SAN FRANCISCO – A major milestone in Pacific Gas & Electric’s bankruptcy case was reached Tuesday when a federal bankruptcy judge approved two settlements worth $24.5 billion to resolve virtually all wildfire claims against PG&E.
U.S. Bankruptcy Judge Dennis Montali approved an $11 billion settlement with insurers who covered wildfire losses and a $13.5 billion settlement for all other wildfire claims, in addition to a $1 billion deal with 18 government entities reached earlier this year. That puts the total tab for PG&E wildfire settlements at $25.5 billion.
In approving the two deals Tuesday, Montali overruled objections that the settlements required insurers and fire victims to only support the embattled utility giant’s preferred bankruptcy plan. That plan will allow existing PG&E shareholders to retain control of the company. Creditors argued those “lockup” provisions would hinder competition in the reorganization plan process and make it harder to advance a competing plan that might be better for fire victims or future safety improvements.
Despite those objections, Montali said it would be imprudent for him to decide what is best for fire victims after they worked diligently to negotiate a deal with PG&E.
“I don’t think I have the wisdom or knowledge to second-guess those victims whose lawyers want to go with the [PG&E] plan,” Montali said.
Montali also said Tuesday he will allow victims of the Ghost Ship Warehouse fire in Oakland to put PG&E on trial this May to determine whether it bears any liability for the fire that killed 36 people in 2016.
A hearing to schedule a trial date in that case is set for this Friday in Alameda County Superior Court.
The $13.5 billion deal for uninsured wildfire claims includes $5.4 billion in immediate cash, $650 million to be released in January 2021, and $700 million to be released in January 2022. The remaining $6.75 billion will come in the form of stock in the reorganized PG&E corporation, with a guarantee that a trust fund for fire victims will own no less than 20.9% of the restructured company.
Fire victims’ attorney Cecily Dumas said lawyers representing more than 70% of wildfire victims agreed to support the $13.5 billion settlement and PG&E’s preferred restructuring plan.
Last week, California Governor Gavin Newsom rejected PG&E’s proposed reorganization plan, finding it did not comply with the requirements of Assembly Bill 1054, a new state law establishing a multibillion-dollar insurance fund for future wildfires, partially funded by ratepayers and private utilities.
After Newsom rejected the proposed $13.5 billion deal Friday, PG&E and the committee representing fire victims agreed to eliminate a condition in the settlement terms that required the governor’s approval.
Governor Newsom’s lawyer, Nancy Mitchell, said in court Tuesday that her client is not opposed to the $13.5 billion settlement, but the governor is demanding PG&E commit to significant changes to its corporate structure. The governor said in his Dec. 13 letter that he wants a “more qualified and independent” board of directors, more capital to invest in fire risk reduction and stricter enforcement mechanisms to ensure PG&E meets safety improvement goals.
In a four-page court brief filed Monday, the governor further urged Montali to require amendments to the $13.5 billion settlement that would allow fire victims to support alternative restructuring plans other than PG&E’s preferred plan. Lawyers for creditors and bondholders also asked Montali to nix the “lockup” provision that requires fire victims to only support PG&E’s proposed plan.
However, attorneys for fire survivors warned that PG&E would walk away from the deal without a commitment from them to support PG&E’s preferred reorganization plan.
“This deal was not going forward without a lockup provision,” fire victims’ lawyer Frank Pitre said. “It was an immovable object.”
If the $13.5 billion deal were to fall apart, extremely risky litigation would need to continue, Pitre said. That litigation would include a state court trial on PG&E’s liability for the 2017 Tubbs Fire, set to start on Jan. 7, and a multiday estimation hearing to establish PG&E’s total liability for 22 separate wildfires, set to begin in late February. The settlement approved Tuesday renders both of those court proceedings unnecessary.
Montali said he was not inclined to “play chicken” with PG&E and guess whether the company might make good on its implied threat to pull out of the $13.5 billion deal without a “lockup” requirement.
Representing bondholders who own $13 billion in PG&E debt, attorney Michael Stamer said his clients’ plan is a “better plan,” one that would make more money available to harden PG&E’s system and reduce fire risk. The bondholders’ plan would also allow hedge funds to seize control of PG&E by gaining a majority of shares in the company.
Stamer argued that PG&E’s “lockup” provision seeks to “destroy competition” among alternate restructuring plans that might be better for fire victims and ratepayers.
Montali was not persuaded. He said Stamer could still make efforts to advance his clients’ plan and raise objections to PG&E’s favored plan.
Montali said the law allows debtors such as PG&E to insist on “lockup” provisions in their settlement agreements.
“I’m sticking with their advice and recommendation,” Montali said, referring to the fire victims’ committee. “They’ve chosen to roll their dice with the plan sponsored by the debtor in equity.”
PG&E’s reorganization plan will require approval by the bankruptcy court and the California Public Utilities Commission. Its plan must be confirmed by June 30, 2020, in order for PG&E to gain access to a state-established insurance fund for future wildfire claims.
In a statement released Tuesday evening, PG&E called the approval of $24.5 billion in settlements “an important milestone” that effectively resolves all major wildfire claims against the company.
“This brings us one significant step closer to getting victims paid so they can rebuild their lives,” PG&E spokeswoman Karly Hernandez said. “As for our overall Plan of Reorganization, we remain engaged in active and constructive dialogue with stakeholders. We will continue to move forward with proceedings on our Plan in the Bankruptcy Court and at the California Public Utilities Commission. We are committed to a safe, sound, and financially stable PG&E going forward.”
Also on Tuesday, PG&E settled a separate dispute with California’s utility regulator over its role in allegedly sparking more than a dozen destructive wildfires in 2017 and 2018. PG&E agreed not to seek $1.675 billion in reimbursement for wildfire-related costs from ratepayers.
The company also agreed to invest $50 million in PG&E shareholder money in fire risk reduction and community engagement efforts, including $5 million for a pilot program to help vulnerable residents affected by PG&E’s public safety power shutoffs.
— By Nicholas Iovino