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PG&E 'bailout' bill stumbles, further muddling reorganization bid

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PG&E vehicles parked at a service center in Oakland, Calif. The utility plans to file its bankruptcy restructuring plan on Sept. 9.
Source: Associated Press

The author of a last-minute measure in the California Legislature to enable embattled utility Pacific Gas and Electric Co., or PG&E, to tap billions of dollars in tax-exempt wildfire recovery bonds to compensate victims of blazes linked to its infrastructure on Sept. 6 conceded the proposal will not move forward this year.

Assembly Bill 235 required the Senate Rules Committee to grant waivers necessary to hear the measure before lawmakers adjourn on Sept. 13. But the bill's author, Assemblyman Chad Mayes, said he will shelve the legislation until 2020.

"Simply, there is not sufficient time left for proper debate," Mayes, a Republican representing parts of Riverside and San Bernardino counties, said in a comment on Twitter. "We're putting AB 235 off until the new year."

The delay adds a further layer of uncertainty to PG&E's bid to exit Chapter 11 bankruptcy protection, which it entered together with its parent company PG&E Corp. in January, citing possibly in excess of $30 billion in wildfire liabilities. PG&E intends to file its long-awaited plan of reorganization on Sept. 9, relying on "a substantial infusion" of cash raised by existing shareholders, "plus equity-financed securitized bonds," according to an Aug. 6 bankruptcy court filing.

PG&E Corp. stock dropped 3.50% on Sept. 6 to close at $10.19 per share.

Whatever plan PG&E files, however, was already predetermined to remain in flux for months, pending the outcome of a liability estimation process involving multiple courts and a gauntlet of likely contentious hearings ahead of a vote on the plan in 2020. Wildfire victims and PG&E are $40 billion or more apart on their assessments of the utility's wildfire liabilities, attorneys disclosed in a recent hearing.

'Bailout' or 'balanced approach?'

PG&E is not giving up on the proposal.

"We firmly believe that wildfire recovery bonds are a critical element to the state's path forward when it comes to addressing wildfire risk," PG&E spokeswoman Lynsey Paulo said. "AB 235 would ensure that victims of the 2017 and 2018 wildfires are paid quickly, at shareholders expense, without increasing customers bills and that PG&E can participate in the state's new wildfire fund established by [Assembly Bill 1054] and work toward the shared goals of the governor and legislature in addressing future wildfire risk."

The measure represents "a balanced approach that prioritizes and protects both wildfire victims and customers," Paulo said. It has the backing of major shareholders and state business groups, ranging from the California Chamber of Commerce to the California Wind Energy Association.

Opponents of the legislation, including PG&E bondholders who have countered with their own proposal for PG&E's reorganization, called the bill a "bailout" designed to saddle ratepayers and taxpayers with paying for past wildfire claims.

"After being forced to declare bankruptcy due to their past misconduct, PG&E is seeking a bailout from California lawmakers," asserted a bondholder-backed group known as The Coalition to Stop the PG&E Bailout. "Their plan — which requires legislation — would load the company up with another $20 to $40 billion of ratepayer-backed debt."

The group released a report Sept. 3 by an economist at the University of California-Riverside, which it funded, supporting its claims. "This is a bailout plan designed not to stabilize the utility and protect the state's economy but rather to maximize return on investment for the hedge fund shareholders," the report said.

PG&E shareholders, through a group called Shareholders for Wildfire Victims, countered with a Sept. 4 report from a former chief economist for the state Legislative Analyst's Office, giving the proposal a favorable review.

"While the repayment of the bonds would be secured by a charge on ratepayer bills, the full cost of the debt service for these bonds would be borne by PG&E's shareholders, through an offsetting credit to customers funded by annual company profits," the report said.

"The securitization proposal offers a low-risk and extremely low-cost option for moving PG&E quickly out of bankruptcy and for paying victim claims," it added, noting that equity ownership would likely "continue to be principally comprised of traditional long-term utility investors, as opposed to hedge funds and related investors seeking short term profits."