Federal judge OKs PG&E reorganization plan

SAN FRANCISCO -- The judge overseeing the Pacific Gas & Electric Corp.'s bankruptcy approved a major deal Tuesday between the utility and a group representing bondholders who were previously trying to take over the company.

U.S. Bankruptcy Judge Dennis Montali allowed the restructuring agreement laying out a tentative reorganization plan for PG&E to emerge from bankruptcy to move forward to the next stages of confirmation over the sole objection of a Santa Rosa wildfire victim.

The ruling clears a significant obstacle in getting PG&E out of bankruptcy by the June 30 deadline for it to participate in a multi-billion-dollar wildfire assistance fund. The settlement between PG&E and the bondholders finances lower cost debt for the utility in exchange for withdrawal of their competing reorganization plan.

PG&E has stated the agreement will save it roughly $1 billion.

Santa Rosa resident William Abrams, who lost his home in the 2017 Tubbs fire, urged Montali to reject the deal. He argued PG&E will not be a viable company and will again file for bankruptcy because it's been too focused on "short-term payouts" rather than structural changes to deal with its core problems relating to governance and accountability.

"PG&E is a monopoly and many of its ills are because they don't have competitive pressures," he said. "The plan needs to tie financials to risk mitigation."

Abrams also argued the bankruptcy process, the California Public Utilities Commission and the state Legislature have bailed out PG&E to the detriment of its customers, adding, "Future claimants are in huge jeopardy."

Montali considered the arguments but ultimately dismissed them because they were not relevant to the restructuring agreement. He explained he does not have power over the issues Abrams raised.

"As awkward as this may sound, that's not what I'm supposed to be dealing with," he said. "I deal with reorganization problems."

While he said he understood Abrams' frustrations with the process, Montali continued, "You have to trust some portions of the system." He called the agreement at issue in the hearing a "big step" toward paying wildfire victims.

"If I disapprove this proposal, I don't know what the next step will be, but it won't be positive," he said, adding the "clock keeps ticking."

PG&E attorney Stephen Karotkin said Abrams' issues with the agreement will be better addressed later in the bankruptcy or before the Public Utilities Commission. He emphasized there are no other objections and "all constituencies are working toward achieving the deadline."

When Montali asked about potential consequences if the deal is rejected, Karotkin responded, "We're back to a litigation morass and back to a competing plan scenario."

PG&E has now reached $28.5 billion in settlements with wildfire victims, insurers and local governments. Confirmation proceedings over the utility's final plan to emerge from bankruptcy will take place in May and June.

In the hearing Tuesday, Montali also considered whether to allow an interlocutory appeal over the allowance of post petition interest to those holding roughly $300 million in claims against PG&E.

An interlocutory appeal occurs when a ruling is appealed while other aspects of the case proceed. They are rarely granted.

Montali explained there's no legal reason to deny the appeal, but it may stall proceedings enough that PG&E will not meet the June 30 deadline imposed by AB 1054 if it's granted. He urged the group to do it later in the bankruptcy.

"I can't jeopardize" the restructuring agreement, he said. "This solution is workable and pushes the burden on you to get someone at the appellate court level to take it up on the merits."

Matthew Kelsey, a Gibson, Dunn & Crutcher LLP partner representing the claims holders, argued PG&E is trying to circumvent an appeal on the issue.

"These parties may not want you to do it, but that's not a good legal reason," he said.

Montali took the matter under submission. He will consider further arguments from Abrams to reject deals reached by PG&E with insurers and wildfire victims on Feb. 11.