A Pacific Gas & Electric Co. (PG&E) employee works out of a truck in Paradise, California, U.S., on Tuesday, Jan. 22, 2019. PG&E Co., California’s biggest utility owner, faces $30 billion in potential wildfire liabilities, and its bankruptcy plan has reverberated across the power industry. The states big utilities have seen their shares plunge since November’s deadly Camp Fire, and PG&E’s debt rating has been cut to junk status. Photographer: David Paul Morris/Bloomberg via Getty Images
A federal judge has refused to put his stamp of approval on a letter to Northern California wildfire victims from attorneys who allege that Pacific Gas & Electric may be breaking its promises as it tries to preserve a plan for getting out of bankruptcy in an unraveling economy.
The decision issued late Tuesday by Bankruptcy Judge Dennis Montali bolsters PG&E’s efforts to hold together its plan.
Montali rejected the request from the committee representing wildfire victims after listening to nearly two hours of sometimes acrimonious arguments during a hearing held earlier in the day.
The four-page ruling left the door open for the wildfire victims’ committee to send out a letter outlining its concerns as the voting continues on PG&E’s plan for dealing with the death and destruction caused by its electrical grid. A request for comment from the victims’ committee after Montali’s rebuff wasn’t immediately answered.
PG&E’s lawyers had scoffed at the allegations as a desperate bid to renegotiate a $13.5 billion settlement reached with wildfire victims four months ago.
Tuesday’s courtroom wrangling focused on the real value of the $13.5 billion deal, and when the money will be available to help more than 81,000 people who lost family members, homes and businesses during 2017 and 2018 a series of wildfires that killed nearly 130 people and destroyed thousands of homes. PG&E plans to plead guilty to 84 counts of involuntary manslaughter for the 2018 fires.
The wildfire victims’ committee wanted Montali to take the unusual step of approving a letter raising red flags about the settlement in the midst of the voting on PG&E’s complex plan for emerging from bankruptcy. The plan envisions paying out more than $25.5 billion in settlements, including the one with wildfire victims.
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But Montali concluded the committee squandered its opportunity to express its misgivings while a disclosure statement for PG&E’s plan was being hashed out during hearings held in February and March.
PG&E had fiercely opposed the attempt to send out a court-approved letter attacking its plan because it feared the missive would torpedo its frantic effort to get out of bankruptcy by June 30. The San Francisco company needs to meet that deadline to qualify for coverage from a wildfire insurance fund created by California to help utilities deal with future risks.
The wildfire victims’ biggest concerns center on the rapidly declining value of PG&E’s stock amid the recent market turmoil as well as the possibility that the company might not raise all the money it needs to start paying people for its misconduct until late this year or early next year, said Robert Julian, a lawyer for the victims’ committee.
Half of the $13.5 billion settlement is supposed to be funded with PG&E stock, but the market turmoil has caused the company’s shares to lose half their value since Feb. 11. A veteran investment banker submitted a declaration last week in another court proceeding that the stock earmarked for the settlement is now worth $4.85 billion, a 28% reduction from the original target of $6.75 billion.
PG&E attorney Stephen Karotkin told Montali that it was always known the stock portion of the settlement could end up being worth more or less than $6.75 billion. He also pointed out that PG&E’s stock is currently worth more than its average price of $7.80 during the two months leading up to the Dec. 6 settlement. The company’s shares closed Tuesday at $8.57.
Another attorney for wildfire victims, Gerald Singleton, told Montali that he still thinks the current settlement is the best deal available. “There are risks here, but we believe the benefits outweigh the risks,” said Singleton, who represents more than 7,000 victims.
Robert Julian, an attorney for the victims’ committee, said worries about PG&E’s stock price are being compounded by uncertainty about when the victims will be allowed to sell their shares to get the money they need to rebuilt their lives. The victims will own a nearly 21% stake in the company, a chunk so large that it will have to be sold in periodic phases to prevent a collapse in the stock price.
The wildfire victims committee also had entered into the settlement believing PG&E would have lined up the financing for the cash portion by Aug. 29, according to Julian. He told the judge he now believes PG&E plans to hold off on securing some loans until late December or early January. Karotkin didn’t address that allegation in the hearing, but insisted the Aug. 29 date was never a concrete commitment.
The doubts about PG&E’s plan have reached the point where a growing number of victims “don’t believe anything PG&E has to say in these confirmation hearings,” Julian said.
Karotkin blasted Julian for trying to win court approval of a letter that’s “totally inappropriate” and “misleading.”
