Pacific Gas & Electric on Wednesday urged a federal bankruptcy judge to approve a key insurance settlement as it struggles to regain its financial footing and cover at least $20 billion in losses stemming from catastrophic wildfires in California tied to its equipment.
The nation’s largest utility faced fierce resistance at the court hearing from attorneys representing thousands of wildfire victims, PG&E bondholders who have proposed an alternative plan for salvaging the hobbled company and California Gov. Gavin Newsom.
The opposition argued that PG&E’s $11 billion settlement with a group representing about 110 insurers that have already paid claims in the fires threatens to shortchange uninsured and underinsured victims. Critics also say the deal would give the company an unfair advantage to gain support for its deeply flawed reorganization plan.
Nancy Mitchell, an attorney, told U.S. Bankruptcy Judge Dennis Montali that PG&E’s current rehabilitation plan doesn’t meet the standards required to participate in a wildfire fund approved by California lawmakers last summer. Even so, Mitchell contended PG&E is hoping approval of the insurance settlement will give it the leverage to pressure voting stakeholders to approve its plan, which must happen by June 30 for the utility if it hopes to have future wildfire losses partially covered by the state’s new fund.
“They want to lock up the votes and then want to say, ‘OK, state, you have no choice’’” but to approve the plan, Mitchell said. Besides getting Montali’s blessing, PG&E’s plan also has to be approved by its chief regulator, the California Public Utilities Commission.
PG&E lawyer Stephen Karotkin tried to assure Montali that the insurance settlement is the best way to fairly treat all the parties affected by the San Francisco company’s 10-month-old bankruptcy case.
“We don’t want to take the risk that this thing blows up,” Karotkin said.
Both PG&E and insurers have framed a settlement reached in September as a great deal because the $11 billion payment represents about 55 percent of the amount the carriers could seek if they sued the utility for the damages caused by its equipment and practices.i Insurers have paid out nearly $16 billion of the roughly $20 billion that they expect to cover in the fires linked to PG&E.
“If this deal goes away, we are back to the drawing board,” said Matthew Feldman, a lawyer for the insurers involved in the PG&E settlement.
The insurers have set a Friday deadline for getting court approval of the PG&E settlement, although Feldman told Montali that date could be extended if the judge needed more time to issue a ruling. Montali said he would try to issue a decision promptly.
PG&E’s proposed all-cash payment to the insurers has raised fears that the company won’t have anywhere near enough money to cover all the other claims that have poured in from more than 70,000 victims in fires that erupted during the autumns of 2017 and 2018, killing more than 120 people and destroying nearly 28,000 homes and buildings.
Attorneys for the fire victims are worried they could end up being forced to accept stock in a financially rehabilitated PG&E that could turn out to be horrible investment.
Although it didn’t come up in Wednesday’s hearing, Newsom has been pressing PG&E to revise its plan to reserve $13.5 billion to cover fire victims beyond those included in the $11 billion settlement, matching the amount earmarked in the bondholders’ competing proposal. PG&E’s plan currently calls for the victims getting an additional $7.5 billion, not including government agencies with claims.
Newsom may have gained more negotiating leverage with the recent release of an exhaustive report from the California Public Utilities Commission that concluded PG&E repeatedly neglected to maintain a power line blamed for igniting a 2018 fire that nearly wiped out the city of Paradise.
Although a state wildfire agency had already held PG&E responsible for that deadly blaze, the more extensive findings by the utility’s main regulator could provide Newsom with more fodder to follow through on recent threats to mount a bid to turn the utility into a nonprofit cooperative owned by its customers
Media reports that PG&E was nearing an agreement to meet Newsom’s demands caused the company’s stock to surge 11% Wednesday to close at $9.47. That remains far below a high of $71.57 in September 2017, reached just before the first of the major wildfires erupted and began raising doubts about PG&E’s future.