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'Does nothing to address the disease': Reactions mixed to PG&E settlement


Essential Energy Insights - February 2021


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Six trends shaping the industries and sectors we cover in 2021

'Does nothing to address the disease': Reactions mixed to PG&E settlement

PG&E Corp.'s share price surged Dec. 9 after the company confirmed a proposed $13.5 billion settlement with victims of wildfires linked to troubled operating subsidiary Pacific Gas and Electric Co., or PG&E, gaining nearly 16% to close at $11.18.

The deal, which comes on top of previous $11 billion and $1 billion settlements with insurance companies and public entities, respectively, puts the companies in a better position to regain leverage in their joint Chapter 11 restructuring bid and exit bankruptcy protection ahead of a state-imposed June 30, 2020, deadline.

PG&E intends to propose an amended plan of reorganization in the U.S. Bankruptcy Court for the Northern District of California by Dec. 12, incorporating all of the settlements, the debtors said Dec. 9 in a Form 8-K filing with the SEC. As part of the latest agreement, an official committee representing wildfire victims in court must oppose a competing restructuring proposal by a group of PG&E Corp. bondholders seeking to assert control over the company.

Previously, the wildfire victims group supported that alternative plan.

Since closing at an all-time low of $3.80 per share on Oct. 28, amid a wave of highly unpopular precautionary blackouts and various threats of a public power takeover, including from California Gov. Gavin Newsom, PG&E Corp.'s stock value has roughly tripled.

The companies filed for bankruptcy protection in January, citing potentially in excess of $30 billion in wildfire liabilities, a level above the $25.5 billion represented by the three settlements.

Hurdles remain

PG&E still faces considerable hurdles to complete its restructuring, which include securing all funding necessary for its plan, fending off a growing movement of local governments seeking to transform the investor-owned utility into a customer-owned enterprise and garnering state regulatory consent.

"A settlement with wildfire victims may resolve a symptom, but does nothing to address the disease," San Jose, Calif., Mayor Sam Liccardo said in a Dec. 9 email. "More than 16 million Californians continue to endure a utility unable to deliver power safely or reliably — and wildfire season is only months away."

Liccardo is one of more than 110 elected officials, representing a majority of PG&E's customers, seeking to turn the company into a publicly owned utility.

If approved, the settlement, which includes partial compensation through share ownership in the company, could also give PG&E leverage against public takeover attempts.

"We remain firmly convinced that a government or customer takeover is not the optimal solution that will address the challenges and serve the long-run interests of all customers in the communities we serve," a PG&E spokesperson said in an email. PG&E is committed to working with all stakeholders, including local governments, "to build a stronger and safer PG&E," the spokesperson said.

Approval of the latest settlement, however, "is not as straightforward as it may seem," analysts at Height Securities LLC said in a Dec. 9 note to clients. Newsom, Height noted, recently opposed the $11 billion settlement with insurance companies.

The governor's office did not immediately respond to a request for comment Dec. 9 on the agreement with wildfire victims.

Moreover, gaining approval for the amended restructuring plan from the California Public Utilities Commission will be "no rubber stamp," attorneys for the governor said at a Dec. 4 hearing. Regulators must vet the restructuring plan's impacts on PG&E's safety and corporate governance culture, its capital structure, its rates, and compliance with state climate policies.