After months of speculation, California’s largest utility, Pacific Gas and Electricity Corporation (PG&E), filed for protection under chapter 11 of the U.S. Bankruptcy Code on January 29, 2019. In the papers filed by the debtors, the affidavit in support of the filing, sworn out by Chief Financial Officer Jason P. Wells, aptly captured the reasons the company had given for the exigent filing: “[t]he chapter 11 filings were necessitated by a confluence of factors resulting from the catastrophic and tragic wildfires that occurred in Northern California in 2017 and 2018, and PG&E’s potential liability . . . made it abundantly clear that PG&E could not continue to address . . . claims and potential liabilities in the California state court system, continue to deliver safe and reliable service to its 16 million customers, and remain economically viable.” The estimates for PG&E liability due to the wildfires, as reported by the company to the Securities and Exchange Commission through its January 14, 2019 Form 8-K, could exceed $39 billion. California state fire investigators reported on January 20, 2019, that the devastating Sonoma county 2017 wildfire, known as the Tubbs fire, originated from a private electrical system and not by PG&E. That brief respite was not enough to turn the tide, as a combination of heavy criticism from the public, regulators, the state’s newly sworn in governor, and the specter of liability from the other wildfires that had plagued the utility, buoyed the decision of PG&E to seek bankruptcy protection.
Since the filing, the utility has been connected with devastating fires in Northern California in 2015, 2016, 2017, and 2018, and the 2016 Ghost Ship Fire in Oakland. Federal District Court Judge William Alsup has authority over PG&E, resulting from a 2016 felony jury conviction of the company that arose out of the San Bruno explosion of a PG&E gas pipeline, which killed eight people and destroyed 38 homes. Judge Alsup recently ruled that the utility follow new safety standards in the wildfire mitigation plan submitted by PG&E to state regulators. He had issued an earlier order to show cause requesting that the utility demonstrate why its conditions of probation should not be modified and much stricter standards imposed. Several official committees authorized by 11 U.S.C. § 1102(a) have been appointed in the bankruptcy case, including an official committee of unsecured creditors and an official committee of tort claimants, the latter to protect the rights of the victims of the wildfires.
Equity Holders Unconvinced
Not everyone was enthusiastic about the filing. Hedge fund BlueMountain Capital Management LLC, which holds a significant position in the utility, challenged the company’s decision to file for chapter 11 protection in two very public letters primarily on the grounds that the company was solvent. In the second letter, the hedge fund, which holds up to 11 million shares of the total 528 million PG&E shares, noted that “[y]ou have publicly stated that bankruptcy is in the best interests of all stakeholders. But you have failed to articulate a single cogent reason for why it is beneficial to any stakeholder.” BlueMountain, undeterred by the pending chapter 11 filing, sent a letter to shareholders on January 24, 2019, announcing that it would be putting forth a completely new slate of directors to oust the current board. The fund punctuated its sentiment toward the current PG&E leadership in the letter, stating, “[t]he Current Board has not only failed the Company and its shareholders; it has failed its customers; it has failed its employees; and, it has failed the people of California.” BlueMountain followed up with a March 1, 2019 statement that it selected 13 new board candidates from which it would ask other shareholders to elect as the new PG&E board at the company’s May 21 annual meeting. PG&E has responded by announcing it will put forward five new board members and that the majority of its board would be independent directors by the date of the annual meeting.
California State Government Response
California Governor Gavin Newsom was sworn in to office on January 7, 2019, and was immediately thrown into the PG&E crisis. On February 12, 2019, Governor Newsom created a “strike team” of advisors, including bankruptcy lawyers and financial advisors. The governor has given the strike team 60 days to provide a strategic plan to ensure continued and interrupted service, provide for the victims of the wildfires, protect workers, and protect consumers. In late August 2018, the California legislature passed Senate Bill 901 (SB 901), and Governor Brown signed the bill into law on September 21, 2018. SB 901 was part of a broader proposal that was intended to prevent PG&E’s bankruptcy filing. Although the legislation allowed for several reforms that were designed to alleviate some of the pressure on investor-owned utilities, the biggest and most controversial measure was to eliminate strict liability for utilities for fires caused by the equipment of investor-owned utilities. The elimination of strict liability, known as reverse condemnation, was dropped from the bill. SB 901 was signed with provisions allowing investor-owned utilities like PG&E to file with the California Public Utilities Commission to recover costs retroactively from the 2017 wildfires; establishing a new standard for determining costs that investor-owned utilities can recover beginning in 2019 for wildfire liabilities; and expanding requirements for wildfire mitigation plans. However, these measures were not enough to deter the PG&E decision to file chapter 11. On January 22, 2019, PG&E announced it had secured $5.5 billion in debtor-in-possession financing consisting of a $3.5 billion revolving credit facility, a $1.5 billion term loan, and a $500 million delayed draw term loan facility.
