Govenor, US judge still need to approve PG&E deal

The Pacific Gas & Electric Corp. may have cleared its most formidable hurdle to exit bankruptcy by agreeing to a $13.5 billion settlement with wildfire victims, but it remains unclear whether the utility has secured the sustainable financing necessary to push the deal past the governor’s office and the federal judge overseeing its reorganization.

Both parties can reject the landmark agreement if it doesn’t anchor a confirmable plan to get PG&E out of bankruptcy or comply with requirements to participate in a multi-billion-dollar wildfire mitigation fund.

Gov. Gavin Newsom has yet to signal its approval after the deal was reached Friday evening. The agreement is terminated if he does not sign off on it by Dec. 13, according to filings Monday with the Securities and Exchange Commission.

The settlement resolves all legal claims related to historically destructive 2015, 2016 and 2018 wildfires. The deal pays victims of the blazes, which killed more than 100 people and destroyed more than 20,000 buildings, half in cash and half in stock, according to financial documents.

Attorneys representing wildfire victims estimated they have received more than 30,000 claims for damages.

PG&E also agreed to pay victims of the 2017 Tubbs fire, which state investigators said was caused by a private residence’s electricity system, and the 2016 ghost ship fire in Oakland. The utility did not admit liability.

The deal is the third and final settlement related to the wildfires, according to the company in a statement. It previously reached a $1 billion settlement with cities and counties and an $11 billion settlement with insurers.

PG&E Corp. stock reached a two-month high after the deal was announced Friday.

Cotchett, Pitre & McCarthy LLP’s Frank Pitre, who is among the lead plaintiffs’ attorneys, and Baker & Hostetler LLP partner Robert A. Julian, representing the wildfire victims in bankruptcy, declined to comment as settlement discussions are ongoing.

Newsom’s staff is still reviewing the settlement and how it impacts PG&E’s proposal to emerge from bankruptcy, according to spokesperson Nathan Click.

Approval will hinge on whether the deal complies with AB 1054, a new law requiring PG&E to exit Chapter 11 reorganization by June and compensate wildfire victims in full in accordance with a settlement or damages determination from a court to access a multi-billion-dollar wildfire fund. It details a confirmable plan of reorganization as one that can provide enough financing to resolve billions in wildfire liability claims and implement safety measures, among other requirements.

At a contentious bankruptcy hearing last week, Nancy Mitchell, representing the governor, expressed concern over PG&E’s proposal. She said Newsom’s approval won’t be a “rubber stamp.”

The governor will “require that any plan sponsor make significant investments in infrastructure and that the emerging company be a completely transformed utility,” she said, adding the need for a “flexible and sustainable” financing structure.

PG&E has limited assets, and “it’s just not clear they have enough money to fix it,” she continued.

PG&E will have to refinance its current proposal to reorganize the utility. It will assume an additional $5.1 billion of liability, raising its fire-related charges to over $25 billion, according to financial documents filed Monday.

Responding to concerns that PG&E has not secured sustainable financing to continue operating after it emerges from bankruptcy, USC Gould School of Law Professor Robert Rasmussen was optimistic about the utility’s future prospects given it’s a publicly-regulated monopoly. “Yeah, it’s a lot of money to operate, but PG&E’s a pretty big operation,” he said.

Payments to wildfire victims will be distributed through a trust. PG&E will pay $5.4 billion up front and the rest over time, according to court documents filed Monday.

Some $1.35 billion in cash will then be made available through an initial $650 million payment by the company in January 2021, followed by another $700 million payment a year later. The remainder will be funded through $6.75 billion in new stock to be purchased by third parties once PG&E exits bankruptcy.

The settlement also requires the committee representing wildfire victims to vote in favor of PG&E’s reorganization plan, according to court filings. It is unknown whether they will be able to negotiate with bondholders, who have submitted their own proposal to leverage a better offer.

Rasmussen said it’s unlikely bondholders will offer a better settlement but couldn’t rule it out.

“Unless something is in the agreement with tort creditors that prevents this, what would prevent bondholders from proposing $15 billion to tort claimants?” he asked.

The bondholders’ plan primarily uses PG&E equity to pay off debt while the company supports raising debt and equity financing.

The settlement would end proceedings in two courts, federal and state, over how much PG&E must pay to wildfire victims.