SAN FRANCISCO -- California Gov. Gavin Newsom's opposition to Pacific Gas & Electric's restructuring plan just a week after it struck a $13.5 billion settlement with fire victims is forcing the nation's largest utility to go back to the negotiating table and come up with a solution.
The San Francisco-based company needs a deal to meet a June 30 deadline to emerge from bankruptcy protection and regain its financial footing.
Missing the deadline would prevent Pacific Gas & Electric from being able to draw from a special fund created by the Democratic governor and state lawmakers to help insulate California utilities from future fires, which many people believe are inevitable as a changing climate continues to create hazardous conditions. Utilities are at risk because their aging electric transmission lines are expected to take years to upgrade.
On Thursday, Pacific Gas & Electric filed an amended reorganization plan with the U.S. Bankruptcy Court after reaching a settlement on Dec. 6 with thousands of people who lost homes, businesses and family members in a series of devastating fires.
In a letter Friday, Newsom said the plan does not comply with state law and does not achieve the goal of addressing what he considers its most important elements: providing safe and reliable power to Pacific Gas & Electric customers.
"In my judgment, the amended plan and the restructuring transactions do not result in a reorganized company positioned to provide safe, reliable, and affordable service," he said.
"The state remains focused on meeting the needs of Californians including fair treatment of victims," Newsom wrote, "not on which Wall Street financial interests fund an exit from bankruptcy."
The governor said he also worried that the plan would leave Pacific Gas & Electric in a financially precarious position "with limited ability to withstand future financial and operational head winds."
"PG&E's board of directors and management have a responsibility to immediately develop a feasible plan," Newsom wrote. "Anything else is irresponsible, a breach of fiduciary duties, and a clear violation of the public trust."
The company has until Tuesday to appease Newsom and get him to sign off on the plan.
"We've welcomed feedback from all stakeholders throughout these proceedings and will continue to work diligently in the coming days to resolve any issues that may arise," Pacific Gas & Electric said in a statement.
Without the added protection of the California wildfire fund, Pacific Gas & Electric would likely find it more difficult to borrow money to pay for the necessary upgrades and perhaps even fund its ongoing operations if it remained mired in bankruptcy proceedings beyond June 30.
If Pacific Gas & Electric couldn't get a revised deal with the fire victims approved, then it also would face the specter of navigating two other legal gauntlets early next year that would be used as an alternative way to estimate how much the company owes for the catastrophic wildfires in 2017 and 2018 that killed nearly 130 people and destroyed about 28,000 structures in its sprawling service territory.
One case, a state trial scheduled to be held in January, would determine whether Pacific Gas & Electric is liable for a 2017 fire in Sonoma County that the company hasn't accepted full responsibility for. The trial would also award damages to the victims if the utility is blamed. A subsequent proceeding, known as an estimation hearing, is scheduled in February before a federal judge to determine Pacific Gas & Electric's total bill for all the fires that could have been covered in the settlement that had been worked out with the victims.
Attorneys for the fire victims have collectively lodged claims of about $36 billion against Pacific Gas & Electric, according to court documents. But that figure could rise even higher after the state trial and estimation hearing, possibly leaving the utility unable to meet its financial obligations -- a development that could lead U.S. Bankruptcy Judge Dennis Montali to declare the company insolvent.
If that were to happen, it would automatically void a separate $11 billion settlement deal that Pacific Gas & Electric has reached with insurers who say they are owed $20 billion for the fire insurance claims they expect to pay their policyholders in the wildfires blamed on the utility. The insurance settlement, though, is also being opposed by Newsom and is awaiting Montali's approval.
Richard Bridgford, an attorney who is part of a team representing wildfire victims, said the bankruptcy involves complex matters and the balancing of multiple interests.
"I'm hopeful that all the parties can move together to finally provide compensation for the victims who have suffered for over two years and experienced death, serious personal injury, loss of real and personal property and endured severe emotional distress, but in a manner that guarantees we avoid PG&E's past mistakes and these fires -- which is clearly where the governor is coming from," he said.
The governor "may have upset a rather delicate bankruptcy process," said Jared Ellias, a bankruptcy expert at the University of California, Hastings College of the Law.
"We're going to see how resilient the deal that comes out of this process is going to be and whether it can adjust to meet his approval," he said.
The request for the governor's blessing forced Newsom to take a public position on the company's reorganization long before state regulators perform an extensive review and must formally sign off on the utility's proposal or a competing plan next year.
Rejecting the plan could risk delaying the bankruptcy process and payments to wildfire victims, Ellias said.
"The company is kind of saying now, 'You're going to have to sign off on this,'" Ellias said. "'We're not going to let you have the benefit of distance from what we're doing. If you say no, this thing could crash and burn, and you're going to own the wreckage.'"
The utility has faced criticism over its response to the fires. Pacific Gas & Electric's decision to pre-emptively cut power to millions of customers during intensely dry, windy weather has infuriated residents and prompted some officials to call for a public takeover of the company.
Newsom's demands could also give activist investors Elliott Management Corp. and Pacific Investment Management Co. another shot at rallying support around a rival restructuring plan. They're leading a group of bondholders that have offered to inject $20 billion in cash into Pacific Gas & Electric in exchange for most of the equity in the company.
The bondholders were the first to reach a deal with wildfire victims as part of their restructuring plan, agreeing to pay $13.5 billion while Pacific Gas & Electric initially proposed $8.4 billion. But the utility later raised its offer and won over the fire victims.
In a statement Thursday, Elliott said Pacific Gas & Electric's restructuring proposal would saddle the company with an additional $10 billion in debt, limit its safety investments and turn the utility into a "junk-bond issuer."
Newsom -- who has received hundreds of thousands of dollars in campaign contributions from Pacific Gas & Electric and its employees -- has become one of the utility's fiercest critics and has suggested that the state restructure it.
A coalition of more than two dozen local officials, led by San Jose Mayor Sam Liccardo, have called for Pacific Gas & Electric to be replaced by a customer-owned cooperative.
Information for this article was contributed by Daisy Nguyen and Michael Liedtke of The Associated Press; by Steven Church and Mark Chediak of Bloomberg News; by Taryn Luna of The Los Angeles Times; and by Derek Hawkins of The Washington Post.
A Section on 12/15/2019