The Star Crossed Universes of Bankruptcy Law and Energy Regulation
In the midst of this crisis, there is a complex intersection of the objectives of the reorganization of the utility and a web of regulators with different, and potentially contravening, policy objectives. PG&E is regulated by both the California Public Utility Commission (CPUC) and the Federal Energy Regulatory Commission (FERC). Many of the state issues revolve around the passing on of the utility’s liability to consumers, as well as particular renewable policy objectives of the State of California. The fight in the bankruptcy court to relieve the debtor of some of its regulatory burden also pits the less stringent standard of the debtors’ business judgment against the standard used by FERC regulators, which determines whether the requested regulatory action is in the public good.
As noted above, one of the biggest state regulatory issues is inverse condemnation. Inverse condemnation is the application of strict liability, imposition of liability for damages, whether the company acted negligently or not, if the utilities equipment causes damage, like the damages resulting from the California wildfires. Thus, if investigators find that a utility’s equipment, such as PG&E’s, was responsible for the havoc wreaked by the wildfires, that liability is passed directly onto consumers in the form of higher rates. This is not the first time consumers have borne the brunt of the utilities’ operations and legal troubles. PG&E previously filed for chapter 11 protection in 2001 due to the energy crisis, and their bankruptcy was the third-largest chapter 11 in U.S. history at the time. PG&E exited chapter 11 three years later, with customers paying higher rates to help repay $13 billion owed to creditors estimated at around $1,300 to $1,700 per customer. SB 901’s mechanism for recovery of the costs of the earlier wildfires is to pass those costs on to customers through bonds. The law does not allow the bonds to be used to address liability post the 2017 wildfires. The camp fire, which killed 86 people, caused damages estimated between $10 billion to $16 billion and surpassed the damages from the 2017 Tubbs Fire, would not be covered by SB 901’s bond relief provisions.
The State of California also has a renewable energy initiative which has impacted PG&E through power purchase agreements and other state policy initiatives. A power purchase agreement (PPA) is a legal contract between an electricity generator (provider) and a power purchaser (buyer, typically a utility or large power buyer/trader). Contractual terms may last anywhere between five and 20 years, during which time the power purchaser buys energy, capacity, and/or ancillary services, from the electricity generator. The debtors have reported that they have PPAs in the aggregate amount of $42 billion. The utility also reported that their PPA obligations are three times the 2017 gross revenues of PG&E and are the total undiscounted future obligations under PPAs approved by the CPUC. The majority of the energy purchase obligations are tied to renewable energy requirements set by the State of California. The debtor has been working with the CPUC to reduce its obligations under various aspects of the state’s regulatory regime, including requirements under the state’s Renewables Portfolio Standard Program, which requires a certain level of renewable energy purchases.  The state also requires PG&E to enter into energy storage contracts to further California’s renewable energy policy initiatives, and the utility has financed the construction of thousands of renewable energy generation resources. The debtors have complained that many of the PPAs are at above-market rates and because of the tremendous investment by PG&E in the renewable energy market, their competitors both receive the advantage of lower rates resulting from that investment and PG&E is shut out from the market rates because of the state mandated PPAs. The utility has been working with the CPUC toward relief from the regulator’s requirements in light of its current liabilities and chapter 11 filing.
