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Governor pans PG&E bankruptcy exit plan, wants 'radically restructured' utility

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California Gov. Gavin Newsom views a rooftop solar system in Sacramento with state officials.

Source: Associated Press

One day after embattled California utility Pacific Gas and Electric Co., or PG&E, and its parent PG&E Corp. jointly filed a revised Chapter 11 bankruptcy restructuring proposal, backed by $25.5 billion in settlements with wildfire victims, Gov. Gavin Newsom said the plan falls "woefully short" of the requirements of a 2019 state law.

"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 to its customers, as required by" Assembly Bill 1054, Newsom said in a Dec. 13 letter addressed to Bill Johnson, president and CEO of PG&E Corp.

"The resolution of this bankruptcy must yield a radically restructured and transformed utility that is responsible and accountable," Newsom said. That could include a takeover of the state's largest utility, the governor stated, echoing comments he made after PG&E in October triggered a series of unprecedented precautionary blackouts aimed at keeping its power lines from igniting more wildfires.

Citing PG&E's troubled operating history, including a deadly 2010 gas pipeline explosion in San Bruno, Calif., and numerous catastrophic wildfires caused by PG&E electric infrastructure in the past three years, Newsom said the utility's operating license should be conditioned on a new process of "escalating enforcement" of safety and operating metrics.

"This should also include a streamlined process for transferring the license and the operating assets to the state or a third party when circumstances warrant," the governor added.

The amended plan must include a "non-waivable condition" that the U.S. Bankruptcy Court for the Northern District of California approve its plan by June 30, 2020, and for the plan to go into effect by Aug. 29, 2020, Newsom said. That is in line with the state law AB 1054, which set the June deadline for PG&E to exit bankruptcy protection in order to participate in a $21 billion state fund to cover damages from future wildfires.

"If either of these dates are not met, the Bankruptcy Court should appoint a Chapter 11 trustee acceptable to the [California Public Utilities Commission] to manage the debtors and dispose of their assets and/or operations," Newsom wrote.

'Not a rubber stamp'

The CPUC's mandatory review of the plan, which will vet PG&E's financing, rates, safety and governance culture, and compliance with state climate policies, "is not a rubber stamp," the governor added.

Newsom criticized the proposal's debt-heavy capital structure, which he said left the utility with limited options to make needed investments and exposed it to future financial and operating challenges that could force the restructured entity back into bankruptcy.

A group of PG&E bondholders led by Elliott Management Corp. voiced similar criticism in a Dec. 12 response to the utility's revised plan of reorganization. Newsom's rejection of PG&E's plan gives the bondholders' competing plan an opportunity to regain traction after a group of individual wildfire victims switched their support to PG&E's plan. Previously, the group backed the bondholders' proposal.

The governor also called for a new post-bankruptcy board of directors comprised of "a majority of Californians" and members with "extensive safety experience."

Responding to the governor's letter, PG&E defended its latest restructuring plan.

"We believe it [meets the requirements of the law] and is the best course forward for all stakeholders," PG&E said in an emailed statement. "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."

State Sen. Bill Dodd, D-Napa, a co-author of AB 1054, disagreed with the assertion that the company's plan is in compliance with the law and applauded Newsom's rejection.

"Of course PG&E is going to claim its plan is great and complies with the law, but only a sucker would believe them at this point," Dodd said in a late Dec. 13 response. "It's their standard operating procedure to say one thing and do another. As co-author of Assembly Bill 1054, I can tell you we intended and must demand a better outcome for our ratepayers and communities."