PG&E edges toward bankruptcy exit with a new board and a planned move to Oakland
As a crucial date looms in the PG&E Corp. bankruptcy process, the utility has been busy getting ready for its long-anticipated exit from Chapter 11 bankruptcy protection with new leadership and a new home.
The company on Wednesday overhauled its board with 11 new directors. That followed an announcement Monday that the utility giant plans to sell its iconic downtown San Francisco headquarters and relocate to Oakland, a move aimed at lowering costs.
PG&E is seeking Bankruptcy Court approval of its $59-billion turnaround plan ahead of a state deadline of June 30 so that it can participate in the state’s wildfire insurance fund. The company filed for Chapter 11 more than a year ago after its equipment sparked some of the worst wildfires in California history.
PG&E had agreed to overhaul its board as part of reforms promised to Gov. Gavin Newsom to earn his sign-off on the company’s reorganization. The company said last month that only three of its current board members would remain after it emerged from bankruptcy, including AT&T executive Bill Smith, who will become interim chief executive after Bill Johnson, the current interim CEO, leaves June 30.
The board will consist of 14 members, according to a statement Wednesday. The new members, six of whom are from California, include Craig Fugate, a former administrator of the Federal Emergency Management Agency, and Bob Flexon, a former CEO of power provider Dynegy Inc. Other new directors have safety, utility, regulatory, cybersecurity and customer relations expertise, PG&E said.
“Putting in place a new board is a critical component of PG&E’s plan to emerge from bankruptcy as a reimagined utility,” Nora Mead Brownell, the current chair of PG&E’s board, said in a statement. “This is the right time for a changeover given that the company will soon emerge from bankruptcy and start a new chapter.”
Brownell is among the current members stepping down.
The reorganized utility will move to its new Oakland headquarters next to Lake Merritt in phases, starting in 2022. PG&E, which has called San Francisco its home since the utility’s founding in 1905, plans to lease its new building, with the option to purchase the property from developer TMG Partners for $892 million, according to a regulatory filing Tuesday.
With the move, PG&E becomes one of the most high-profile companies to leave San Francisco for Oakland. The sale of its headquarters also allows the utility to profit off one of the tightest and most expensive U.S. office markets.
PG&E said any net gains realized from a sale would be passed on to customers, and a transaction wouldn’t occur until it exits bankruptcy.
“Our new Oakland headquarters will be significantly more cost-effective, is better suited to the needs of our business, and is a critical part of fulfilling our commitment to operate in a fiscally responsible way that will enable us to achieve our operational and safety goals,” Smith said in the statement.
PG&E said TMG will upgrade its Oakland property at its own cost according to the company’s specifications, which will allow for a flexible office layout and new safety measures in the wake of the coronavirus crisis. The location will also make commuting easier for the majority of its employees who already live in the East Bay, PG&E said. It plans to consolidate its two other East Bay offices into the new Oakland headquarters.
The utility’s 1.7 million-square-foot San Francisco complex was constructed between 1923 and 1925, according to its registration form for the National Register of Historic Places. It’s in the South of Market neighborhood, an area popular with technology companies.
One broker estimate last year implied the property could fetch more than $1 billion. Still, it’s unclear how the market has changed since then given the COVID-19 pandemic.
Demand in San Francisco by fast-growing tech firms and local restrictions on building have long pushed rental rates higher and buoyed the value of buildings.
But the pandemic has made many companies reassess their needs with most of their employees working from home. Facebook Inc. and Twitter Inc. have said that many of their staff may permanently work remotely.
“Even if most workers continue to work full time in the office, plausible projections for increased remote work should put a sizable dent in long-term demand” for office space, analysts from real estate research firm Green Street Advisors wrote in a report last month. “That is highly unwelcome for a sector that was already facing challenging fundamentals and lofty valuations.”
