What does PG&E’s Chapter 11 filing mean for its PPAs?

Investments in renewable energy of around $57bn in California could be jeopardised if the US state’s largest utility slips into bankruptcy.

Ilaria Valtimora
February 1, 2019
What does PG&E’s Chapter 11 filing mean for its PPAs?

Investments in renewable energy of around $57bn in California could be jeopardised if the US state’s largest utility slips into bankruptcy.

On 29th January, Californian utility Pacific Gas & Electric Company (PG&E) filed for Chapter 11 bankruptcy protection. This has raised concerns over the future of 7GW of renewable energy power purchase agreements, which the utility has signed over the past two decades.

Here’s the background. In its Chapter 11 filing, PG&E has reported that it owes total debts of $51.7bn to over 100,000 creditors, including an estimated $30bn of liabilities related to wildfires that raged in California in 2017 and 2018. The company has been accused of starting the fires, and investigators have cited its equipment as the cause of 18 wildfires in 2017. Its equipment is still under investigation for wildfires in 2018.

The liabilities are well in excess of its $1.4bn wildfire insurance, and the reason that PG&E is being held responsible is due to California’s law that holds private utilities responsible for damage caused to private property by their equipment. This is the case even if the damage wasn’t done deliberately or the cause of negligence.

PG&E hopes that the bankruptcy filing will allow it to continue delivering electricity to its 16million customers, while trying to resolve its liabilities.

In addition, this filing inevitably raises questions over the future of 256 renewables PPAs totalling 7GW, which represent investments of around $57bn. The company has 4.2GW of solar PPAs and 1.3GW of wind PPAs, as well as 4.6GW in gas and smaller amounts in biomass, geothermal and hydro. These contracts could now be amended or cancelled as part of the bankruptcy protection procedure.

But will they? PG&E is hoping for some flexibility and has been fighting against the Federal Energy Regulatory Commission’s move to manage and protect the PPAs. For the utility, renegotiating some of the older contracts with suppliers to reflect the falling prices of wind and solar power could free up some much-needed cash.

That doesn’t mean that it will happen. PG&E filed for Chapter 11 protection in 2001 during the state’s energy crisis, and that time it was able to honour its contracts. But it doesn’t mean things will happen the same this time.

Indeed, companies that have contracts in place with PG&E are getting worried. For example, on 18th January NextEra Energy asked FERC ahead of PG&E’s filing to declare that the utility couldn’t modify its wholesale power contracts without FERC approval. Other firms that filed comments in support of NextEra’s request included Exelon, NRG Energy, Consolidated Edison, and Southern Co.

PG&E then asked FERC to deny the complaint, and on 25th January the commission noted that it has concurrent jurisdiction on the matter with the bankruptcy court. This means that PG&E will need approval from both before changing or cancelling a PPA.

However, even if the utility doesn’t seek to change the PPAs, its financial crisis is already affecting its projects.

In January, PG&E’s credit rating was downgraded to junk by agency Standard & Poor’s. This means that S&P considers PG&E at risk of default and this has had consequences on some of the projects that it backs.

For example, S&P cut the credit rating of $1.1bn debt at Berkshire Hathaway Energy’s 550MW Topaz solar farm to junk status because the project relies on PG&E for all of its revenue, and it is by no means the only project to suffer this fate.

PG&E has only started its bankruptcy protection process, and the damage it will do to customers and shareholders is not yet known. For example, customers are still due to get their power, but electricity might become more expensive as PG&E tries to recover its losses. For many though, this would be a case of ‘justice done’ after wildfires that destroyed their properties and reshaped their lives.

For those with which the utility has PPAs, there is a chance the utility would honour its PPA contracts as it did in 2001. The company has been keen to argue that it isn’t going out of business. But, even if that is the case, PG&E’s partners will be affected as the utility’s financial instability is already hitting projects. This could be painful.

Investments in renewable energy of around $57bn in California could be jeopardised if the US state’s largest utility slips into bankruptcy.

On 29th January, Californian utility Pacific Gas & Electric Company (PG&E) filed for Chapter 11 bankruptcy protection. This has raised concerns over the future of 7GW of renewable energy power purchase agreements, which the utility has signed over the past two decades.

Here’s the background. In its Chapter 11 filing, PG&E has reported that it owes total debts of $51.7bn to over 100,000 creditors, including an estimated $30bn of liabilities related to wildfires that raged in California in 2017 and 2018. The company has been accused of starting the fires, and investigators have cited its equipment as the cause of 18 wildfires in 2017. Its equipment is still under investigation for wildfires in 2018.

The liabilities are well in excess of its $1.4bn wildfire insurance, and the reason that PG&E is being held responsible is due to California’s law that holds private utilities responsible for damage caused to private property by their equipment. This is the case even if the damage wasn’t done deliberately or the cause of negligence.

PG&E hopes that the bankruptcy filing will allow it to continue delivering electricity to its 16million customers, while trying to resolve its liabilities.

In addition, this filing inevitably raises questions over the future of 256 renewables PPAs totalling 7GW, which represent investments of around $57bn. The company has 4.2GW of solar PPAs and 1.3GW of wind PPAs, as well as 4.6GW in gas and smaller amounts in biomass, geothermal and hydro. These contracts could now be amended or cancelled as part of the bankruptcy protection procedure.

But will they? PG&E is hoping for some flexibility and has been fighting against the Federal Energy Regulatory Commission’s move to manage and protect the PPAs. For the utility, renegotiating some of the older contracts with suppliers to reflect the falling prices of wind and solar power could free up some much-needed cash.

