Why PG&E rescue plan makes sense

RE: “Hedge funds’ proposal to ‘rescue’ PG&E is probably too good to be true,” July 5, 2019.

Former Assemblyman Mike Gatto made inaccurate and misleading claims about the proposal outlined in a recent court filing made by the Ad Hoc Committee of Pacific Gas and Electric Company Bondholders. Here are the facts:

The committee is comprised of a diverse group of financial institutions with long-term interests in California. The committee includes 26 financial institutions that hold approximately $10 billion of PG&E debt. A number of the committee’s members are significant California-based institutions that employ thousands of California residents and invest billions of dollars across a variety of California industries, including publicly owned and investor owned utilities.

The bondholders’ proposal provides for approximately $18 billion of new equity to rehabilitate, recapitalize and restore PG&E to robust financial health. This new equity would enable PG&E to fairly resolve its current wildfire liabilities and to implement safety measures that are critical to reducing future wildfire risk. 

The bondholders’ proposal stands in stark contrast to the large securitization and other forms of financial engineering that PG&E’s current shareholders are reportedly proposing. Under the bondholders’ proposal, the reorganized utility would maintain the debt-to-equity ratio currently required by the California Public Utilities Commission.

The bondholders’ proposal will not increase existing electricity rates. In fact, it includes an express “Prohibition Against Rate Increases.” It provides that the debtors “will not seek to recover” the amounts paid to past wildfire victims or to the statewide wildfire fund, “either directly or indirectly, through rate increases.” The proposal specifically states that it “shall be rate neutral to end-market consumers in California on a net basis.”

The bondholders’ proposal calls for an experienced, diverse, safety and clean-energy focused board of directors. Under the bondholders’ proposal, the boards of the restructured company would include one director each from:

  • International Brotherhood of Electrical Workers, Local 1245, on behalf of PG&E’s employees.
  • The Utility Reform Network, on behalf of ratepayers.
  • The new statewide wildfire fund contemplated in Assembly Bill 1054. 

The bondholders’ proposal provides that the “New Boards shall consist of a diverse set of individuals,” and that a “majority of the directors of each of the New Boards shall consist of Californians and individuals who have credentialed experience in the areas of utility operations, engineering, safety, regulation and/or clean energy.” The new boards would be independent of the members of the ad hoc committee.

The bondholders’ proposal protects employees. In addition to the unprecedented board seat for IBEW, the proposed plan will true-up any stock holdings held by PG&E employees and retirees in pension and 401(k) accounts to ensure that the new equity being issued does not come at their expense. The proposal would also provide for reasonable and appropriate wage increases and prohibit involuntary layoffs during the term of a renewed collective bargaining agreement.

The bondholders’ proposal maintains a commitment to California’s clean energy goals. It explicitly states that PG&E “shall not reject any renewable energy power purchase agreement.” It also provides PG&E with a healthy balance sheet, which will keep its cost of capital low so that it can meet California’s leading renewable and clean energy standards.

In short, the bondholders’ proposal would protect ratepayers, give key stakeholders a say in the future of PG&E, and provide PG&E the funds it needs to fairly compensate past wildfire victims and provide safe, affordable and reliable electricity.


Ashley Vinson Crawford, attorney at Akin Gump, who represents bondholders in the PG&E bankruptcy, San Francisco

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