B2B Payments

PG&E Suppliers Face Uncertainty Amid Bankruptcy Plans

Pacific Gas and Electric (PG&E) has filed for bankruptcy protection in anticipation of billions of dollars in expected liabilities resulting from deadly California wildfires, and while the company has vowed to “keep the lights on” for its customers,” the firm’s suppliers are facing uncertainty over contracts and payments.

Reports in the Wall Street Journal said PG&E swiftly took measures to begin renegotiating contracts with suppliers that were agreed upon at a time when energy prices were higher. Those renegotiations could lead to negative financial consequences for the energy company’s suppliers that have already secured financing based on the original energy prices upon which PG&E contracts were agreed.

The fallout could be particularly large for green energy suppliers, which rely on PG&E for the majority of their business, reports said.

Bankruptcy filings showed the utility is looking to offload $42 billion worth of purchase agreements with an estimated 350 energy suppliers. The majority of those vendors are in the wind, solar and green energy industries, reports said. The utility’s commitments under the current supplier contracts are worth about three times its 2017 gross revenues.

PG&E said it is looking for bankruptcy court to assess whether old agreements with suppliers should be honored or tossed. The Federal Energy Regulatory Commission (FERC) said last week, however, that it has “concurrent jurisdiction” to oversee the bankruptcy as well as the supplier contracts.

The FERC’s remarks were made in response to one supplier, NextEra, urging the regulator to retain oversight of the process. PG&E argues that the future of supplier contracts is a “business judgment” and should therefore be overseen by the bankruptcy court.

PG&E vendors are now in a dangerous limbo, considering how much of their business relies upon PG&E as a customer, reports said.

“A lot of companies are in that position, where PG&E is responsible for 100 percent of their revenues,” David Carruthers, lead researcher for Credit Benchmark, told the WSJ.

Already, the credit profiles of some suppliers have been negatively impacted as a result of PG&E’s filing. Reports said Topaz Solar Farms LLC, owned by Berkshire Hathaway, has had its debt downgraded to junk because its only customer is PG&E. The company’s solar project cost $2.4 billion, the publication said.

Similar challenges for vendors have been seen in other recent bankruptcies in the U.S., including the Sears filing late last year, and Toys R Us last spring.

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