7 ms·

PG&E files for bankruptcy

71 points by pxeboot 8y ago

salawat 8y ago
Why is it acceptable to privatize profit, but socialize risk again? A company shouldn't have carte Blanche to pass the cos of it's incompetence and neglect on to the customer. If anything, they should have their rates frozen until such time as they have made whole all those who have been harmed. It is okay for companies to die. It should happen.
- bekimdisha 8y ago
  Because modern capitalism is all about "ONLY UPSIDE, ZERO DOWNSIDE"
  - 1stcity3rdcoast 8y ago
    It’s not capitalism when your risks have the government as a backstop. Failure is a healthy market mechanism; socialized losses only hurt investors’ ability to make capital decisions and consumers’ ability to have agency via their individual choices.
    - geofft 8y ago
      It's pretty meaningless to say that such-and-such implementation of capitalism isn't real capitalism because of a reason that a) is common to just about every implementation of capitalism, certainly every major one and every one celebrated as a success story of capitalism and b) seems basically unavoidable in the real world. This is real capitalism and we should admit that. Reminds me of some other arguments about economic systems.
      - olliej 8y ago
        No this is clearly not real Scottish capitalism :)
    - olliej 8y ago
      socialized losses encourage risk taking as there’s no real cost to the people running companies (see the bank crisis), and a holy expect pg&e to survive bankruptcy without actually paying for the damage or returning any of the stolen tax dollars.
- mc32 8y ago
  There are too many state hands in the pockets; there is no way they allow it to go under.
- manfredo 8y ago
  Probably because the risk is such that no industry would go into that business if costs weren't socialized to a degree. > If anything, they should have their rates frozen until such time as they have made whole all those who have been harmed. So the fire apparently started because PG&E didn't have the resources to properly maintain rural lines. And the response is to further deprive them of funds? This is what I'm talking about here. If PG&E is supposed to shoulder the burden of forest fires caused by downed lines, then electricity is going to get a lot more expensive. I'm not sure where this idea that utilities are supposed to take more responsibility for risk while simultaneously dropping or freezing rates. That's not how money works. More risk means higer costs.
  - olliej 8y ago
    Which is why utility companies get tax breaks, direct tax funding, and legal monopolies. What you’re saying is the current system of zero risk, high gain, is acceptable. In this case pg&e deliberately chose not to perform maintenance on their lines, despite turning a profit (meaning they could afford to do more) and despite receiving tax payer money specifically for the purpose of that maintenance. Instead the issued dividends to private people and orgs, and to executive bonuses. Those people have now have that money, a lot of which already came from taxpayersz the same tax payers that have now been left with the bill for damage caused by pg&e not doing what it had agreed to do. That is a pretty canonical example of heads I win, tails you lose. In fact as long as companies are allowed to behave like this (eg with no criminal liability in management), there is no downside to this kind of theft.
    - manfredo 8y ago
      As far as I can tell PG&E hasn't paid dividends since 2017. Legal monopolies also come with burdens. PG&E is disallowed to refuse service to high-risk regions. When they shut down power to places during high fire risk, the company receives penalties. It's a difficult trap. If you reduce exposure to risk, you reduce income - which further hampers ability to provide a safe service. At the end of the day, people can't eat their cake and have it too. When delivering power to high risk areas, either of two things happen: either we accept the danger, or the utility charges higher rates to offset the risk of damage. There's no magic solution. A government take over of PG&E isn't guaranteed to change anything, other than making the taxpayers directly liable for any mishap.
- lamarpye 8y ago
