PG&E bankruptcy (2001)
From Invertopedia, the encyclopedia of how things fail
Pacific Gas and Electric filed for Chapter 11 on April 6, 2001[1][2]. California's failed attempt at deregulating electricity prevented the company from raising consumer rates while wholesale prices soared[1]. PG&E said that because retail rates were frozen it could not recover about $9 billion of electricity procurement costs, leaving billions of dollars of defaulted debt and downgrades from every major rating agency[3]. It emerged on April 12, 2004, having made about 2,100 payments that resolved $8.4 billion of allowed claims[1].
The kill shot
The utility had to buy power at market prices and sell it to customers at frozen ones. The gap landed on its balance sheet.
The CPUC records that PG&E's decision to seek bankruptcy court protection came in the wake of its earlier decision to sue the commission in federal district court[3]. PG&E argued federal law let it pass its purchase costs to ratepayers regardless of the 1996 rate freeze[2].
The inversion
If the rules cap what you charge but not what you pay, you are short a market, and you will be margin-called by its next spike.
References
- ^ “Pacific Gas & Electric emerges from bankruptcy”. Reuters via NBC News, April 12, 2004. Filing date, cause, emergence and claims paid.
- ^ “Background Relative to Bankruptcy Proceedings”. California Senate Energy, Utilities and Communications Committee. Filing date and court, and PG&E's filed rate doctrine argument.
- ^ “D.03-12-035, Order Modifying the Proposed Settlement Agreement of PG&E”. California Public Utilities Commission. PG&E's own account of about $9 billion in unrecovered costs, defaults and downgrades, and its earlier suit.