PG&E still faces bankruptcy hurdles
Newsom urges court to reject the utility’s revised exit plan
It’s been almost a year since Pacific Gas & Electric Co. filed for bankruptcy protection. And the clock is ticking for California’s largest utility to come up with a bankruptcy exit plan that will satisfy key groups with a stake in its reorganization — shareholders, bondholders, employees, retirees, state officials and victims of fires linked to its electrical equipment.
Here’s a quick look at how PG& E got here, the latest developments and what lies ahead.
Q
What is the latest development in PG&E’s bankruptcy?
A
PG&E this week announced a deal with its bondholders on how it would restructure and pay its debts to emerge from bankruptcy, clearing a big hurdle. The bankruptcy judge had allowed bondholders to present their own bankruptcy exit proposal, competing with the one from the company’s shareholders. So the bondholder deal builds support around the company’s plan.
But Gov. Gavin Newsom has objected to the company plan. In a Dec. 13 letter to PG&E CEO Bill Johnson, Newsom spelled out demands for the makeup of the restructured utility’s governing board, safety metrics to hold the utility
accountable, and financing that would enable the utility to pay for needed safety improvements.
And this week, the governor’s office assailed the revised plan with the bondholder deal in a court filing, saying it fails to address those earlier concerns and calling it an attempt to “leverage” the bankruptcy process to force the state into accepting a “sub- optimal plan.”
Q
Why is PG&E in bankruptcy court?
A
PG&E filed for Chapter 11 bankruptcy reorganization Jan. 29, 2019, listing $71.39 billion in assets and $51.69 billion in debts, including some $30 billion in liabilities for damage from wildfires in 2017 and 2018 linked to its power equipment.
It is PG&E’s second bankruptcy trip. The company filed for bankruptcy reorganization in 2001, citing more than $12 billion in wholesale electricity costs over what the state allowed it to charge ratepayers under California’s botched electricity deregulation scheme. PG&E emerged from that bankruptcy in 2004 with a plan that cost ratepayers a total of $7.2 billion amortized over several years.
Q
How long will this go on?
A
Both PG&E and Newsom want a bankruptcy exit plan in place by June 30, a deadline set in a state law Newsom signed last year — AB 1054 — which would allow PG&E to access a new state “wildfire fund” to pay damage claims.
Q
What progress has been made so far?
A
PG&E last month announced a $13.5 billion settlement with a committee of law firms representing about 70% of the people who suffered losses from fires in recent years. Those include the 2017 wildfires that raged across Northern California and 2018’s Camp Fire, the state’s deadliest and most destructive, which incinerated the town of Paradise near Chico and killed 85 people. It said at the time the deal also covers claims arising from the 2017 Tubbs Fire in the Wine Country that killed 22 and the 2016 Ghost Ship Fire at an Oakland warehouse that killed 36, though the company isn’t admitting fault in those fires. But Newsom rejected that settlement within a week.
Before that, PG&E also had reached an $11 billion settlement with insurance companies that had paid claims related to the 2017 and 2018 wildfires and a $1 billion settlement with local governments for wildfire costs.
Q
Is the PG&E plan with the bondholders’ agreement a good deal for consumers?
A
PG&E says the deal with bondholders will save its customers $1 billion in costs through lower- cost debt. Approval of its plan, the company says, will end the year’s worth of wrangling and ensure speedy payment to the fire victims, local governments and other creditors, protect the utility’s employees and retirees, meet the state’s wildfire fund deadline and put it on solid footing ahead of this year’s fire season.
Jared A. Ellias, a bankruptcy expert and UC Hastings College of the Law professor who is following the case, noted that bankruptcy reorganization plans require all parties to make concessions.
“Everybody here is giving something,” Ellias said, calling this week’s deal with bondholders a “capstone agreement.” “Everyone worked hard to get to the point where they have a deal.” Q What are the governor’s concerns? A In his Dec. 13 letter, Newsom listed some specific steps he wants. Those include a new board of directors for PG&E that Newsom would personally approve, with qualifications including “extensive safety experience,” and with a majority of members from California. He also wants to see “clearly defined operational and safety metrics” for which the company would be held accountable, with an enforcement process that would include its possible takeover by the state or another organization if the company fails to meet them.
Q
Are those reasonable concerns?
A
Ellias said “Governor Newsom is well within his rights to push back on all this” but added that it comes with a risk of torpedoing a deal to pay cities, fire victims, bondholders and others that took a year to hash out. “At this state in the bankruptcy, it’s a hard dynamic to disturb.”
Newsom’s demands for a new board of directors, Ellias said, would be “easy” for PG&E to adopt. Others, however, such as the provision for state takeover if the utility doesn’t satisfy safety goals, would be harder to swallow.
Q
Does the governor really want the state to take over PG&E?
A
The governor’s office said this week it has been prepared to intervene, including a possible state takeover, and that continues to be the case, with all options, including the customer- owned cooperative proposed by San Jose’s mayor, remaining on the table.
Ellias said that while he has “no insight” on what Newsom would actually want to do, he said even PG&E’s plan would leave it more heavily regulated than before.
“To some extent this company leaves bankruptcy as a ward of the state,” Ellias said. “Whether it’s a public utility or privately owned, is there a huge difference?”
Q
Does PG&E need the governor’s approval?
A
Technically no, but as a practical matter, almost certainly. The utility’s bankruptcy exit plan has to be approved by the federal judge overseeing it, Dennis Montali, as well as by the California Public Utilities Commission, whose president, Marybel Batjer, is a Newsom appointee. The governor also enjoys solid support from fellow Democrats who rule the state Legislature.
Ellias said it’s unlikely PG&E would proceed without the governor’s blessing. PG&E said that “we continue to seek feedback on our plan from a number of stakeholders, including the Governor’s Office, to address concerns” and will update its plan next week.
Q
How does this affect the Ghost Ship Fire victims?
A
Families of the 36 victims are suing PG&E, the city of Oakland, the warehouse landlord and master tenant, among others. Though PG&E admits no fault in the fire, the families’ attorneys allege the utility was negligent and should have known power was being supplied through a single PG&E meter shared by multiple businesses fed through a wall into the warehouse where about 25 people lived. The cause of the fire was not determined, though fire investigators testified it was electrical in nature.
The bankruptcy judge last month allowed the lawsuit to proceed, with a trial scheduled in May, but said any compensation to the Ghost Ship families could only come from PG&E’s insurance policies. Since the settlement with fire victims that PG&E announced last month, it is unclear whether the Ghost Ship families are still part of the PG&E deal.