  I think you missed part of the article: "The utility company’s stock has lost more than 80% of its value since the 2017 fires broke out, and its credit rating has been downgraded to junk status." How was the downside risk of the shareholders socialized? PG&E doesn't have carte blanche, it is a regulated monopoly, any changes to the rate structure has to be approved. As for the company dying, people in California will probably prefer to continue having the electricity
  - pmoriarty 8y ago
    "PG&E doesn't have carte blanche, it is a regulated monopoly, any changes to the rate structure has to be approved." How often do the rate increases that they seem to announce virtually every month actually get rejected? Do they even ever not get approved? I have not done the comparisons myself, but I have heard that California's energy prices are some of the highest in the country. I don't understand how that can be if their prices really are held artificially low by the government.
- rayiner 8y ago
  That argument is completely misplaced here. PG&E is a rate regulated utility, which means its profit margin is based on its costs and investments. The rates are set to ensure a modest profit, generally between 5-10%. That means that to the extent PG&E underinvested in safety (lowering costs), it was ratepayers that benefited, because that kept rates low. Investors, by contrast, earned a low return on the stock, and will have their equity largely if not completely wiped out in bankruptcy. This is a recurring story in rate-regulated utilities all over the country. Public utility commissions want to keep rates low, generally artificially low. So they set rates in a way that causes utilities to externalizations risk or pollution. For example, water rates in the US are very cheap because water utilities routinely dump untreated sewage into rivers. If you forced say DC Water to never dump into the Potomac again, it would have to invest massively in storm water management systems, which would in turn drive up rates.
- rebuilder 8y ago
  This is critical infrastructure. The risks must be socialized IMO. That makes you wonder if power infrastructure should be left to private enterprise to the extent it now is, but frankly I doubt a state-owned company would have been better prepared, either. People want cheap energy either way. Requiring companies to be able to cover the costs of natural disasters would be politically difficult because it would raise energy prices to the consumer, regardless of ownership model. I wonder what model of governance would properly account for rare disasters. A disaster fund? Of course, if wildfires become more common, as it seems likely, then in a sense this problem should solve itself one way or the other because it will not be possible to run a company like PG&E very long without being able to cover the costs incurred.
- alexis_fr 8y ago
  > Why is it acceptable to privatize profit, but socialize risk again? We privatize profit because there would be no company if profits weren’t given. We socialize risk because the government is permeable to manipulation, and they freely accept whatever argument that makes them pay for the risk. Govts don’t have to invest in private sectors. They don’t have to borrow in the name of their subjects. Yet they do it, without the consent of their subjects, because it is a non-working democracy, and because people accept it like business as usual. So yes, good taxpayers have to pay for badly managed private companies.
momentmaker 8y ago
Perhaps the only people less worthy of receiving a bonus of any kind than the Moody's and S&P analysts who as recently as three weeks ago rated now bankrupt PG&E as investment grade is the management of PG&E, which one year after the most destructive fire in California history sparked, literally, another "most destructive fire in history" with no hedges or fallbacks in place. And yet as part of its first day bankruptcy motion, the California utility that filed for bankruptcy early on Tuesday is seeking to pay employees about $130 million in performance bonuses for last year, an amount which is due to be paid in March 2019. According to compensation and benefits court filing, the company - which is facing $51.7 billion in total debts - said that the bonuses "are critical to ensuring that employees stay motivated." About 14,000 employees are eligible for short-term incentive plan cash awards for 2018, for achieving performance targets and individual goals. The payouts range from about $5,000 to $90,000 per person, not including senior officers and directors. PG&E also said it wants to maintain a rewards program that gives gift cards