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'Light at the end of the tunnel': PG&E claims key victories in bankruptcy case

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Frank Pitre, an attorney for victims of wildfires linked to PG&E electric infrastructure, speaks with media outside a federal court in San Francisco.
Source: S&P Global Market Intelligence

Embattled California utility Pacific Gas and Electric Co. claimed a pair of pivotal victories in its suddenly fast-moving bankruptcy restructuring process together with its parent company, PG&E Corp., when a federal judge on Dec. 17 approved major settlements with wildfire victims and insurance companies totaling $24.5 billion.

That same day, the California Public Utilities Commission's safety and enforcement unit filed a proposed $1.7 billion settlement over the utility's role in the devastating and deadly Northern California wildfires of 2017 and 2018 that triggered one of the most sprawling and complicated Chapter 11 cases in U.S. history nearly 11 months ago.

Coming just days after Gov. Gavin Newsom panned the debtors' amended plan of reorganization for not complying with a 2019 state law and said he wanted the utility, known as PG&E, to be "radically restructured," the events mark a turning point in the joint cases and provide a "light at the end of the tunnel," according to one wildfire victims attorney.

The $13.5 billion settlement with a group representing about 70,000 individual wildfire victims is split evenly between cash and common stock in the restructured holding company. It simplifies PG&E's path to emerge from bankruptcy protection by June 30, 2020, as it seeks to win over the governor and the California Public Utilities Commission, or CPUC. Assembly Bill 1054, emergency legislation that Newsom signed in July, set that deadline so the utility can participate in a $21 billion insurance fund to cover future wildfires.

The settlement with wildfire victims negates the need for a potentially costly and embarrassing state court jury trial over the contested Tubbs Fire in Napa and Sonoma counties while possibly eliminating a wildfire liability estimation proceeding in U.S. district court and keeping the debtors solvent. It also gives PG&E Corp. considerable leverage over a group of bondholders seeking to orchestrate a hostile takeover through a competing restructuring plan previously supported by wildfire victims.

In explaining his approval of the settlement, opposed by bondholders because it obligates wildfire victims to support PG&E's plan, the judge presiding over the joint cases in the U.S. Bankruptcy Court for the Northern District of California in San Francisco said his decision was aligned with a majority of wildfire victims who told their attorneys to shift their backing to PG&E.

"They didn't choose to be creditors," Judge Dennis Montali said. "The question comes down to what advances the cause more: moving forwards or moving backwards?"

Montali also approved an $11 billion settlement with a group representing more than 100 insurance companies that have paid insured wildfire claims related to PG&E electric infrastructure. Combined with a $1 billion deal with public entities, the debtors have achieved agreements and support for their restructuring plan with the key impaired classes of creditors in the bankruptcy cases.

'Not out of the woods'

Attorneys for wildfire victims celebrated the approval of their deal but cautioned that PG&E still faces numerous hurdles to emerge from Chapter 11, including gaining approval for its restructuring plan from bankruptcy court and state regulators.

"We now have light at the end of the tunnel, at least in terms of a fund that's going to be established," wildfire victims attorney Frank Pitre said in an interview outside the courthouse after the judge's decisions. "We're not out of the woods, but this at least now gives people some certainty."

The settlement parties will create a process for substantiating and ultimately disbursing claims.

"Our North Star has been to find the fastest way to a fair resolution, and that's what was done today," Pitre said.

The debtors must still convince Newsom and the CPUC that they will have the "financial wherewithal" to invest in needed grid upgrades and "change their corporate governance, change their management, and ... be a reemerged company that is now in tune with managing the wildfire risk," Pitre added.

While attorneys for PG&E and its parent company amended their settlement with individual wildfire victims Dec. 16 to eliminate the need for the governor's approval, the companies must still obtain approval of their restructuring plan from the CPUC, whose president, Marybel Batjer, was appointed by Newsom in July.

AB 1054 tasked state energy regulators with vetting PG&E's safety and corporate governance culture, capital structure, rates and compliance with state climate policies as part of their approval of the utility's plan of reorganization.

In a Dec. 16 court filing and Dec. 13 letter to PG&E Corp. President and CEO Bill Johnson, Newsom said he believed that the utility's plan was not in compliance with the law.