regulators or Wall Street. He added that he did not think that another utility would take a step forward to buy the gas assets.

"You can get a good price, but it also involves a lot of regulatory and political risks," Miller said. "There is no positive outcome for taxpayers, regardless of the scenario, nor ideal for shareholders."

The Falcon Project and Camp Fire

The tax difficulties of the society worsened following the previous month. A campfire in Butte County, California, which killed at least 85 people and displaced tens of thousands of people who continue to face a desperate housing crisis. Paradise and neighboring cities have almost disappeared.

The cause of the fire is still being investigated by the state fire department, Cal Fire. PG & E told state control authorities that he had had problems on two parts of his electrical system near the camp's fire site.

The company faces nearly two dozen lawsuits from firefighters over its possible guilt, including allegations of possible equipment breakdowns and poor maintenance. In one lawsuit, residents accused the company of prioritizing advertising expenses over fires and public safety.

"It is now obvious that there are problems on both sides of the business," says Steve Fleishman, an analyst at Wolfe Research, referring to the Gas

Fleishman says that a gas sales and new management of the electric side could allow PG & E executives to focus solely on improving safety. "I think the company is ready to do anything structurally if it thinks it can contribute to safety," Fleishman said.

Analysts warn that the company may lack access to capital, not only because of current responsibilities, but also the risk of future catastrophic fires, a specter exacerbated by climate change and a century of politics. suppression of fires in the country's forests.

In November, the company declared that it had exhausted its revolving lines of credit. And rating agencies, Moody's Investor Service and S & P, have recently lowered the company's credit rating to a near-junk status.

The process of approval will be complicated

PG & E internal planning documents available on the site. The potential sale, labeled "privileged and confidential", shows that company officials are concerned about regulatory approval.

"CPUC approval process will be complicated and time-consuming, so speed up the process to get quick decisions on issues critical to sustainability

While selling gas would cover some responsibilities, the legislator could also be called in. State legislators have partially protected the company from liability claims in 2017 with a bill called critics

Analysts and consumer rights advocates are concerned that Legislators can extend this protection for this year and beyond, thus putting taxpayers and taxpayers in charge.

We'll have to keep the bag, "said Michael Wara of Stanford University." If PG & E can not pay all of these costs, it's the California taxpayer who will eventually make it. "

But some legislators Already hesitating

Sen. Bill Dodd, who was originally in favor of protecting PG & E against the costs of fire liability in 2017, has now lost patience with the company.

"1965:" PG & E has demonstrated a tendency to mismanagement and illegal behavior that has disrupted life in California, "said Dodd in an e-mailed statement. systemic change, which must include a change in the board of directors and the executive suite. "