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PG&E bankruptcy judge braces for 'horrible choices' as deadline looms

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PG&E bankruptcy judge braces for 'horrible choices' as deadline looms

SNL Image

Pacific Gas and Electric's name is engraved at its Embarcadero substation in downtown San Francisco.
The utility must meet a June 2020 deadline
to emerge from Chapter 11.
Source: S&P Global Market Intelligence

Having secured the support of key creditors for their joint bankruptcy restructuring plan in recent months, and navigated numerous potential pitfalls along the way, California utility Pacific Gas and Electric Co. and its parent company, PG&E Corp., have put themselves in position to emerge from Chapter 11 by a state-imposed June 30, 2020, deadline.

But the biggest battles over the future of California's largest utility could still lie ahead. State regulators, the companies and customers face "horrible, horrible choices" in coming months, Judge Dennis Montali, who is presiding over the proceedings in the U.S. Bankruptcy Court for the Northern District of California in San Francisco, said at a recent hearing.

On one front, Pacific Gas and Electric, or PG&E, must convince impaired creditors — those who will be paid less than the value of their claims to vote for the reorganization plan. That includes the more than 70,000 individuals harmed by catastrophic wildfires linked to the utility's electric infrastructure in the past several years.

Ballots rejecting or accepting the plan are due by May 15, pending resolution of major disagreements surrounding the details of PG&E's restructuring proposal, of which there are many. Gov. Gavin Newsom, for instance, has repeatedly criticized PG&E's plan and threatened a state takeover.

PG&E must also convince wary state regulators that its plan is in line with financial, safety, governance and climate policy requirements set by Assembly Bill 1054, Newsom's emergency wildfire legislation that created a $21 billion statewide wildfire fund to cover the cost of future utility-ignited blazes. PG&E can only participate if it exits bankruptcy protection by the June deadline.

California Public Utilities Commission President Marybel Batjer, appointed by Newsom in July, on Feb. 18 detailed a process for revoking PG&E's "certificate of public convenience and necessity," which underpins its ability to operate in California, if the utility's restructuring proposal fails to comply with the law.

Hearings begin at the PUC's headquarters in San Francisco on Feb. 25. A bankruptcy court hearing on voting procedures for the restructuring plan and details of PG&E's proposal is scheduled for March 10.

Wildfire victims voice concerns

While PG&E's plan includes $25.5 billion for insurance companies, individuals and public entities, whose attorneys have all agreed to separate settlements, many individual wildfire victims are voicing frustration with their $13.5 billion cut.

An attorney for the Tort Claimants Committee, the official group representing individual fire victims in court, recently acknowledged the difficult task of winning majority support.

"The [committee] has a challenge ahead of it getting fire victims to vote in favor of the debtors' plan," attorney David Richardson said during a Feb. 20 hearing in bankruptcy court, citing "misunderstandings" over compensation.

The restructuring plan will pay fire victims through a trust funded by a mix of cash and common stock in the reorganized PG&E Corp. Fire victims would not directly own shares in the company, a point often not fully understood, Richardson said.

Around two-dozen wildfire victims have sent letters to Judge Montali opposing PG&E's plan.

Timeline agony

At the same time, attorneys for the Public Employees Retirement Association of New Mexico, who in 2019 launched a securities fraud case against the debtors in a U.S. district court, are now seeking $2 billion in bankruptcy court, potentially delaying the proceedings.

"I look at what's happening in the case, and I look and think about the horrible, horrible choices here, and I can promise you I agonize over [whether] this is going to screw up the timeline to get to June 30," Montali said at the Feb. 20 hearing.

Montali, who plans to rule in coming days on whether to allow the pension fund's prospective claims to move ahead in bankruptcy court, is also concerned about the potential for the Federal Emergency Management Agency's and the state of California's claims to undermine the timeline. In a plea for assistance in dealing with the unresolved issues, Montali asked a court-appointed mediator to "go do something."