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'Best solution for all': PG&E files amended $25.5B restructuring bid

A week after troubled California utility Pacific Gas and Electric Co. and its parent company PG&E Corp. disclosed a $13.5 billion settlement with a group of individual wildfire victims, the third such major deal in their sprawling Chapter 11 bankruptcy proceeding, the debtors late on Dec. 12 filed an updated plan of reorganization.

"Today's filing brings us one step closer to successfully concluding PG&E's Chapter 11 cases so that the wildfire victims can be compensated as quickly as possible," PG&E Corp. President and CEO Bill Johnson said in a news release. Calling the refreshed plan "the best solution for all constituencies," Johnson said the restructuring proposal would obviate the need for a state jury trial over a deadly 2017 wildfire in Napa and Sonoma counties, and a wildfire liability estimation proceeding in a U.S. district court.

Combined with previous $11 billion and $1 billion deals with insurance companies and public entities, respectively, the settlement total of $25.5 billion would resolve claims stemming from wildfires linked to electric infrastructure operated by the utility, known as PG&E. The debtors cited potentially in excess of $30 billion of wildfire liabilities when they entered bankruptcy restructuring in January.

With the support of individual wildfire victims, the plan increases the leverage of the companies and their current shareholders over an insurgent group of PG&E bondholders that have proposed a separate plan of reorganization. Individual wildfire victims previously supported the bondholders' alternative proposal.

PG&E must still secure the approval of wary state regulators, including for its new capital structure as well as a skeptical governor and Judge Dennis Montali, who is presiding over the cases in the U.S. Bankruptcy Court for the Northern District of California. It must do so, and exit bankruptcy protection, by a state-imposed June 30, 2020, deadline in order to participate in a $21 billion state wildfire fund to cover damages from future wildfires.

The company has received over $12 billion of equity backstop commitments to underpin its plan.

Like the previous plan, the updated proposal would assume "all power purchase agreements, renewable energy power purchase agreements, and community choice aggregation servicing agreements." PG&E has, however, negotiated price discounts on several renewable energy deals, and been accused of breaching an energy storage contract.

Mixed reactions

As was the case when PG&E disclosed its settlement with individual wildfire victims, initial reactions to the refiled plan of reorganization were mixed.

Elliott Management Corp., a key creditor behind the bondholders' competing restructuring plan, denounced PG&E's new proposal in a statement. The PG&E plan fails to comply with requirements the state set and was crafted with "the exclusive objective of maximizing value for existing shareholders at the expense of the company's critical stakeholders, including most importantly its customers and employees."

The plan also puts the company and its critical infrastructure in jeopardy in the immediate- and long-term future, the hedge fund added. It would increase PG&E's debt to more than $34 billion, over $10 billion more than when it filed for bankruptcy protection, including $7 billion in parent company debt, and likely leave PG&E Corp. "as a sub-investment grade, junk-bond issuer."

The proposal boosts the likelihood that PG&E will "find itself back in bankruptcy," according to Elliott.

Consumer advocate Erin Brockovich, on the other hand, applauded the plan in a statement released by PG&E, saying the settlements and overall proposal are in line with California Gov. Gavin Newsom's goals.

"First and foremost, they will fairly and justly compensate wildfire victims in a timely manner," Brockovich said. The plan would put PG&E in position to help meet the state's climate and clean energy goals, and fix aging utility infrastructure with a four-year, $40 billion commitment, she said.

"We are glad to have an agreement in place and look forward to getting it approved by the court," added Joseph Earley, a fire victim and attorney representing 11,000 other victims.

William Abrams, another wildfire victim, blasted the proposal as "rearranging the chairs on the Titanic." Abrams, who has been active in bankruptcy court, state legislature and before the California Public Utilities Commission, in a Twitter post said the plan failed to provide "quantified wildfire risk reduction."

If the plan is approved, PG&E would land back in bankruptcy court within two years, he predicted.