Contractors and suppliers from large construction companies to small equipment firms have joined power providers caught up in the Jan. 29 decision by California utility Pacific Gas and Electric Co. to voluntarily file Chapter 11 bankruptcy as it faces more than $30 billion in liabilities stemming from 2017 and 2018 wildfires that burned many thousands of acres and structures.

“PG&E is faced with a crisis that threatens its ability to continue to operate,” the firm said in its U.S. Bankruptcy Court filing in San Francisco.

Jason Wells, PG&E senior vice president and CFO, said the multitude of pending and expected claims and lawsuits made it clear that Chapter 11 is the firm’s only option to resolve wildfire liability and assure financial stability. Bankruptcy proceedings are expected to take two years to complete.

The California Dept. of Forestry and Fire Protection on Jan. 24 absolved PG&E of responsibility for the 2017 Tubbs Fire, which burned nearly 38,000 acres in three counties. But California law includes “inverse condemnation” routinely invoked in wildfire damages, under which the utility could be liable for damage without having been found negligent.

PG&E expects capital spending to exceed $13 billion during the next two years, which will exceed cash flow by more than $3 billion, Wells said. It seeks $5.5 billion in debtor-in-possession financing to cover the shortfall and to fund operations. The utility has total assets of $71.2 billion and debts of $51.4 billion.

PG&E seeks authority to pay $116.2 million in pre-bankruptcy obligations to critical vendors, suppliers and service providers, and $54.7 million to maintenance and other contractors.


Industry Creditors

Roebbelen Contracting Inc., El Dorado Hills, Calif., said in a filing it is owed about $38 million in unpaid maintenance and repair services completed before the bankruptcy filing. The firm has a master service agreement for up to $100 million in projects a year, with about 80 under construction for PG&E’s corporate real estate group, says Frank Lindsay, a vice president. These include upgrades to meet tighter federal rules for facilities identified by the U.S. Dept. of Homeland Security as known security targets.

Roebbelen hopes to be termed a “critical vendor” so that work and payment can continue.

“It is very beneficial to be named a critical vendor because, in general, it allows the creditor to be paid immediately for some or all of the debt, rather than having to wait potentially years for a likely much smaller recovery,” Marc Solomon, a Birmingham, Ala., bankruptcy attorney, tells ENR.

A critical vendor provides a service that cannot be easily duplicated by others, he contends. PG&E will rely on a supplier management committee to determine critical vendors.

Turner Construction said it is owed about $20 million for work, including mission-critical energy grid upgrades performed before the filing under a construction services agreement. In a filing, Turner said its claims are secured by “constitutional and statutory liens” that favor the firm. PG&E proposes to apply $65 million to such claimants, case by case.

Quanta Energy Services is owed more than $16 million. It provides engineering, construction and maintenance for PG&E power and gas infrastructure, a spokeswoman said. She did not elaborate on Quanta’s financial involvement with the utility.

ARB, a subsidiary of Primoris Services, is owed $13.4 million, according to PG&E’s list of its largest 50 creditors. The contractor claims there is about $36 million of work in progress that has not been billed.

“Concern has ratcheted up pretty high and it falls harder on small contractors,” Mark Breslin, CEO of California union contractor group United Contractors, tells ENR. Many are preferred providers “and are out very serious amounts,” he says.

Creditors also include Ballard Marine Construction, the International Brotherhood of Electrical Workers and Caterpillar equipment dealer Holt of California, which has a PG&E master rental agreement related to fire and pipeline reconstruction and is owed nearly $454,000.

NextEra Energy, a key PG&E renewable energy provider, took its concerns to the Federal Energy Regulatory Commission, contending that the bankruptcy court would attempt to modify terms of its PG&E power purchase agreements.

The utility has up to 350 wind and solar energy providers and signed an estimated $42 billion in contracts over the past 15 years.

The Florida-based energy firm argued that FERC has exclusive authority under federal law to abrogate, amend or reject any rate agreements in bankruptcy proceedings.

FERC said, however, that it and the bankruptcy court have concurrent power contract review jurisdiction.

NextEra refused to comment on the FERC opinion, on which a bankruptcy court judge will make a final ruling. The next bankruptcy hearing is on Feb. 27.

The price of power has sunk dramatically since some agreements were signed five to 10 years ago, says Paul Patterson, a power sector analyst. “There could be billions of costs recovered,” he says.


Fire Mitigation Plan

PG&E also unveiled on Feb. 6 a mandated 182-page wildfire mitigation plan submitted to the California Public Utiliirs Commission that will involve added cost associated with more extensive power shutdowns during high wind and fire threat situations, an enlarged program of vegetation management and grid infrastructure inspection, and added system hardening and equipment installation and upgrade.

The stepped up mitigation steps are to be implemented over the next three years, at an estimated cost of $1.5 billion to $2 billion, a PG&E official told Bloomberg.

The effort includes construction just underway of a pilot project in Napa County, Calif., site of the 2017 Tubbs fire, which includes infrastructure upgrades to allow PG&E "to provide electricity to central community resources if power lines need to be turned off for safety due to high wildfire threats," the utility said.

The power shutoff program will now include 25,200 distribution circuit miles, up from 7,100 last year, and about 5,500 circuit miles of transmission lines including 500 kV, up from 373 circuit miles of transmission lines at 70 kV and below, across elevated and extreme-fire risk areas.

PG&E says half of its 70,000-square-mile service area "is located in extreme or elevated fire-threat areas."

The plan was also delivered to U.S. District Court Judge William Alsup, who oversees PG&E’s probation related to the 2010 San Bruno, Calif., gas line explosion that killed eight people.

He had proposed that the utility inspect all of its electric grid by June 21 and make necessary fixes or turn off power when areas experience high winds.

In its response, PG&E said Alsup, as a probation judge, could not override current federal and state regulators that oversee the utility’s grid.

The just submitted PG&E plan is scaled down from one proposed by Alsup that calls for the utility to inspect and fix 125,000 miles of power lines that the utility said would require up to 650,000 full-time workers and would cost between $75 billion and $150 billion.

Tom Dalzell, business manager of electrical workers’ union Local 1245 in Vacaville, Calif., supported PG&E’s claim that the work could not be done. “There are nowhere near enough journey [line workers] in the nation to inspect and repair PG&E’s whole system in five months,” he said in a court brief.

In 2018, PG&E hired about 600 line workers from across the U.S. to inspect and repair 50,000 transmission structures, having to pay them the equivalent of 128 hours per week at about $15,000 per line worker, the filing said.

In the Jan. 30 hearing, Alsup lambasted PG&E for its lack of action in working to prevent wildfires in the state. State fire authorities determined that the utility caused 18 wildfires in 2017 and are still investigating last year’s Camp Fire.

"To my mind, there’s a very clear-cut pattern here: that PG&E is starting these fires,” Alsup said, according to the Associated Press. “What do we do? Does the judge just turn a blind eye and say, ‘PG&E, continue your business as usual. Kill more people by starting more fires.’”

The PG&E plan, as well as those submitted Feb. 6 by other California investor-owned utilities under state mandate, will by reviewed and subject to hearings and public comment.

The first public discussion of the plan is set for Feb. 13.