Gov. Gavin Newsom on March 20 said he supports Pacific Gas & Electric's reorganization plan, stating it would meet the requirements of the state's wildfire fund bill—AB 1054—as long as the California Public Utilities Commission and U.S. Bankruptcy Judge Dennis Montali, who is overseeing PG&E's bankruptcy process, are on board as well.
Newsom filed in support of PG&E's case resolution contingency process, which the utility submitted to Montali on March 20. The resolution process will facilitate PG&E's ability to exit bankruptcy in a timely manner, provide a positive signal to financial markets, and further solidify the likelihood of a smooth and "largely consensual" resolution of the utility's bankruptcy, according to lawyers for PG&E .
PG&E appeased Newsom's concerns by granting the state visibility into the safety and operational improvements being made in advance of the 2020 fire season, Newsom's staff wrote in a filing to the court in support of PG&E's plan . More visibility into PG&E's practices will come by way of an "operational observer," which will be selected by the state. The observer will check on PG&E's compliance and progress with respect to natural gas operations and safety and wildfire and other disaster mitigation activities, including vegetation-management and system-hardening programs and risk analysis, among other items.
PG&E also softened Newsom by allowing for the potential appointment of a chief transition officer to oversee operational safety issues, if PG&E's exit from bankruptcy is delayed; creating an organized process for a sale of the business before the 2021 fire season in the event the plan cannot be consummated; and allowing the state, or a party supported by the state, to participate in the sale process if necessary, according to Newsom.
PG&E and Newsom's agreement comes after Montali on March 16 approved a financial agreement between the utility and a group of financial institutions. The financing agreement will provide PG&E with about $9 billion in equity financing commitments.
Newsom acquiesced to PG&E on this matter as well, withdrawing his objection that the commitments would increase the cost of a potential public takeover of the utility.
The $9 billion in equity financing commitments will form the "foundation" of PG&E's reorganization plan and are particularly important because of "recent market volatility as a result of the coronavirus," the utility said in a filing to Montali . The commitments will ensure that PG&E will have enough worth on the effective date of its reorganization plan, even if market conditions continue to deteriorate, according to utility representatives. The monetary support will be provided by JPMorgan Chase, Goldman Sachs, Bank of America and Citigroup, among others.
In a court hearing held by telephone due to COVID-19 restrictions, Montali called the terms of the financial commitments "very, very complicated," but his order says the commitments "constitute a reasonable exercise of PG&E's business judgment" .
Newsom in January objected to a proposed version of the commitments, saying they granted "parties excessive control over PG&E" and contained provisions "that conflict with the requirements of AB 1054" .
"PG&E seeks the approval of financing commitments that enrich the shareholder proponents who are participating in the commitments while expressly permitting the proponents to terminate their commitments if PG&E's plan is not acceptable," Newsom's staff said in the objection. "The [commitments also] obligate PG&E's estates to incur substantial fees."
But the governor's objections were resolved prior to the March 16 hearing on the matter, lawyers for PG&E told Montali in court. When asked by California Energy Markets what changed in the commitments to satisfy Newsom, the governor's office did not respond.
In September, PG&E and a group of financial institutions agreed to about $14 billion in commitments, and in November, the amount was reduced to about $12 billion. The current expectation is that $9 billion in equity will be raised, PG&E said, adding that the commitments extend through August.
But some uncertainties associated with the financing commitments remain, despite Montali's approval. In a March 18 filing with the California Public Utilities Commission, PG&E said the CPUC's modified $2.1-billion wildfire settlement decision puts the utility's reorganization plan at risk (see related story). The modified decision would require more money for wildfire victims and therefore allow PG&E's financing parties to terminate their commitments, PG&E said.
PG&E's financial backers may also terminate their commitments due to the occurrence of one or more wildfires on or after Jan. 1, 2020, that destroy or damage at least 500 structures within PG&E's service area at a time when the portion of the utility's system at the location of a wildfire was not successfully de-energized, the agreement says.
When asked if PG&E has a plan in case there is a fire that causes the financing parties to terminate the agreement, PG&E communications representative Ari Vanrenen told CEM that the utility "continues to accelerate our work to upgrade our system in the face of continued and perhaps worsening wildfire threats due to the dry winter weather."
As part of the commitment, the financing parties must use all reasonable efforts to support PG&E's reorganization plan and to act in good faith to consummate the plan, according to PG&E.
Separately, Montali on March 17 approved PG&E's proposed wildfire victim disclosure statement that will be sent to fire victims for voting purposes. The statement will explain risks associated with the plan, parties that support the plan, and details of the fire victim trust fund, among other items.
The fire victim trust fund will be run by retired Justice John Trotter . One of Trotter's most cited opinions said that public entities must publicly disclose previously secret settlement agreements with tort litigants, according to his biography on file with the Judicial Branch of California. Trotter retired in 1987 from the California Courts of Appeal.
Lastly, Montali this week said his courtroom will be closed through at least April 17 in order to reduce the possible spread of COVID-19. PG&E's bankruptcy case will continue telephonically in the meantime, according to the judge.