to workers who go "above and beyond" their regular duties, at a total cost of about $15.2 million a year; the company is also seeking to pay out $650,000 in outstanding awards. In separate filings, PG&E said it will keep paying $327 million annually for pension benefits. The decision to keep paying into its pension plan means about 54,000 current and former employees are unlikely to be drawn into the bankruptcy case, company says in court papers. The utility also pays $109.2 million annually in 401(k) matching funds for 22,000 current employees and $28.3 million annually toward retiree health care, and has asked the court to keep such payments. Also of note, the company’s $5.5 DIP loan (which was arranged by J.P.Morgan, Bank of America, Barclays, Citi, BNP Paribas, Credit Suisse, Goldman Sachs, MUFG Union Bank and Wells Fargo) doesn’t set any deadlines for PG&E to sell assets or adopt a detailed reorganization plan, which gives the utility far more freedom than most companies operating in Chapter 11. In fact, one can almost claim that the only limitation imposed upon PG&E is for litigants to seek relief for the tens of billions in legal fees that they will be entitled to as a result of the deadly California fires.
- lamarpye 8y ago
  Interesting information. Do you know if the bonuses are part of the union contract? "Approximately two-thirds of PG&E’s employees are covered by collective bargaining agreements with three labor unions: the International Brotherhood of Electrical Workers (IBEW) Local 1245, the Engineers and Scientists of California (ESC) IFPTE Local 20 and the Service Employees International Union (SEIU) United Service Workers West." http://www.pgecorp.com/corp_responsibility/reports/2010/em06_unions.jsp http://www.pgecorp.com/corp_responsibility/reports/2010/em06... Maybe paying those bonuses is required.
mindentropy 8y ago
I partly remember seeing this company outsource all the work to my former company. Digging a little deeper you can see that the company in its final years laid off all the workers and outsourced most of its operations. It looks like a pattern now. If you see a company outsourcing everything and laying off its own workers it means that the company is not going to survive for long. Whenever the management feels that workers are a problem and not the way it operates its business that company will soon die in the next few years.
- nine_k 8y ago
  I suppose it's a way to extract most value for lenders and shareholders. If a bankrupt company has little staff and no departments besides administrative, there are little liabilities, and little post-dissolution hassle. All remaining assets are reasonably liquid.
  - ironic_ali 8y ago
    I wonder what their pension liabilities are for current and previous staff? And whether those funds are classed as company assets or seperate fro the bankruptcy?
  - pjc50 8y ago
    If you look closely, quite a lot of the money often goes to senior management. Or it's extracted by a hedge fund in a takeover.
- austincheney 8y ago
  Workers are a cost factor. From an accounting perspective the belief is that eliminating that cost would put more numbers on the other side of the balance sheet. The financial and economic reality is that those people either performed a necessary task the business needs or they didn't and if they were needed it will cost more to eliminate them. These kinds of strategic failures are likely present in more than just labor.
- freddie_mercury 8y ago
  You think PG&Es problem was outsourcing and not Californian law making them liable for wildfire damages even in the absence of negligence? That's....a novel take.
shard972 8y ago
Maybe somebody should have told them it was actually climate change's fault /s
aboutruby 8y ago
Maybe California will have something better than third-world electrical infrastructure (quasi inexistent interruptions, secure, underground cables, etc.)
masonic 8y ago
"State Sen. Bill Dodd (D-Napa) said the situation is “extremely disappointing and underscores the need for change at PG&E in both its leadership and corporate culture.”" Hypocrite. Senator Dodd just happens to be the author of the big PG&E bailout bill of just a few months ago (which became law).
- talltimtom 8y ago
  If a ship is sinking it’s perfectly logical to first save the ship and then criticize the crew afterwards. Calling someone a hypocrite because they critique the captain but didn’t let the ship sink seems kind of odd.

