Pacific Gas and Electric Company (PG&E), California’s largest investor-owned utility, filed for Chapter 11 bankruptcy protection on Jan. 14 amid the onslaught of lawsuits over the company’s role in the Northern California wildfires.

The approval of PG&E’s bankruptcy request would allow the company to stay in business while relieving the liability costs of the wildfires allegedly caused by its faulty equipment and service. Through the Chapter 11 process, the debtor is afforded a number of ways to restructure its business; and because PG&E is a public company, taxpayers pay off the debts, while the company continues to provide services to its customers.

While PG&E does not provide energy to Palo Alto, it does provides gas and electricity for more than two-thirds of Northern California. According to Michael Wara, the director of the Climate and Energy Policy Program at Stanford University, the bankruptcy of the company will have costly implications for its customers. Wara explained bankruptcy in economic terms.

“Think about it this way: what if you had a friend that you knew probably wouldn’t pay you back, and they came to ask you for a loan. Would you charge them a high or low interest rate? In this story, you are the financial markets. Your friend is PG&E and its customers.”

Michael Wara in an email

If granted bankruptcy protection from the bankruptcy courts, PG&E would be able to transfer the liability costs of the wildfires to its customers by raising electricity rates.

“In general, PG&E needs to borrow money to replace parts of its system as they wear out (happening all the time), and customer bills pay for the interest on that borrowing,” Wara said. “So we will all pay for this. ”

This is what happened when the company filed for Chapter 11 bankruptcy in 2001, resulting in steep electricity rates.

According to a statement released by the company, the Chapter 11 process will “assure the company has access to the capital and resources it needs to continue to provide safe service to customers”. The California Public Utilities Commission unanimously voted Monday to grant PG&E $6 billion in loans as it awaits bankruptcy.   

In a press release, PG&E’s interim CEO John Simon said,.“We believe that this process will make sure that we have sufficient liquidity to serve our customers and support our operations and obligations”.