Pacific Gas & Electric, the giant California utility, said Wednesday that it had resolved differences with its creditors over how to restructure the company, clearing one of the last major hurdles to its exit from bankruptcy.
But even before the announcement was made, Gov. Gavin Newsom declared that the plan was insufficient. He said it did too little to assure “safe, reliable and affordable power for Californians” after the series of wildfires attributed to the company’s equipment.
The company’s billions of dollars in liabilities from those fires drove it to seek bankruptcy protection a year ago. The governor’s approval of its reorganization plan is essential for PG&E to take part in a $20 billion fund intended to help shield the state’s utilities from damage claims in future fires.
Mr. Newsom’s objections were filed with the federal bankruptcy court hearing the case in San Francisco. The terms of the PG&E agreement with bondholders were to have been considered at a hearing on Thursday, but the judge put off the matter until next week.
Until Wednesday, PG&E and its bondholders had competing plans for sorting out the company’s finances.
The plan offered by the bondholders — including Elliott Management, a large hedge fund, and Pimco, the mutual-fund giant — had initially gained the support of the group representing wildfire victims in the bankruptcy. The plan would in theory have left PG&E with a stronger financial position once it emerged from bankruptcy. But it would also have almost completely wiped out the current shareholders, dominated by hedge funds.
When the victims shifted their backing to PG&E’s plan, the bondholders lost much of their influence over the outcome of the bankruptcy.
The agreement reached Wednesday resolves the interest payments that the bondholders will receive in the period after PG&E filed for bankruptcy protection. The two sides also agreed on the size of “make whole” payments, or the extra amounts given to bondholders when bonds are paid off before they mature.
“Reaching a resolution with the bondholder group is a positive development to move forward with our plan of reorganization,” said Bill Johnson, president and chief executive of the utility’s parent company, PG&E Corporation. “This agreement helps achieve our goals of fairly compensating wildfire victims, protecting customers’ bills and emerging from Chapter 11.”
Along with concerns about safety and corporate governance, Mr. Newsom objected to financial aspects of PG&E’s plan, contending that it would leave the company “with insufficient financial flexibility to make billions of dollars in critically needed safety investments.”
But the bondholders’ decision to back the plan isolates Mr. Newsom, who must now decide how hard to push for his objectives. He could use provisions in a state law passed last year to deny PG&E access to the wildfire fund, a move that could cause the company’s shares to plunge, putting pressure on the hedge funds. Such an approach could also drag out the bankruptcy and delay payments to wildfire victims.
In a statement, the company said it was taking the governor’s concerns seriously. “While PG&E has made substantial progress in resolving victim claims and restructuring our finances, additional changes to the plan are forthcoming. We will continue to engage with the governor’s office to address his concerns,” the company said.
The bondholders played a big role in getting a larger sum for the victims. PG&E initially offered $8.4 billion but then raised the amount to $13.5 billion, the sum that the bondholders had offered to pay.
Wildfire victims remain skeptical. They plan a protest in Sacramento on Friday morning in opposition to profits that shareholders could make in the bankruptcy deal and plans to fund part of the company’s damage payments with stock.
“Investor groups have hijacked the bankruptcy process to ensure that they reap billions more in profits while individual fire victims receive cents on the dollar, are paid in installments, and have their recoveries funded in large part by stock in the restructured PG&E,” said Helen Sedwick, a lawyer who lost her Santa Rosa home to the 2017 wildfires. “Fire victims do not want to own any part of the company that burned their homes and killed their neighbors.”
The utility’s role in the last three years of wildfires — along with the pre-emptive blackouts PG&E imposed last year when wildfire danger was at its greatest — led residents and local government officials to call for a takeover of the utility, with some proposing a government-run operation, and others seeking to create a customer-owned cooperative.
Mr. Newsom said he would consider all options if PG&E failed to pay enough money to meet wildfire victims’ claims and ensure that employees’ jobs were protected. He also demanded a safety plan that would help prevent future wildfires and a strategy that continued to meet the state’s goals to transform the electric grid into a carbon-free system.