71 points by pxeboot 8y ago

Why is it acceptable to privatize profit, but socialize risk again? A company shouldn't have carte Blanche to pass the cos of it's incompetence and neglect on to the customer. If anything, they should have their rates frozen until such time as they have made whole all those who have been harmed. It is okay for companies to die. It should happen.

bekimdisha 8y ago
Because modern capitalism is all about "ONLY UPSIDE, ZERO DOWNSIDE"
- 1stcity3rdcoast 8y ago
  It’s not capitalism when your risks have the government as a backstop. Failure is a healthy market mechanism; socialized losses only hurt investors’ ability to make capital decisions and consumers’ ability to have agency via their individual choices.
  - geofft 8y ago
    It's pretty meaningless to say that such-and-such implementation of capitalism isn't real capitalism because of a reason that a) is common to just about every implementation of capitalism, certainly every major one and every one celebrated as a success story of capitalism and b) seems basically unavoidable in the real world. This is real capitalism and we should admit that. Reminds me of some other arguments about economic systems.
    - olliej 8y ago
      No this is clearly not real Scottish capitalism :)
  - olliej 8y ago
    socialized losses encourage risk taking as there’s no real cost to the people running companies (see the bank crisis), and a holy expect pg&e to survive bankruptcy without actually paying for the damage or returning any of the stolen tax dollars.
mc32 8y ago
There are too many state hands in the pockets; there is no way they allow it to go under.
manfredo 8y ago
Probably because the risk is such that no industry would go into that business if costs weren't socialized to a degree. > If anything, they should have their rates frozen until such time as they have made whole all those who have been harmed. So the fire apparently started because PG&E didn't have the resources to properly maintain rural lines. And the response is to further deprive them of funds? This is what I'm talking about here. If PG&E is supposed to shoulder the burden of forest fires caused by downed lines, then electricity is going to get a lot more expensive. I'm not sure where this idea that utilities are supposed to take more responsibility for risk while simultaneously dropping or freezing rates. That's not how money works. More risk means higer costs.
- olliej 8y ago
  Which is why utility companies get tax breaks, direct tax funding, and legal monopolies. What you’re saying is the current system of zero risk, high gain, is acceptable. In this case pg&e deliberately chose not to perform maintenance on their lines, despite turning a profit (meaning they could afford to do more) and despite receiving tax payer money specifically for the purpose of that maintenance. Instead the issued dividends to private people and orgs, and to executive bonuses. Those people have now have that money, a lot of which already came from taxpayersz the same tax payers that have now been left with the bill for damage caused by pg&e not doing what it had agreed to do. That is a pretty canonical example of heads I win, tails you lose. In fact as long as companies are allowed to behave like this (eg with no criminal liability in management), there is no downside to this kind of theft.
  - manfredo 8y ago
    As far as I can tell PG&E hasn't paid dividends since 2017. Legal monopolies also come with burdens. PG&E is disallowed to refuse service to high-risk regions. When they shut down power to places during high fire risk, the company receives penalties. It's a difficult trap. If you reduce exposure to risk, you reduce income - which further hampers ability to provide a safe service. At the end of the day, people can't eat their cake and have it too. When delivering power to high risk areas, either of two things happen: either we accept the danger, or the utility charges higher rates to offset the risk of damage. There's no magic solution. A government take over of PG&E isn't guaranteed to change anything, other than making the taxpayers directly liable for any mishap.
lamarpye 8y ago
I think you missed part of the article: "The utility company’s stock has lost more than 80% of its value since the 2017 fires broke out, and its credit rating has been downgraded to junk status." How was the downside risk of the shareholders socialized? PG&E doesn't have carte blanche, it is a regulated monopoly, any changes to the rate structure has to be approved. As for the company dying, people in California will probably prefer to continue having the electricity
- pmoriarty 8y ago
  "PG&E doesn't have carte blanche, it is a regulated monopoly, any changes to the rate structure has to be approved." How often do the rate increases that they seem to announce virtually every month actually get rejected? Do they even ever not get approved? I have not done the comparisons myself, but I have heard that California's energy prices are some of the highest in the country. I don't understand how that can be if their prices really are held artificially low by the government.
rayiner 8y ago
That argument is completely misplaced here. PG&E is a rate regulated utility, which means its profit margin is based on its costs and investments. The rates are set to ensure a modest profit, generally between 5-10%. That means that to the extent PG&E underinvested in safety (lowering costs), it was ratepayers that benefited, because that kept rates low. Investors, by contrast, earned a low return on the stock, and will have their equity largely if not completely wiped out in bankruptcy. This is a recurring story in rate-regulated utilities all over the country. Public utility commissions want to keep rates low, generally artificially low. So they set rates in a way that causes utilities to externalizations risk or pollution. For example, water rates in the US are very cheap because water utilities routinely dump untreated sewage into rivers. If you forced say DC Water to never dump into the Potomac again, it would have to invest massively in storm water management systems, which would in turn drive up rates.
rebuilder 8y ago
This is critical infrastructure. The risks must be socialized IMO. That makes you wonder if power infrastructure should be left to private enterprise to the extent it now is, but frankly I doubt a state-owned company would have been better prepared, either. People want cheap energy either way. Requiring companies to be able to cover the costs of natural disasters would be politically difficult because it would raise energy prices to the consumer, regardless of ownership model. I wonder what model of governance would properly account for rare disasters. A disaster fund? Of course, if wildfires become more common, as it seems likely, then in a sense this problem should solve itself one way or the other because it will not be possible to run a company like PG&E very long without being able to cover the costs incurred.
alexis_fr 8y ago
> Why is it acceptable to privatize profit, but socialize risk again? We privatize profit because there would be no company if profits weren’t given. We socialize risk because the government is permeable to manipulation, and they freely accept whatever argument that makes them pay for the risk. Govts don’t have to invest in private sectors. They don’t have to borrow in the name of their subjects. Yet they do it, without the consent of their subjects, because it is a non-working democracy, and because people accept it like business as usual. So yes, good taxpayers have to pay for badly managed private companies.