That doesn’t mean that it will happen. PG&E filed for Chapter 11 protection in 2001 during the state’s energy crisis, and that time it was able to honour its contracts. But it doesn’t mean things will happen the same this time.

Indeed, companies that have contracts in place with PG&E are getting worried. For example, on 18th January NextEra Energy asked FERC ahead of PG&E’s filing to declare that the utility couldn’t modify its wholesale power contracts without FERC approval. Other firms that filed comments in support of NextEra’s request included Exelon, NRG Energy, Consolidated Edison, and Southern Co.

PG&E then asked FERC to deny the complaint, and on 25th January the commission noted that it has concurrent jurisdiction on the matter with the bankruptcy court. This means that PG&E will need approval from both before changing or cancelling a PPA.

However, even if the utility doesn’t seek to change the PPAs, its financial crisis is already affecting its projects.

In January, PG&E’s credit rating was downgraded to junk by agency Standard & Poor’s. This means that S&P considers PG&E at risk of default and this has had consequences on some of the projects that it backs.

For example, S&P cut the credit rating of $1.1bn debt at Berkshire Hathaway Energy’s 550MW Topaz solar farm to junk status because the project relies on PG&E for all of its revenue, and it is by no means the only project to suffer this fate.

PG&E has only started its bankruptcy protection process, and the damage it will do to customers and shareholders is not yet known. For example, customers are still due to get their power, but electricity might become more expensive as PG&E tries to recover its losses. For many though, this would be a case of ‘justice done’ after wildfires that destroyed their properties and reshaped their lives.

For those with which the utility has PPAs, there is a chance the utility would honour its PPA contracts as it did in 2001. The company has been keen to argue that it isn’t going out of business. But, even if that is the case, PG&E’s partners will be affected as the utility’s financial instability is already hitting projects. This could be painful.

Investments in renewable energy of around $57bn in California could be jeopardised if the US state’s largest utility slips into bankruptcy.

On 29th January, Californian utility Pacific Gas & Electric Company (PG&E) filed for Chapter 11 bankruptcy protection. This has raised concerns over the future of 7GW of renewable energy power purchase agreements, which the utility has signed over the past two decades.

Here’s the background. In its Chapter 11 filing, PG&E has reported that it owes total debts of $51.7bn to over 100,000 creditors, including an estimated $30bn of liabilities related to wildfires that raged in California in 2017 and 2018. The company has been accused of starting the fires, and investigators have cited its equipment as the cause of 18 wildfires in 2017. Its equipment is still under investigation for wildfires in 2018.

The liabilities are well in excess of its $1.4bn wildfire insurance, and the reason that PG&E is being held responsible is due to California’s law that holds private utilities responsible for damage caused to private property by their equipment. This is the case even if the damage wasn’t done deliberately or the cause of negligence.

PG&E hopes that the bankruptcy filing will allow it to continue delivering electricity to its 16million customers, while trying to resolve its liabilities.

In addition, this filing inevitably raises questions over the future of 256 renewables PPAs totalling 7GW, which represent investments of around $57bn. The company has 4.2GW of solar PPAs and 1.3GW of wind PPAs, as well as 4.6GW in gas and smaller amounts in biomass, geothermal and hydro. These contracts could now be amended or cancelled as part of the bankruptcy protection procedure.

But will they? PG&E is hoping for some flexibility and has been fighting against the Federal Energy Regulatory Commission’s move to manage and protect the PPAs. For the utility, renegotiating some of the older contracts with suppliers to reflect the falling prices of wind and solar power could free up some much-needed cash.

That doesn’t mean that it will happen. PG&E filed for Chapter 11 protection in 2001 during the state’s energy crisis, and that time it was able to honour its contracts. But it doesn’t mean things will happen the same this time.

Indeed, companies that have contracts in place with PG&E are getting worried. For example, on 18th January NextEra Energy asked FERC ahead of PG&E’s filing to declare that the utility couldn’t modify its wholesale power contracts without FERC approval. Other firms that filed comments in support of NextEra’s request included Exelon, NRG Energy, Consolidated Edison, and Southern Co.

PG&E then asked FERC to deny the complaint, and on 25th January the commission noted that it has concurrent jurisdiction on the matter with the bankruptcy court. This means that PG&E will need approval from both before changing or cancelling a PPA.

However, even if the utility doesn’t seek to change the PPAs, its financial crisis is already affecting its projects.

In January, PG&E’s credit rating was downgraded to junk by agency Standard & Poor’s. This means that S&P considers PG&E at risk of default and this has had consequences on some of the projects that it backs.

For example, S&P cut the credit rating of $1.1bn debt at Berkshire Hathaway Energy’s 550MW Topaz solar farm to junk status because the project relies on PG&E for all of its revenue, and it is by no means the only project to suffer this fate.

PG&E has only started its bankruptcy protection process, and the damage it will do to customers and shareholders is not yet known. For example, customers are still due to get their power, but electricity might become more expensive as PG&E tries to recover its losses. For many though, this would be a case of ‘justice done’ after wildfires that destroyed their properties and reshaped their lives.

For those with which the utility has PPAs, there is a chance the utility would honour its PPA contracts as it did in 2001. The company has been keen to argue that it isn’t going out of business. But, even if that is the case, PG&E’s partners will be affected as the utility’s financial instability is already hitting projects. This could be painful.

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