PG&E bankruptcy hits a crossroads
Pressure grows on utility after Newsom’s rebuke of plan
PG&E Corp.’s path out of bankruptcy has become much more complicated in recent days, and it’s not clear how the constantly challenged San Francisco company might overcome the new hurdles it faces.
Gov. Gavin Newsom is trying to force major changes as PG&E seeks to move past billions of dollars in legal claims from wildfires started by its power lines. That’s why he rejected the company’s latest plan to resolve its bankruptcy case using a $13.5 billion settlement with victims’ attorneys.
Newsom’s decision on Friday was a setback for PG&E, which had sought the governor’s blessing. But the company said Monday evening that it amended the deal with lawyers for victims so they can still seek court approval of the settlement. It would have automatically terminated otherwise.
PG&E said in a public statement that it “fully intends to comply” with state law and it will “will continue to address the concerns” flagged by
Newsom.
“PG&E has been engaged in constructive dialogue to address those concerns with the common objectives of having PG&E be safe, sound and financially stable upon emergence from Chapter 11,” the company statement said. “PG&E expects this dialogue to continue.”
Newsom threw a wrench into PG&E’s vision for emerging from bankruptcy on Friday when he told CEO Bill Johnson that the company’s latest attempt to resolve the case did not comply with a new state wildfire law.
PG&E had amended its bankruptcy exit plan to incorporate the major $13.5 billion settlement agreement with wildfire victims’ attorneys, and the deal required Newsom to decide if it complied with the new law he championed, AB1054.
Newsom said the plan fell “woefully short” of the law’s requirements. He outlined several changes he wants to see, including a new board of directors and an “escalating enforcement process” that could open the door to a state takeover and “governance changes that protect California” if PG&E fails to meet tough safety standards.
PG&E’s stock fell sharply in the wake of the governor’s letter, closing Monday at $9.67, down 14%.
Now PG&E is trying to salvage the deal with victims’ attorneys, which would settle the bankruptcy case’s most pivotal issue. The company does so facing continued pressure from hedge funds that have their own plan to resolve the bankruptcy and local government leaders who want to fundamentally reshape the structure of PG&E.
PG&E has also been the subject of several public protests since one of its highvoltage power lines started the 2018 Camp Fire, which killed 85 people and all but destroyed the town of Paradise in Butte County. In the latest demonstration on Monday, more than 100 people blocked traffic and some entrances to PG&E’s San Francisco headquarters for several hours while demanding a public takeover of the utility.
The protest temporarily shut down Beale Street between Market and Mission streets and slowed morning traffic on Market Street. Muni officials said some buses had to be rerouted because of the demonstration.
PG&E must resolve its bankruptcy by June 30, a deadline set by AB1054 in order for PG&E to tap into a fund that will help it pay any future fire costs.
Travis Miller, a utilities analyst at Morningstar Research Services, said Newsom’s objections did not surprise him and he expected the bankruptcy exit plan for the PG&E parent company and subsidiary Pacific Gas and Electric Co. to “go through multiple drafts” with input from state officials.
“I don’t see anything here, from (Newsom’s) response, that is a deal killer,” Miller said. “I think they can still put together a plan that is very similar, financially, to the settlements that they’ve reached.”
PG&E may provide even more clarity about its strategy on Tuesday, when U.S. Bankruptcy Judge Dennis Montali is scheduled to hold a hearing about the company’s $13.5 billion agreement with attorneys for wildfire victims.
Should PG&E be unable to finalize the deal with fire victims, it may create an opening for a group of bondholders backing a rival plan to resolve the case. Elliott Management, the hedge fund leading the bondholder group, has said PG&E’s current plan would burden the company with too much debt — and the governor made a similar argument.
Newsom said in his letter to Johnson that PG&E’s bankruptcy plan would position the company poorly compared to its peers and would provide it with “limited ability to withstand future financial and operational headwinds.” The financing contemplated by PG&E would make it “not positioned to provide safe, reliable, and affordable electric service,” he said.
Miller said that might force PG&E to seek more equity financing, which could be tough.
“That, on its face, won’t be good for current shareholders,” Miller said. “But it appears that it’s a hurdle they’re going to have to get over somehow.”
Newsom has not wavered in his desire to see PG&E conclude its bankruptcy next year. He told Johnson that the company’s bankruptcy exit plan should include a “nonwaivable condition” that it be confirmed by June 30 and its provisions become effective by Aug. 29. If either of those dates are not met, Montali should appoint a trustee — with the blessing of state regulators — to run PG&E, Newsom said.