SAN FRANCISCO (CN) – Urging a bankruptcy judge to reject Pacific Gas and Electric’s $11 billion settlement with insurers, a wildfire victims’ lawyer likened the deal to dangling money that comes with a pernicious catch in front of “desperate” people.
Arguing in court Wednesday, attorney Robert Julian told stories of wildfire victims struggling with high hospital bills and living in shabby trailers with holes in the floor. Those “desperate” people would want to accept immediate payouts offered by insurers through the settlement, he said. But by accepting that money, they would also be forfeiting their right to pursue a higher amount of damages in the future.
“Some of them don’t have a choice,” Julian said. “They’re going to be so desperate, they might just sign that. They won’t be made whole.”
Julian was one of several lawyers arguing against the $11 billion deal during a 2.5-hour hearing before U.S. Bankruptcy Judge Dennis Montali. The settlement, announced in September, represents 55% of the $20 billion insurers were seeking from PG&E.
Nancy Mitchell, a private attorney representing California Gov. Gavin Newsom, told Montali the state’s top government official opposes the deal because it blocks insurers from endorsing a competing bankruptcy plan.
She accused PG&E of using the settlement to advance its reorganization plan, which will be funded by shareholders instead of outside hedge funds. She said PG&E is pushing that plan forward regardless of whether it fully compensates victims or meets the requirements of AB 1054, a new state law PG&E must comply with to access a $20 billion insurance fund for future wildfire claims.
“They want to lock up the votes and say, ‘OK state, you have no choice,” Mitchell said. “This settlement is about leverage.”
PG&E attorney Stephen Karotkin vehemently disputed claims that the company’s only motive is to push forward an equity-sponsored plan that would allow current shareholders to maintain control of the company.
“The debtors are not hell bent on an equity-sponsored plan,” Karotkin said. “They are hell bent on having the best plan, a financeable plan that is fair to all the debtors’ economic stakeholders and can get the debtor out of bankruptcy in time to get access to the wildfire fund.”
AB 1054 requires PG&E emerge from bankruptcy by June 30, 2020, in order to take advantage of a $20 billion insurance fund for future wildfires, partially funded by ratepayers and private utilities.
Representing bondholders pushing a rival restructuring plan, attorney Abid Qureshi said insurers should be allowed to support any plan that provides them an $11 billion payout. The terms of a restructuring support agreement that accompanies the settlement forbids insurers from endorsing a rival plan, even if it provides the same compensation.
“It can’t be the case that $11 billion is good enough only if it comes from the debtors but not from the creditors’ plan,” Qureshi said.
The bondholders are pushing a $29.2 billion plan that would pay fire victims $13.5 billion, compared to the $8.5 billion for non-insurance fire claims in PG&E’s proposed plan.
Despite zealous advocacy by settlement opponents, Judge Montali appeared reluctant to reject a deal that will help ensure PG&E’s solvency by reducing its potential liability to insurers by 45%.
“You want me to violate the ‘bird in the hand rule’ and let this $11 billion bird fly away and maybe have a $20 billion replacement,” Montali said.
After more than two hours of debate, Montali took the arguments under submission.
PG&E declared bankruptcy in January as it faced a potential $30 billion in liability for more than 20 wildfires in 2017 and 2018 allegedly sparked by its equipment and failure to maintain vegetation around power lines.
Last week, the California Public Utility Commission released a report finding PG&E’s failure to properly inspect and maintain its equipment led to the most destructive wildfire in California history. The report found PG&E failed to conduct a detailed climbing inspection which could have revealed the presence of a worn C-hook that broke off a transmission tower for a high-voltage line on Nov. 8, 2018, sparking the Camp Fire that killed 85 destroyed nearly 19,000 buildings.
The report found PG&E’s shortcomings with respect to that tower were not an isolated incident but “indicative of an overall pattern of inadequate inspection and maintenance of PG&E’s transmission facilities.”
PG&E said in a statement that it accepts the conclusions of the CPUC’s Safety and Enforcement Division’s investigation.
“Without question, the loss of life, homes and businesses is heartbreaking. The tragedy in Butte County on Nov. 8, 2018, will never be forgotten,” PG&E said in a statement. “We remain deeply sorry about the role our equipment had in this tragedy, and we apologize to all those impacted by the devastating Camp Fire.”
The company said it has inspected nearly 730,000 transmission, distribution and substation structures and 25 million electrical components since January 2019, using drones and climbing inspections to perform 18 months’ worth of inspections in just four months.
Last week, a CPUC administrative law judge also released a tentative finding that rejected PG&E’s request to increase its profits from 10.25% to 12% starting in 2020. PG&E and other private utilities had argued they need higher profits to attract investment for solutions to combat increased wildfire risks.
PG&E had initially asked for a 16% return on equity, a $1.2 billion increase for ratepayers, but later trimmed down that request to 12%. The bid to increase profits was one of several rate hike requests PG&E filed with the CPUC this year.