PG&E’s request to pay bonuses could clash with judge in criminal case

Pacific Gas & Electric Corp.'s request to U.S. Bankruptcy Judge Dennis Montali for permission to pay $235 million in employee bonuses could set up a conflict with the district judge overseeing the company's criminal probation, legal observers say.

But attorneys who represent plaintiffs whose homes burned down in wildfires said they would prefer Montali and U.S. District Judge William Alsup, who has no background in bankruptcy law, coordinate their efforts.

"Someone like Alsup who has much greater power doesn't have a background in bankruptcy," said Michael Danko of Danko Meredith APC. "If they can somehow work together, that's really what you're hoping for."

PG&E asked Montali to approve the employee bonuses on Wednesday evening. The payments would be awarded to approximately 10,000 employees, none of whom are the most senior executives, according to the motion.

The utility said the bonuses could cost as much as $350 million, but it has never paid out the maximum level of performance bonuses through this short-term incentive program. Safety metrics will account for half of the bonus.

Meanwhile, plaintiffs in the wildfire cases have asked Montali to appoint Cecily Dumas, a Los Angeles-based partner with Baker & Hostetler LLP, to represent them, according to Danko. The appointment is awaiting approval.

Committees for other unsecured creditors are also expected to be appointed as leadership groups in upcoming bankruptcy proceedings.

A former president of the state Public Utilities Commission was angered by the bonus request.

"Employee bonuses are completely unwarranted and a poke in the eye to judge Alsup," said former state Public Utilities Commission president Loretta Lynch. "PG&E is not the normal company that chooses bankruptcy because they have a guaranteed revenue stream."

A utility spokeswoman argued the bonuses encourage employees to achieve safety and operational goals.

"PG&E believes that this at-risk component of our employees' compensation provides appropriate incentives for our team members to help us achieve our safety and operational goals," company spokeswoman Lynsey Paulo said in an emailed statement.

Montali is set to consider the matter at a March 26 hearing.

If the bankruptcy judge approves the motion, it would directly contradict Alsup's orders to prioritize the utility's limited funds on wildfire mitigation efforts, according to Consumer Watchdog President Jaime Court and Lynch.

Alsup has proposed blocking PG&E Corp. from making future dividend payments to shareholders and ordered the funds to instead be used to improve the utility's vegetation management program.

"This is a real litmus test for this judge and venue because before PG&E pays a dime more to employees, it needs to make good on what it owes Butte Fire victims, whom it stopped paying, and pay in every other instance it's acknowledged responsibility," Court said, adding he expects a motion to remove the proceedings from Montali's court if he approves the motion.

Alsup can take over the entirety of the proceedings to "address probation conditions, all of the mass tort claims, as well as the bankruptcy claims in one proceeding where one hand will know what the other is doing," under Section 157 of judicial procedure, according to Lynch.

The president of the California Utilities Commission when the utility filed for bankruptcy in 2001 said the "bailout" Montali approved was improper because it did not allow the commission to review "key sets of facts" related to its revenue, such as cost of debt and operations.

"They got everything they wanted and more last time," Lynch said.

Amanda Riddle, a partner with Corey, Luzaich, de Ghetaldi & Riddle which represented 24 families who settled with PG&E in late November over damages for the 2015 Butte Fire, said she expects Alsup and Montali are coordinating behind the scenes.

There is a fundamental tension in the bankruptcy proceedings as plaintiffs in wildfire litigation are among the last in line to be paid as unsecured creditors, she continued.

"The priorities are focused internally on what's best for employees instead of being focused on the victims and N1orthern California customers," she said. "Where the hell is the money for my clients?"