U.S. Bankruptcy Judge Dennis Montali at a hearing on Dec. 17 approved two large Pacific Gas & Electric proposed settlement agreements—one with wildfire victims for $13.5 billion and the other with insurance claim holders for $11 billion. The judge's approval decreases the chances that a competing plan to take control of PG&E—proposed by a group of the utility's bondholders—will survive to the end of the bankruptcy process, according to representatives of the bondholders.
PG&E's $13.5-billion proposal includes language that would "lock up" its settlement with wildfire victims and "bind the settlement parties to an unconfirmable [AB 1054] plan," Gregory Bray, a lawyer for the official committee of unsecured creditors, said.
"We're taking a risk if we lock up those settlements through one particular plan," Bray said. "I want to see two plans get to the finish line. Keeping our option is a good thing."
Gov. Gavin Newsom in a letter to the court said that "PG&E must . . . allow all potential plan proponents to benefit from the various restructuring support agreements proposed in these Chapter 11 cases" .
Montali said he thought to himself, "Do we defy the governor [by accepting PG&E's proposal]?" But the judge, who oversaw PG&E's first bankruptcy in the early 2000s, then concluded that if he approved PG&E's proposal, "it's not a power play saying I know more than the governor."
PG&E said its settlement with victims would be canceled if the settlement did not include lock-up language. Montali asked PG&E's lawyers if they were playing a game of "chicken" with him. PG&E lawyers assured Montali they were not.
Montali allowed the lock-up language to stay, and he used the Super Bowl as an analogy for his decision. If a Super Bowl game goes into overtime, whichever team wins the coin toss could theoretically score first and the game would be over—i.e., the other team would not have a chance to touch the ball again.
Montali said the support for PG&E's settlement with wildfire victims by the tort claimants committee—which represents 70 percent of those victims—was the primary reason for his approval of the utility's proposal.
"Do I know better than the lawyers representing the victims?" Montali said at the end of his decision. "My ruling comes down to . . . I am not going to second-guess the victims' lawyers."
Some Camp Fire victims opposed the settlement, however, noting that it would provide them with volatile PG&E stock (see related story).
Sasha Poe, whose family lost everything in the Camp Fire, wrote to Montali the day after he approved PG&E's settlement.
"We are the ones who have been [left] out in the cold, displaced, disheveled, and distraught," Poe said. "It is our hope . . . you will consider those who actually suffered before stocks, hedge funds, and those seeking to make money off our suffering."
The bondholder proposal offers wildfire victims the same amount of funds as PG&E's proposal—$13.5 billion—but would provide victims with more cash and less PG&E stock, according to representatives of the bondholders. PG&E's settlement provides $5.4 billion in cash and $6.75 billion in its own stock. The total stock provided must not represent less than a 20.9-percent share of the reorganized PG&E, according to the utility.
The tort claimants committee agreed that more cash for victims would have been a good thing.
"We would prefer not to have stock," TCC lawyer Cecily Dumas said. "We would have loved to get [more] cash to address [victims' needs]."
But even so, Dumas said the TCC chose to side with PG&E's settlement proposal because the settlement will be "easier" to confirm by June 2020, which is the deadline for PG&E to be eligible for the state's wildfire fund, established by AB 1054.
However, Newsom has said that PG&E's victims settlement proposal does not currently comply with the law's requirements.
"It is unclear whether PG&E has sufficient value under the amended plan to pay claims in full, make required payments to participate in the wildfire fund, and exit bankruptcy with the necessary fiscal capacity to meet the requirements of AB 1054," Newsom said in his letter to the bankruptcy court.
The majority of AB 1054's wildfire fund, established to aid the state's investor-owned utilities when future wildfire costs are incurred, is allocated to PG&E—64.2 percent—with the remaining portion allocated among the state's other investor-owned utilities. The fund will include contributions from an IOU's shareholders and from ratepayers through a charge authorized by the California Public Utilities Commission.
AB 1054 has provisions to protect both ratepayers and shareholders, but is much better for shareholders than it is for ratepayers, according to Steven Weissman, a lecturer at UC Berkeley's Goldman School of Public Policy and a former CPUC administrative law judge (see CEM No. 1548).
Newsom and the CPUC must still review and approve PG&E's overall bankruptcy exit plan and ensure all components comply with applicable state law, including AB 1054.
Chris Holden, chair of the California State Assembly's Utilities and Energy Committee, on Dec. 17 wrote a letter to PG&E Corp. CEO Bill Johnson saying the utility has not taken the terms of AB 1054 seriously.
Holden said the law's terms are not negotiable or subject to modification, and that PG&E's board of directors must be reconstituted "with a majority of Californians who have experience as regulators, safety experts, and clean energy leaders."
At the hearing, Montali also:
- Approved the insurance claim holders' $11-billion settlement proposal. The claim holders said they are "pleased with the approval of our settlement with PG&E, which represents a significant milestone in advancing these Chapter 11 cases." The settlement would be paid in all cash (see CEM No. 1568).
- Granted relief from stay for victims of the Ghost Ship warehouse fire, which allows victims to move forward with their insurance claims instead of waiting until after confirmation of PG&E's bankruptcy plan to proceed.
Provided two weeks for comments on former PG&E lineman Todd Hearn's request to have his case heard in California state court. Hearn said he was fired by PG&E after raising wildfire safety concerns. Montali must decide whether Hearn's case can proceed in state court, where he can have a legal representative, or go through a worker grievance process, where he would not have a legal representative, according to Hearn's lawyer. Montali said he will review the issue next month.