SAN FRANCISCO (CN) — On the first day of closing arguments on Pacific Gas and Electric’s plan for exiting Chapter 11 bankruptcy, PG&E lawyers offered a doomsday prognosis of what will happen if the utility’s plan is not confirmed by the end of June.
“It’s plainly evident that if this plan is not confirmed and not permitted to go forward, distribution to fire victims will be delayed for months if not years, and the protections of AB 1054 will be lost,” PG&E lawyer Stephen Karotkin argued in court via video Wednesday.
AB 1054 refers to a California law passed last year that established an insurance fund to protect private utilities from future wildfire liabilities. PG&E must exit bankruptcy by June 30 to gain access to that fund.
The closing arguments followed four days of testimony by a PG&E executive, consultants and the person responsible for overseeing the process in which tens of thousands of creditors voted to accept or reject PG&E’s bankruptcy plan.
Seven groups of creditors voted to accept the plan by wide margins. More than 85% of wildfire victims voted in favor of the plan.
However, one group voted against the plan. That group is made up of former and current shareholders who claim PG&E artificially inflated its stock price by misleading investors about its compliance with wildfire safety regulations. The group voted to reject the plan by a margin of 57.7% when factoring in claim amounts.
Karotkin said that group’s vote and other objections against the plan should not “silence the voices of tens of thousands of fire victims who have spoken in favor of the plan and are waiting on the distribution so they can rebuild their lives and communities after these devastating fires.”
Addressing arguments that PG&E has not done enough to show it can remain solvent in the future by avoiding wildfire liabilities, Karotkin said the company has made significant investments to prevent future wildfires.
“Debtors have implemented and continue to implement programs and initiatives, spent billions of dollars to mitigate wildfire risk,” Karotkin said. “That will minimize financial risk for debtors on an ongoing basis after emergence from Chapter 11.”
During the four-day bench trial that started May 27 and ended June 1, one objector claimed the company Prime Clerk, which oversaw the process of creditors voting on PG&E’s bankruptcy plan, had a conflict of interest because its parent company, Duff & Phelps, was a former PG&E shareholder.
Karotkin called those insinuations “preposterous.” Duff & Phelps was a “completely separate and distinct entity” at the time it held PG&E stock, and it dumped the stock a full year before PG&E filed for Chapter 11 bankruptcy, Karotkin said.
Another objector argued that Prime Clerk had another conflict of interest because Karotkin’s son works for the company.
U.S. Bankruptcy Judge Dennis Montali said he would not entertain those allegations because the relationship was properly disclosed to the court when Prime Clerk was hired to work on the case.
“To me it’s a closed subject,” Montali said.
The Tort Claimants Committee, which represents fire victims, filed a 35-page objection against the plan last month arguing it fails to comply with the terms of a settlement reached in December last year. That settlement includes $6.75 billion in cash and about $6.75 billion in stock which could fluctuate up or down depending on PG&E’s stock price.
Some of the committee’s objections were resolved in a stipulation filed Tuesday, which gives fire victims the right to sue certain PG&E contractors for damages caused by wildfires.
Another objection relates to the formula that will determine how much PG&E stock goes into a trust for paying fire victims. On Wednesday, Karotkin announced that issue will be resolved through binding arbitration.
Montali said the arbitrator will decide “the number that pegs the value of the stock going into the trust.”
An arbitration hearing is scheduled to start on Monday, June 8, according to Karotkin.
Fire victims and PG&E are still negotiating an agreement on when the trust will be allowed to sell and liquidate stock. Fire victims argued in their objection last month that the trust should be allowed to sell stock under the same favorable terms offered to financial backers funding PG&E’s exit from bankruptcy.
As part of its bankruptcy plan, PG&E has agreed to pay $25.5 billion in settlements, including $1 billion for 18 public entities, $11 billion for insurers who covered wildfire losses and $13.5 billion in cash and stock for all other wildfire claims.
The California Public Utilities Commission approved PG&E’s bankruptcy plan last week but added certain revisions that will make the company submit to stricter oversight, change the makeup of its board of directors and create a new regionalized management structure.
Approval by the federal bankruptcy court remains the final hurdle before PG&E can emerge as a solvent, reorganized company.
Closing arguments in the bankruptcy bench trial are expected to continue through Friday.
Follow @NicholasIovino
Subscribe to Closing Arguments
Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.
