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California Governor Rejects $13.5 Billion PG&E Settlement With Wildfire Victims

California Gov. Gavin Newsom on Friday rejected Pacific Gas and Electric's $13.5 billion settlement with wildfire victims, making a major setback in the utility’s attempt to emerge from bankruptcy by June 30 in order to gain access to a $20 billion state-sponsored insurance fund for future wildfires.

SAN FRANCISCO (CN) – California Governor Gavin Newsom on Friday rejected Pacific Gas and Electric's $13.5 billion settlement with wildfire victims, marking a major setback in the utility’s attempt to emerge from bankruptcy by June 30 in order to gain access to a $20 billion state-sponsored insurance fund for future wildfires.

Newsom announced the decision late Friday in a five-page letter to PG&E CEO William D. Johnson, according to the Associated Press, which reported Newsom said the settlement did not achieve the goal of providing safe and reliable power to its customers and that the company must address decades of mismanagement.

“PG&E’s board of directors and management have a responsibility to immediately develop a feasible plan,” Newsom said. “Anything else is irresponsible, a breach of fiduciary duties, and a clear violation of the public trust.” 

PG&E's $13.5 billion settlement with wildfire victims announced last week would have included $5.4 billion in immediate cash, $650 million to be released in January 2021, and $700 million to be released in January 2022. The remaining $6.75 billion would have come in the form of stock in the reorganized PG&E corporation, with a guarantee that a trust fund for fire victims will own no less than 20.9% of the restructured company. 

In July, lawmakers passed Assembly Bill 1054, establishing an insurance fund partially funded by ratepayers and private utilities. The law requires PG&E to comply with certain conditions in order to access the $20 billion fund. Those requirements include exiting bankruptcy by the end of June 2020 with a plan that fully resolves wildfire victims' claims, does not increase utility rates and includes a detailed, long-term strategy for safety improvements. 

The plan would have been largely funded by current PG&E investors and would have allowed existing shareholders to retain control of the company.

“Under our settlement with individual wildfire victims, it must be determined whether our restructuring plan meets the requirements of Assembly Bill 1054,” PG&E said in a statement late Friday. “We believe it does and is the best course forward for all stakeholders. We’ve welcomed feedback from all stakeholders throughout these proceedings and will continue to work diligently in the coming days to resolve any issues that may arise.”

The company said it is “committed to getting victims paid, continuing to implement changes across our business to improve our operations for the long term and emerging from Chapter 11 as a financially sound utility.”

“In the meantime, we remain focused on delivering safe electric and gas service to 16 million people in Northern and Central California and working hard every day to reduce the ever-growing threat of catastrophic wildfires,” the company added.


A group of bondholders, led by the $38 billion New York-based hedge fund Elliot Management, had proposed a competing plan that would enable Wall Street hedge funds to seize control of PG&E. In a statement Thursday, Elliot denounced PG&E's plan as one that would saddle the company with an extra $10 billion in debt, create an $8 billion "slush fund" of tax breaks siphoned from PG&E customers to shareholders, and risk reducing the utility's credit standing and rendering it a "sub-investment grade junk bond issuer."

Elliot further contends compensating fire victims with PG&E stock exposes them to $5 billion in liability related to potential litigation from bondholders if PG&E decides to call in its bonds early after exiting bankruptcy.

"The PG&E plan is not in the best interests of California residents, small businesses and commercial and industrial customers within PG&E’s service territory," Elliot said in a statement Thursday. "It was crafted with the exclusive objective of maximizing value for existing shareholders at the expense of the company’s critical stakeholders, including most importantly its customers and employees." 

Despite that criticism, PG&E CEO Bill Johnson touted the company's bankruptcy plan as the best path forward for employees, customers and wildfire victims in a statement Thursday night.

PG&E also got one of its most frequent critics and powerful foes to endorse its preferred plan in a statement Thursday night. Consumer advocate Erin Brockovich, who spurred a 1990s class lawsuit against PG&E over tainted drinking water – a legal fight depicted in an Oscar-winning Hollywood blockbuster – said PG&E's plan would fairly compensate victims in a timely manner, help meet California's clean energy goals and ensure new investments in safety and fire risk reduction. 

"PG&E is agreeing to spend $40 billion over four years to fix their infrastructure to help create a more safe and secure PG&E," Brockovich said. "The equity plan is the only plan that meets all three of the Governor’s objectives."

The $13.5 billion deal has also teed up a new dispute between wildfire victims and government agencies, which seek a combined $7.5 billion in compensation from PG&E for disaster response and other wildfire-related claims. Under PG&E's proposed plan, any compensation for state and federal agencies will reduce the amount of money available for fire victims in a trust fund.

On Thursday, the committee representing fire victims filed an objection to $2.7 billion in claims sought by California's Office of Emergency Services. The fire victims argue that under the "free services doctrine, a state agency "cannot recover the costs of carrying out public services, including response to fires, from a tortfeasor whose conduct caused the need for the services, absent specific statutory authorization or damage to government-owned property."

The fire victims requested a Jan. 14 hearing in bankruptcy court on their objections to the state agency's claims for compensation.

California state agencies seek a total of $3.44 billion in wildfire claims from PG&E, and the U.S. government seeks $4.18 billion, primarily for aid provided by the Federal Emergency Management Agency.

PG&E previously reached a separate $11 billion settlement with insurers that covered wildfire losses. The company also struck another $1 billion settlement with 18 regional and local government agencies in California. 

PG&E declared bankruptcy on Jan. 29, 2019, as it faced a potential $30 billion in liability for 22 wildfires in 2017 and 2018 allegedly caused by its electric infrastructure and failure to maintain trees and vegetation around power equipment.

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Categories / Energy, Law

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