On January 29 of this year, PG&E filed for bankruptcy, citing billions of dollars in liabilities stemming from wildfires in both 2017 and 2018—some of California’s most deadly. In the discussion that follows, Professor G. Marcus Cole, a leading scholar of bankruptcy law, discusses what this means to PG&E and ratepayers in California.

Why did PG&E file for bankruptcy?

PG&E filed what we bankruptcy geeks refer to as a “defensive bankruptcy” filing. The purpose of a defensive bankruptcy is to achieve, for a defendant facing mass tort litigation, an aggregation of cases and claims. This can be viewed as a “reverse class action” because it forces similarly situated plaintiffs into one forum, to be considered in context with each other rather than independently. Chapter 11 of the Bankruptcy Code enables a debtor confronting many claims and claimants to gain some order and predictability by using bankruptcy in this way. A defensive bankruptcy filing allows the defendant to hire one team of lawyers who can mount an orchestrated and consistent defense strategy for all cases. This avoids the risks of attenuated cases, and most importantly, exposure to collateral estoppel. Collateral estoppel is the doctrine that treats common issues of fact across cases involving the same defendant as conclusively determined for all other cases for that same defendant. By aggregating cases in bankruptcy, one team of defense lawyers can avoid the possibility of errors by lawyers litigating far-flung cases in different venues.

PG&E is a public utility. What does that mean?

As a “public utility,” PG&E is essentially a private company operating in what we call a “regulated industry.” This means that, in exchange for certain legal protections and exclusivity, PG&E must embrace a loss of control over much of its operations that other companies can take for granted. So, for example, PG&E cannot decide on its own what prices (rates) to charge for its services, or where and how it provides those services. In return, PG&E enjoys a “natural monopoly” existence, protected from competition, in part by the capital-intensive nature of its business, and in part by the regulatory structure imposed by the State of California and the U.S. Department of Energy.

Will PG&E’s bankruptcy lead to increased rates for consumers?

PG&E’s bankruptcy will undoubtedly mean higher rates for ratepayers. Tort liability like that associated with the fires will mean safety improvements are likely to be required. It also means that the succeeding electric power provider – whether that is a reorganized PG&E, an acquirer, or the “broken-up,” smaller utilities that might emerge from this process, will all push for higher rates to cover the costs associated with safety improvements and expansive liability exposure.