NextEra Energy, among other renewable energy companies, has several subsidiaries selling renewable power to the debtor and has asserted their rights in both bankruptcy court and through filings with the FERC, beginning with a request on January 18, 2019, to block the utility from amending or rejecting their PPAs with the debtor. On January 25, 2019, the FERC held, “[w]e conclude that this Commission and the bankruptcy courts have concurrent jurisdiction to review and address the disposition of wholesale power contracts sought to be rejected through bankruptcy.” The debtor has filed an adversary proceeding complaint in the bankruptcy court seeking to determine through a declaratory judgment (i) that the bankruptcy court has exclusive jurisdiction over the debtor’s rights to reject certain executory PPAs or other FERC regulated agreements, (ii) that the FERC does not have concurrent, or any, jurisdiction over the PPAs, and (iii) that either the automatic stay under section 362 of the U.S. Bankruptcy Code applies, or that the court enter into a preliminary and then permanent injunction to enjoin any action before the FERC related to the debtor’s ability under the Bankruptcy Code to eliminate their obligations under the PPAs through its power to assume or reject executory contracts under section 365. On February 15, 2019, the FERC filed Defendant Federal Energy Regulatory Commission’s Response In Opposition To Debtors’ Motion for a Preliminary Injunction and Motion to Dismiss in which it strongly reasserted its sole jurisdiction over the debtors’ PPAs. FERC has argued that once a rate, in this case the PPAs, has been approved by the commission, the terms, particularly the rates, are not private contracts, but creatures of the commission’s authority and can only be modified by petitioning FERC. The court has scheduled a hearing on the preliminary injunction for April 10, 2019. This is unlikely to be the last dispute, jurisdictional or otherwise, between the desire of the debtor to reorganize under chapter 11 and the varied constituencies with a keen interest in the fate of the utility.
 U.S. SEC, PG&E Form 8-k (last visited Apr. 5, 2019).
 Michael Mohler, California Department of Forestry and Fire Protection, CAL FIRE Investigators Determine the Cause of the Tubbs Fire (last visited Apr. 5, 2019).
 George Avalos, The Mercury News, PG&E lands $5.5. billion in funds to keep operating during wildfire-linked bankruptcy (last visited Apr. 5, 2019).
 See Doc. No. 961, Order to Show Cause, United States of America v. PG&E, No. CR 14-0175 WHA (N.D. Cal. 2019). PG&E was convicted for six felony counts of knowingly and willfully violating safety standards and obstructing an investigation by the National Transportation Security Board.
 BlueMountain Capital Management, LLC, Blue Mountain Capital Management, LLC Delivers Open Letter to Shareholders of PG&E Corporation (last visited Apr. 5, 2019) (outlining the number of shares); see also Becky Yerak, Hedge Fund BlueMountain Nominates New Board for PG&E (last visited Apr. 5, 2019).
 BlueMountain Capital Management, PG&E Corporation (NYSE: PCG) Materials (last visited Apr. 5, 2019).
 Press Release, BlueMountain Capital Management, LLC, BlueMountain Nominates 13 Highly Qualified Director Candidates for Election to the PG&E Board of Directors (last visited Apr. 5, 2019).
 BlueMountain Capital Management, LLC, PG&E Board of Directors Statement Regarding Director Nominations by BlueMountain (last visited Apr. 5, 2019).
 Leslie Brinkley, ABC 7 News, California Gov. Newsom announces new executive actions on wildfire preparedness, addresses PG&E (last visited Apr. 5, 2019).
 Mark Chediak, Romy Varghese & Allison McNeely, California Governor Forms ‘Strike Team’ to Advise on PG&E (last visited Apr. 5, 2019).
 JDSupra, Governor Brown Signs SB 901, Addressing Wildfire Cost Recovery, But Ignoring Inverse Condemnation Liability (last visited Apr. 5, 2019).
 U.S. SEC, PG&E Form 8-k (last visited Apr. 5, 2019); see also Doc. No. 1091 Order Approving Debtor-in-Possession Financing.
 David Lazarus, PG&E Files for Bankruptcy / $9 billion in debt, firm abandons bailout talks with state (last visited Apr. 5, 2019).
 PG&E News & Events, Pacific Gas And Electric Company To Exit Chapter 11 On April 12, Sets Distribution Record Date For Holders Of Allowed Claims (last visited Apr. 5, 2019).
 Judy Lin, What happens if PG&E goes bankrupt? (last visited Apr. 5, 2019).
 Jeff St. John, The Big Questions Raised by PG&E’s Coming Bankruptcy (last visited Apr. 5, 2019).
 See 166 FERC ¶ 61,049, Order Petition for Declaratory Order and Complaint ¶ No. 1; see also Exelon Corporation, Petition for Declaratory Order and Complaint, Docket No. EL19-36-000 (filed Jan. 22, 2019).