momentmaker 8y ago

Perhaps the only people less worthy of receiving a bonus of any kind than the Moody's and S&P analysts who as recently as three weeks ago rated now bankrupt PG&E as investment grade is the management of PG&E, which one year after the most destructive fire in California history sparked, literally, another "most destructive fire in history" with no hedges or fallbacks in place. And yet as part of its first day bankruptcy motion, the California utility that filed for bankruptcy early on Tuesday is seeking to pay employees about $130 million in performance bonuses for last year, an amount which is due to be paid in March 2019. According to compensation and benefits court filing, the company - which is facing $51.7 billion in total debts - said that the bonuses "are critical to ensuring that employees stay motivated." About 14,000 employees are eligible for short-term incentive plan cash awards for 2018, for achieving performance targets and individual goals. The payouts range from about $5,000 to $90,000 per person, not including senior officers and directors. PG&E also said it wants to maintain a rewards program that gives gift cards to workers who go "above and beyond" their regular duties, at a total cost of about $15.2 million a year; the company is also seeking to pay out $650,000 in outstanding awards. In separate filings, PG&E said it will keep paying $327 million annually for pension benefits. The decision to keep paying into its pension plan means about 54,000 current and former employees are unlikely to be drawn into the bankruptcy case, company says in court papers. The utility also pays $109.2 million annually in 401(k) matching funds for 22,000 current employees and $28.3 million annually toward retiree health care, and has asked the court to keep such payments. Also of note, the company’s $5.5 DIP loan (which was arranged by J.P.Morgan, Bank of America, Barclays, Citi, BNP Paribas, Credit Suisse, Goldman Sachs, MUFG Union Bank and Wells Fargo) doesn’t set any deadlines for PG&E to sell assets or adopt a detailed reorganization plan, which gives the utility far more freedom than most companies operating in Chapter 11. In fact, one can almost claim that the only limitation imposed upon PG&E is for litigants to seek relief for the tens of billions in legal fees that they will be entitled to as a result of the deadly California fires.

lamarpye 8y ago
Interesting information. Do you know if the bonuses are part of the union contract? "Approximately two-thirds of PG&E’s employees are covered by collective bargaining agreements with three labor unions: the International Brotherhood of Electrical Workers (IBEW) Local 1245, the Engineers and Scientists of California (ESC) IFPTE Local 20 and the Service Employees International Union (SEIU) United Service Workers West." http://www.pgecorp.com/corp_responsibility/reports/2010/em06_unions.jsp http://www.pgecorp.com/corp_responsibility/reports/2010/em06... Maybe paying those bonuses is required.

mindentropy 8y ago

I partly remember seeing this company outsource all the work to my former company. Digging a little deeper you can see that the company in its final years laid off all the workers and outsourced most of its operations. It looks like a pattern now. If you see a company outsourcing everything and laying off its own workers it means that the company is not going to survive for long. Whenever the management feels that workers are a problem and not the way it operates its business that company will soon die in the next few years.

nine_k 8y ago
I suppose it's a way to extract most value for lenders and shareholders. If a bankrupt company has little staff and no departments besides administrative, there are little liabilities, and little post-dissolution hassle. All remaining assets are reasonably liquid.
- ironic_ali 8y ago
  I wonder what their pension liabilities are for current and previous staff? And whether those funds are classed as company assets or seperate fro the bankruptcy?
- pjc50 8y ago
  If you look closely, quite a lot of the money often goes to senior management. Or it's extracted by a hedge fund in a takeover.
austincheney 8y ago
Workers are a cost factor. From an accounting perspective the belief is that eliminating that cost would put more numbers on the other side of the balance sheet. The financial and economic reality is that those people either performed a necessary task the business needs or they didn't and if they were needed it will cost more to eliminate them. These kinds of strategic failures are likely present in more than just labor.
freddie_mercury 8y ago
You think PG&Es problem was outsourcing and not Californian law making them liable for wildfire damages even in the absence of negligence? That's....a novel take.

shard972 8y ago

Maybe somebody should have told them it was actually climate change's fault /s

aboutruby 8y ago

Maybe California will have something better than third-world electrical infrastructure (quasi inexistent interruptions, secure, underground cables, etc.)

masonic 8y ago

"State Sen. Bill Dodd (D-Napa) said the situation is “extremely disappointing and underscores the need for change at PG&E in both its leadership and corporate culture.”" Hypocrite. Senator Dodd just happens to be the author of the big PG&E bailout bill of just a few months ago (which became law).

talltimtom 8y ago
If a ship is sinking it’s perfectly logical to first save the ship and then criticize the crew afterwards. Calling someone a hypocrite because they critique the captain but didn’t let the ship sink seems kind of odd.