Bankruptcy judge sides with PG&E on short-term payments

SAN FRANCISCO -- A federal judge largely agreed with Pacific Gas and Electric Corp. Thursday on how the utility should handle its short-term financial commitments while setting the stage for combative proceedings on when and how much thousands of other creditors should be paid.

Despite objections to PG&E's financial disclosures, which an attorney at the hearing complained were "shrouded in secrecy," U.S. Bankruptcy Judge Dennis Montali of San Francisco authorized PG&E to pay its employees, vendors critical to the utility's operations and priority creditors, among other motions.

The utility filed for Chapter 11 bankruptcy on Tuesday after it "became abundantly clear that it could not access the capital necessary" to resolve outstanding wildfire liability claims and safely provide reliable service to nearly 16 million customers, PG&E attorney Stephen Karotkin of Weil, Gotshal & Manges LLP told the judge.

Montali presided over PG&E's bankruptcy in 2001, which ended in settlement agreement between the utility and the California Public Utilities Commission two years later.

In what was the most contentious back-and-forth stemming from several objections filed just hours before the hearing started, Montali granted the utility's motion to fulfill roughly $30 million in payments to companies necessary to maintain operations and nearly $26 million to lien claimants.

Various creditors took issue with their classification as a noncritical vendor.

"We will visit this matter again," Montali said. "If you think you belong to A, and they don't agree as a matter of negotiation, it will be revisited on final hearing where debtors will be seeking authority to pay some more people." In re: PG&E Corporation, 19-30089 (N.D. Cal. Bankruptcy Ct., filed Jan. 29, 2019).

Jennifer C. Hayes of Finestone Hayes LLP, who represents creditors owed over $40 million, objected to PG&E's classification of her clients.

"This struck me as one of these oppositions that I oppose unless I'm in the class that's getting paid," Montali responded. "You get paid, you don't have a problem, right?"

It is obvious that every vendor would prefer to be classified as critical, said PG&E attorney Matthew Goren of Weil, Gotshal & Manges, adding that what unfolded is the reason why they did not submit a list of vendors because it would cause even more of a controversy.

Montali attempted to assuage concerns by assuring creditors there will be a committee to address such matters in the future, adding there was not enough time to do so concerning the interim spending measure because of the tight schedule.

Plaintiffs' attorneys representing victims of the wildfires over the last two years also made an appearance to urge the court to prioritize their clients' claims because the insurance covering their temporary housing costs will soon expire, according to Dario de Ghetaldi of Corey, Luzaich, de Ghetaldi & Riddle LLP.

They asked the U.S. Trustee to consider them a leadership group in the bankruptcy proceedings to "ensure that this process moves with a sense of urgency on behalf of individuals who will be homeless," said Frank M. Pitre of Cotchett, Pitre & McCarthy LLP.

In response to all of the creditors' objections, Montali said "there's nothing for me to act on" and granted the utility's motion.

Plaintiffs' attorneys again objected to the bonuses of employees in the vegetation management and risk evaluation divisions when the utility has ceased payments to those who settled in the 2015 Butte County fire cases, but Montali deferred the issue until the final hearing on the matter.

Montali said he is "sympathetic to the fate of [plaintiffs' attorneys] clients under the present circumstances," but that he has to defer the matter until the final hearing.

PG&E has $71.4 billion in assets and $51.7 billion in liabilities, in addition to $30 billion in "potential liability with respect to the 2017 and 2018 Northern California wildfires," according to the Chapter 11 petition. It secured $5.5 billion in debtor-in-possession financing, which the California Public Utilities Commission approved on Monday.