FEMA Drops $4 Billion Bid for PG&E Settlement Money

SAN FRANCISCO (CN) – The Federal Emergency Management Agency will reduce its $4 billion claim against Pacific Gas and Electric to $1 billion and not recover a dime from a limited $13.5 billion settlement fund until wildfire victims are paid in full under a deal announced in bankruptcy court Tuesday.

“Fire victims will be paid in full before FEMA can see any recovery,” said Eric Goodman, a lawyer with the Tort Claimants Committee that represents fire victims.

(AP Photo/Noah Berger,File)

Additionally, California’s Office of Emergency Services, which was seeking $2.7 billion from PG&E including $2.3 billion that overlaps with FEMA’s claim, has agreed to drop its claims against PG&E. Both settlements are contingent on PG&E’s bankruptcy plan being approved by a June 30 deadline.

Last month, fire victims urged U.S. Bankruptcy Judge Dennis Montali to block the state and federal agencies from taking a $4 billion slice out of the trust, arguing that federal law only allows FEMA to recoup costs from an entity that intentionally causes a disaster.

The announcement eliminates a major source of anxiety and uncertainty for fire victims concerned that government claims could reduce the amount of dollars in the $13.5 billion trust and force victims to recover a smaller percentage of claims against PG&E for property damage, physical injuries and emotional distress.

Also on Tuesday, Montali ordered PG&E to include more details in a required disclosure statement intended to inform fire victims about the settlement as they prepare to vote yay or nay PG&E’s plan for exiting bankruptcy. All impaired parties, or those at risk of not getting 100% of what is owed to them, have a right to vote on the plan by May 15. Those votes will influence the judge’s decision on whether to confirm or reject PG&E’s bankruptcy plan.

Adventist Health seeks more than $1 billion in damages, including for a hospital in the town of Paradise destroyed in the 2018 Camp Fire. Its attorney Rebecca Winthrop argued the disclosure should provide a “range of recovery” or estimated percentage fire victims can expect to recover for their claims. If the $13.5 billion falls short, recovery for each claim will be reduced by the same percentage for each claimant. The $13.5 billion figure could also fluctuate up or down based on PG&E stock. Half of the trust will be funded by stock in a reorganized PG&E.

PG&E lawyer Stephen Karotkin said he believes the $13.5 billion is enough to pay every dime owed to fire victims, but he refused to promise full recovery.

“We’re not guaranteeing these things, but we believe the funding is adequate to fund the claims in full,” Karotkin said.

Despite PG&E’s sunny take on the settlement’s adequacy, a lawyer for fire victims said a lack of information makes it impossible to know how much each fire victim will recover.

More than 80,000 wildfire claims have been filed against PG&E, and claimants were not required to specify how much they were seeking in damages. Only 4.3% of more than 80,000 claims specified an amount, and some included seemingly inflated figures like a $10 billion claim filed by one person from Paradise, according to fire victims’ lawyer Elizabeth Green.

“The point being that there’s 77,000-plus unknown claims so it’s impossible for us to really know what that victim will get,” Green said.

Montali directed PG&E’s lawyers to share that information in a disclosure statement that will be mailed to tens of thousands of fire victims.

“We have to make some information available, even if the information is, ‘We don’t know enough yet,’” Montali said.

Several claimants objected to PG&E’s proposal to value all wildfire claims at $1 for the purpose of voting on its bankruptcy plan regardless of the size of each claim. Among the objectors were Adventist Health and AT&T, which filed a $238 million claim against PG&E. On Tuesday, the bankrupt utility reached a deal that will give both corporations more voting power. Under the terms of that deal, Adventist’s claim will be valued at $1,212 and AT&T’s claim will be valued at $540 for the purpose of voting.

Montali also heard arguments Tuesday on a motion to dismiss a class action seeking $2.5 billion in damages for a series of fire-prevention power blackouts PG&E executed in October and November last year. The power blackouts affected 800,000 to 1 million households.

Lead plaintiff Anthony Gantner says one of the power shutoffs disrupted a crucial grape harvest at his St. Helena vineyard and caused economic loss and hardship for potentially 2 million others. 

Both PG&E and the California Public Utilities Commission (CPUC) urged Montali to dismiss the lawsuit. Because the power shutoff guidelines were approved by state regulators, they say PG&E cannot be held liable for executing them under California Supreme Court precedent.

“The plaintiff seeks to impose blanket liability for a shutoff that was authorized by the commission,” said Joseph Kolatch, a private attorney with Paul Weiss arguing on behalf of the CPUC.

Gantner’s attorney Nicholas Carlin argued the plaintiffs are not seeking to hold PG&E liable for the process it used to deploy power blackouts. Rather, his client seeks to impose liability based on the company’s well documented pattern of neglect in clearing trees and maintaining power equipment.

“They were forced to engage in these massive shutdowns because of their lack of maintenance,” Carlin said before quoting California Governor Gavin Newsom prior statement that the shutoffs were “the unacceptable result of PG&E’s greed and mismanagement.”

Montali appeared reluctant to accept the plaintiff’s position that a utility can be held liable based on conduct that indirectly inflicted harm on its customers.

“Our tort law doesn’t take you to these extremes,” the judge said.

Montali took the arguments under submission.

The judge also scheduled a follow-up hearing for 2 p.m. Wednesday to iron out lingering issues with PG&E’s proposed disclosure statement and ballot forms. PG&E is supposed to mail those documents to every creditor by March 31.

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