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Thursday, May 23, 2024 | Back issues
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Lawyer Army Descends on Mega-Debt of California Utility

An army of lawyers representing Pacific Gas & Electric descended on the small courtroom of U.S. Bankruptcy Judge Dennis Montali Thursday in the first in a series of hearings in its Chapter 11 bankruptcy case.

SAN FRANCISCO (CN) - An army of lawyers representing Pacific Gas & Electric descended on the small courtroom of U.S. Bankruptcy Judge Dennis Montali Thursday in the first in a series of hearings over $52 billion in debt and a possible $30 billion in wildfire liabilities.

They were met by an even larger contingent of attorneys for the victims of the Northern California wildfires, as well as lawyers for the utility’s other creditors; banks, unpaid vendors and myriad public entities. 

Montali is no stranger to PG&E’s financial woes, having overseen its 2001 bankruptcy filing from California’s energy crisis of 2000 and 2001. He referenced that history at the start of the hearing, joking that he “still has the boxing gloves” from the proceedings 18 years ago.

It took PG&E, the nation's largest utility, more than two years to complete the process back then.

This time around looks to be no less protracted and arduous despite pledges to expediency and commitments to “collaboration.”

Pacific Gas and Electric Company, a subsidiary of the PG&E Corporation, declared bankruptcy on Tuesday, citing $51.7 billion in debt and an estimated $30 billion in potential liability from the flood of lawsuits filed after several wildfires swept Northern California in 2017 and 2018, including the Camp Fire that wiped out the town of Paradise last November. It also listed $71 billion in assets.

PG&E has been found liable for 12 fires, though the California Department of Forestry and Fire Protection (Cal Fire) said it wasn’t to blame for the 2017 Tubbs blaze that devastated the Coffey Park neighborhood of Santa Rosa, and many other communities in the counties of Sonoma, Napa and Lake.

Stephen Karotkin, one of the attorneys representing PG&E in its bankruptcy case, said in court Thursday that Chapter 11 is necessary for the utility to stay in business, given the amount of debt it currently owes and what it faces. He noted that California law holds utilities responsible for damages caused by power lines and other equipment, even if they are not found negligent.

“Under these circumstances, with the potential liabilities exacerbated by inverse condemnation regardless of whether PG&E was negligent, it became abundantly clear that PG&E could not access the capital necessary to continue to operate its business and provide reliable utility service to 16 million customers,” he said. “Under those circumstances there was no feasible way for PG&E to finance its way through the years of litigation and properly invest and operate its business.”

While bankruptcy will allow PG&E to stay in business, pay its employees and meet its obligations under clean energy goals imposed by the state, it will also mean higher utility rates and a smaller pot of compensation for the fire victims.

Still, Karotkin said, “This is not a strategic play to avoid PG&E’s responsibility for the damage and loss of life sustained as a result of the 2017-18 wildfires.”

He added, “What we hope to accomplish is precisely the opposite. The Chapter 11 case will promote a fair, orderly expedition of PG&E’s wildfire liability more equitably than it can be addressed in the court system. It will restore PG&E’s financial stability and make sure it has access to the capital to invest in its infrastructure.”

This includes rebuilding efforts in the destroyed communities and efforts to trim vegetation and mitigate other fire risks.

Dozens of lawyers appeared before Montali, representing an array of creditors that are hoping to at some point be paid when the dust settles. This includes unsecured bondholders, vendors that have leased equipment to the utility and clean energy companies. PG&E is only looking to repay “critical” vendors at this point and has moved for authority to pay them.

But this only stoked contention.

Attorney Mark Ponikowski, who represents Holt Caterpillar said PG&E has not released any information on which companies qualify as critical. Holt leased its earthmoving equipment to the utility after the wildfires and hasn't been paid yet.

“There are 10 units that PG&E has in its possession that it wants to keep,” he said. "My client is owed half a million dollars. The motion is somewhat shrouded in secrecy. What’s going to happen?"

“Every one of them thinks they’re critical,” said PG&E lawyer Matthew Goren. “The fact that someone isn’t paid now doesn’t mean they won’t be later. They’re free to demonstrate to the debtors the criticality of the services they provided.”
Another point of disagreement was $130 million in good performance bonuses for 14,000 employees earned in 2018, along with medical benefits for 24,000 employees.

Attorney Dario De Ghetaldi, who represents 1,500 Butte Fire victims said he was concerned that the bonus pay-outs might mean delayed payment to Butte Fire plaintiffs who had settled with PG&E.

He said he would rather not see “bonuses in preference to the victims that have enforceable settlement agreements that are unfunded,” and wanted more information on the identities of the employees PG&E intends to reward.

Montali said he wouldn’t do that as it would require him to “parse through a huge payroll” just to find which employees were responsible for vegetation management or risk evaluation. Even then, it would not be easy to determine if those employees had played any part in the fires.

“I know the names of the people we’re interested in,” De Ghetaldi said.

“I understand what your concerns are. The question is what to do about it,” Montali said.

Karotkin assured the judge that the utility’s short term incentive plan “does not include officers or members of the board or former officers.” This also excludes former CEO Geisha Williams. “Ms. Williams is not on it,” Karotkin said.

Montali approved the payments, saying over De Ghetaldi’s objection. “I’m sympathetic to the fate of his clients under the circumstances, but I’m going to overrule the objections and grant the motion recognizing there has been the various carve-outs.”

Attorney Frank Pitre, who represents victims of the North Bay fires, pushed for swift action in the case. 

“Right now there are thousands living in trailers,” he said.

Khaldoun Bhagdadi, who also represents fire victims, said many will lose their two-year temporary housing in October.

“Several thousand people are going to have a serious problem finding a place to live,” he said, adding that he hoped for a "commitment to fair, orderly and expeditious resolution of claims."

Pitre said he agreed with Bhagdadi. “The only substitution I would make is opposed to the word ‘expeditious,’ I would substitute ‘urgent.’”

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Categories / Business, Consumers, Courts, Law

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