A federal judge in California has approved Pacific Gas & Electric’s plan to exit bankruptcy, clearing the way for the utility to compensate victims of a series of wildfires in the state that left more than 100 people dead in 2017 and 2018.
The action by U.S. Bankruptcy Judge Dennis Montali on June 20 authorized $13.5 billion in compensation for more than 70,000 businesses and homeowners for losses sustained during the fires, which officials said were started by PG&E’s equipment. The company will emerge from bankruptcy with about $40 billion in debt, after agreeing to settle claims from people, insurers, and local government agencies for $25.5 billion.
Montali’s approval also will allow PG&E to take part in a $20 billion state fund established by lawmakers, designed to help utilities operating in the state cover liabilities from future wildfires attributed to their transmission lines and other equipment.
“This has been a comprehensive and complex challenge for everyone,” Montali said Saturday after signing off on the plan and thanking those involved in the 17-month bankruptcy case.
The total cost of the bankruptcy plan is $57.65 billion, according to a document filed by the utility with state regulators in March. The company has said it plans to raise more than $44 billion in new financing; state law requires the utility to resolve its bankruptcy without raising customer rates. Most of the financing, about $28.5 billion, would come from new debt held by the company and subsidiary Pacific Gas & Electric Co.
Half of the $13.5 billion in compensation for victims will be in PG&E stock, which will be managed in a trust. PG&E has said that trust fund would own 22.19% of the company after the utility exits bankruptcy.
“PG&E is committed to emerging from Chapter 11 [bankruptcy] as a fundamentally improved and transformed utility that meets the highest safety, governance, and operational standards,” Bill Johnson, PG&E’s chief executive, said in a statement.
“This is a great day,” said Robert Julian, a lawyer for the bankruptcy committee representing wildfire survivors. “We are going to start getting money into the hands of the victims.” It could still take a few months for the plan to take effect, as PG&E needs to raise the money it needs to start funding the victims’ trust and making other promised payments.
Some wildfire victims said the bankruptcy plan does not go far enough in compensating victims. Will Abrams, a survivor of a 2017 fire who was vocal in his opposition to the plan, said Saturday’s action “does not put us into a new chapter at PG&E. This was an opportunity missed.”
Montali, though, said he determined PG&E’s plan met the bankruptcy code’s standard of being “feasible.” He said he saw no other viable alternative to pay wildfire victims who have been waiting for compensation.
“Mr. Abrams’ desire for a better PG&E, for a better environment and a better Northern California, safe from wildfires, while aspirational and well-intended, is not something the bankruptcy code or this court can deliver,” Montali wrote in a memo outlining his decision.
Deadliest Fire in State History
PG&E on June 16 pleaded guilty to 84 counts of involuntary manslaughter for deaths that occurred during the 2018 Camp Fire, the deadliest wildfire in California history. The Camp Fire, which began when a transmission line broke from an aged PG&E tower, destroyed the town of Paradise. The utility acknowledged it was negligent by not maintaining the line, which ran through a heavily forested and mountainous area prone to high winds.
The Camp Fire caused billions of dollars in property damage. It was among a series of wildfires that led PG&E, California’s largest utility, to file for bankruptcy in early 2019, as the utility said it faced an estimated $30 billion in liabilities from the fires.
The company under its bankruptcy plan will pay its bondholders what they are owed. The utility’s existing shareholders will continue to own much of the company, which is considered unusual in a Chapter 11 bankruptcy and restructuring, because shareholders usually are left with little of the reorganized company.
PG&E will continue to operate as an investor-owned company, which allows the utility to raise capital through stock and bond markets. The utility now, after Montali’s approval of its plan, can begin marketing $5.25 billion in shares as part of a plan to raise $9 billion through new equity to help pay fire-related costs. It is also raising more than $13 billion in the debt markets.
Some California officials, and residents in PG&E’s territory, had said the state should take control of the utility, and make it either government-controlled or customer-owned. But those proposals were ultimately dismissed.
California Gov. Gavin Newsom and state regulators have signed off on the company’s reorganization plan, part of the required process for company’s participation in the state-backed fund to cover disaster liabilities. Another requirement was that PG&E exit bankruptcy by June 30.
Analysts have said that having access to the liability fund will give investors more confidence in PG&E’s ability to withstand future damage claims.
CEO Will Step Down
Newsom in his negotiations with PG&E got company executives to agree that the state could take over PG&E if the utility does not fulfill its obligations under the bankruptcy plan. PG&E also will appoint a new chief executive—Johnson, who assumed the role in 2019, is stepping down June 30—and the utility has chosen a new board of directors.
Bill Smith, a PG&E board member, will serve as interim CEO after Johnson leaves, and as the company looks for a new chief executive. Smith is retired president of AT&T Technology Operations, part of AT&T Services, where he spent 37 years with that group and its predecessor companies.
Former PG&E CEO Geisha Williams, who took over her leadership roles in March 2017, resigned in January 2019, two weeks before the utility’s bankruptcy filing. The company at the time named John Simon as interim CEO before choosing Johnson, former head of the Tennessee Valley Authority, to lead the San Francisco-based utility.
PG&E’s bankruptcy is the second in the utility’s history. The company also reorganized in 2001 in the wake of a California energy crisis that sent power prices soaring and left PG&E and Southern California Edison, the state’s largest utilities, with billions of dollars in debt.
In addition to paying the compensation included in the bankruptcy plan, PG&E already has agreed to pay a $3.5 million penalty, and an additional $500,000, to Butte County, California, for damages related to the Camp Fire. The utility’s guilty pleas to the deaths from that fire also could influence a federal judge overseeing PG&E’s probation attached to its felony convictions in a 2010 gas pipeline explosion in San Bruno, an incident that left eight people dead. William Alsup, the judge in that case, could impose new penalties on the company for violating its probation.
The California Public Utilities Commission also has levied a nearly $2 billion penalty against PG&E for maintenance issues it said contributed to the 2017 and 2018 wildfires.
PG&E also has been criticizing for its handling of pre-emptive power shutoffs, planned blackouts designed to lessen the risk of wildfires during dry, windy weather. The blackouts last year impacted more than 2 million people, and the utility apologized for its handling of those situations, promising to provide $86 million in refunds to customers. State regulators are still investigating those power shutoffs.