California’s largest utility is still in limbo.
Two weeks ago Pacific Gas & Electric appeared to have cleared a big obstacle to resolving its bankruptcy by reaching a settlement with victims of wildfires started by the utility’s equipment. But late last week Gov. Gavin Newsom raised fresh objections to the company’s proposed restructuring, as rival groups of hedge funds vying for control of PG&E are seeking to change the terms of the utility’s proposed $13.5 billion settlement with wildfire victims.
The outcome of those battles will shape how fire victims are compensated for lost homes and loved ones. It will also determine how California fixes and updates an energy systems strained by the high costs of more frequent fires fueled by hotter, drier conditions.
On Tuesday, United States Bankruptcy Judge Dennis Montali who is overseeing PG&E’s case was conducting a hearing on the company’s deal with victims and other issues.
PG&E’s bankruptcy case became much more complicated when Mr. Newsom sent a letter to the utility Friday evening calling on the company to make more far-reaching changes to its leadership and plans for avoiding future disasters. Among the governor’s demands are the installation of a new board of directors, more detailed safety measures and a new process to allow the state to strip PG&E of its operating license and sell its assets in the event of another misstep.
“They asked the company to create its own self-destruct button,” said Jared Ellias, a bankruptcy specialist at the University of California Hastings College of the Law. “It feels very much like uncharted territory, where we have never seen a case where a state government was as involved.”
Mr. Newsom also questioned the math behind PG&E’s restructuring plan, which he said does “not result in a reorganized company positioned to provide safe, reliable and affordable service to its customers,” as required by state law.
In addition to getting its plan approved by Judge Montali, PG&E needs Mr. Newsom’s blessing. That’s because the governor must sign off on PG&E’s plan to emerge from bankruptcy by a June 30 deadline in order for the utility to participate in a new wildfire fund that the California Legislature created this year. The fund is expected to help pay for damages from wildfires started by equipment owned by investor-owned utilities like PG&E, Southern California Edison and San Diego Gas & Electric.
A group of hedge funds that own PG&E bonds, including Elliot Management, have seized on the dispute between the governor and the company to push the court to consider an alternative plan that they have proposed. Another group of hedge funds, including Abrams Capital Management, that own stock in the company are backing PG&E’s plan.
The dispute between the two groups of hedge funds centers on how much debt PG&E would have after emerging from bankruptcy. The bondholders have proposed less debt in a plan that would effectively wipe out the current shareholders. PG&E’s plan would leave the company with more debt but leave current shareholders with a greater stake in the company.
The latest uncertainty also throws into question two other legal proceedings set to start early next year, if a settlement between PG&E and fire victims remains elusive.
A state judge has temporarily delayed a criminal trial, set to begin in early January, over whether PG&E should be held responsible for the 2017 Tubbs Fire. State investigators had previously said the utility did not cause that fire, which devastated Santa Rosa, north of San Francisco. In February, a separate court is set to begin expert testimony in an estimation process to value other unresolved claims against PG&E.
Some 73,000 fire victims have filed bankruptcy claims against PG&E ahead of a Dec. 31 deadline, which was extended by the court after lawyers said tens of thousands of survivors missed an earlier cutoff.
Another dispute poised to come to a head in 2020 is how much of any funds set aside for victims may be used to compensate government agencies for the money they spent on rescue and recovery operations for wildfires ignited by PG&E equipment. The Federal Emergency Management Agency and other federal departments have filed claims totaling more than $4 billion, which lawyers for fire victims have urged the bankruptcy court to reduce.
Peter Eavis and Ivan Penn contributed reporting.