PG&E is back where it started — searching for a way forward amid tens of billions of dollars in damages from past wildfires. And its narrowing options are driving the state’s largest utility into the arms of Wall Street investors, including a group led by major Republican donor Paul Singer, the billionaire known for his combative style and portfolio of distressed properties.
Updated Sept. 9, 2019, with PG&E releasing reorganization plan, adds comment from victims’ representative.
PG&E Corp. offered $18 billion in wildfire payments as part of a reorganization plan filed Monday in bankruptcy court with less than half of the money going directly to the victims.
The proposal calls for establishing two trust funds, one capped at $8.4 billion to pay wildfire victims and the other capped at $8.5 billion for insurers who had to pay out claims from a series of deadly Northern California blazes in 2017 and 2018. Local governments that have already settled with PG&E would receive $1 billion.
PG&E said their plan would be “rate-neutral” for customers in order to tap a new state wildfire fund and maintain its solar and other renewable power purchase agreements.
“Under the Plan we filed today, we will meet our commitment to fairly compensate wildfire victims and we will emerge from Chapter 11 financially sound and able to continue meeting California’s clean energy goals,” PG&E’s CEO and president Bill Johnson said in a statement.
Victim advocates, however, responded by calling the opening offer low.
“What they’re proposing is just a fraction of what’s needed to rebuild wildfire victims’ lives. They’re not serious about making victims whole,” said Patrick McCallum with the wildfire victims group Up From The Ashes and a victim himself. “I think the next step is to see whether the bondholders are able to put together something that makes victims whole and the company healthy.”
PG&E had hoped to include a $20 billion wildfire recovery bond from the state in their plan to emerge from Chapter 11 bankruptcy but lawmakers tabled that bill for this legislative session. That forced the state’s largest utility back where it started — searching for a way forward amid tens of billions of dollars in damages from past wildfires.
As the options narrow, they are increasingly driving PG&E toward a competing investor group led by major Republican donor Paul Singer, the billionaire known for his portfolio of distressed properties and combative style.
“It’s reasonable to suggest that a blended approach forward is plausible,” said Rob Stutzman, a spokesman for the bondholder group, which includes Singer’s hedge fund Elliott Management Corp., on Friday.
PG&E — which is bankrupt and expected to submit its reorganization plan to a federal judge Monday — has told state lawmakers for months that quick access to bond money is critical to its ability to emerge from Chapter 11 and make wildfire victims whole.
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Stutzman stressed that bankruptcy proceedings will play a significant role in how the two parties might negotiate with each other. Meanwhile, a shareholder group that controls 49% of the utility’s stock dismissed the notion that they would dilute their stake for a new set of investors.
“The company does not need the bondholder money,” Steve Maviglio, a spokesman for Shareholders for Wildfire Victims, said.
But PG&E does need cash from somewhere. The company filed for Chapter 11 protection in January, citing more than $30 billion in potential liability stemming from a series of wildfires in 2017 and 2018.
“PG&E was looking for financing through the state, but they weren’t able to get it and now they have to put together their own financing package,” said Jared Ellias, professor at the University of California College of Law in San Francisco. “Maybe that will involve the bondholders.”
In bankruptcy cases, Ellias said, groups of creditors that are fighting over the company often team up.
PG&E and its shareholders had hoped to win a proposal from Republican Assemblyman Chad Mayes authorizing California to sell $20 billion in bonds to help PG&E cover its liability. Shareholders insisted the cost would not fall on consumers; the bondholder group, meanwhile, teamed up with agricultural and food processing interests to taint the plan’s prospects by calling it a PG&E bailout.
The bond bill, AB 235, triggered a lobbying blitz in Sacramento with PG&E pressuring wildfire victims to support it. Both sides hired financial experts to weigh in on whether it might raise prices for customers. Meanwhile, the Coalition to Stop the PG&E Bailout, which includes the bondholders and Agricultural Energy Consumers Association, spent six figures on newspaper, radio and digital ads.
But on Friday, Mayes announced there wasn’t enough time to vet the proposal, which will now have to wait until January. The delay could trigger additional legislative complications. For the bond to take immediate effect, for example, it would need not just a majority vote but a two-thirds threshold to pass.
PG&E says it remains committed to passing the bonds to ensure that victims of the 2017 and 2018 wildfires are paid quickly.
“We’re pleased to see policymakers acknowledge the merits of this proposal and look forward to lawmakers considering it in January as a balanced approach that prioritizes and protects both wildfire victims and customers,” the utility said in a statement.
PG&E will likely continue pressing for the bond since that money is needed to pay victims, said Robert Rasmussen, professor of bankruptcy law at the University of Southern California Gould School of Law. “If for some reason AB 235 were not to pass, that would force PG&E to go back to the drawing table and it would really complicate the restructuring effort,” he said.
But wildfire victims said they couldn’t back AB 235 because PG&E hasn’t agreed to a figure, or even a range, for making victims whole. For PG&E to emerge from bankruptcy, it needs enough money to pay insurers and wildfire victims, estimates that have ranged from $14 billion to $54 billion.
PG&E released its $18 billion offer Monday. It was higher than a $16 billion cash contribution offered by bondholders to resolve wildfire claims.
“The group that brings the quickest, best agreement for victims and focuses on cultural safety — PG&E needs a complete safety review and we’ve insisted on that in our negotiations — that’s the group we’ll go to support,” said McCallum. PG&E has a history of water contamination, pipeline explosions and electrical fires.
The fight between these factions of Wall Street investors is expected rage on as they bet on California’s continued prosperity through millions of residential and commercial utility bills. Already, PG&E’s rates are among the state’s highest and the utility’s consumers could pay as much as $30 more a month if regulators approve a series of increases.
From the beginning, the bill was about protecting PG&E shareholders by maintaining the maximum value of their investments before the utility filed bankruptcy, said Ellias, the bankruptcy law professor. Any sale of shares to new investors would dilute their control of the company.
The shareholder group is led by Knighthead Capital Management LLC, Redwood Capital Management and Abrams Capital Management. They contend that competing hedge funds holding $10 billion in PG&E bond debt, including Singer’s Elliott Management Corp., have offered fire sale pricing for the company.
“The shareholders have put up $15 billion at a price that is multiples of the value the bonds are willing to pay for the company,” Maviglio said.
The battle for control of PG&E now moves back to bankruptcy court where Judge Dennis Montali will steer the rehabilitation process. Last month, Montali ruled against bondholders by allowing PG&E to retain the exclusive right to craft a reorganization plan.
Meanwhile, local officials are renewing efforts to break away from PG&E by establishing their own municipal utility districts though secession entails complex regulatory hurdles that would span years. The San Francisco Chronicle reports that San Francisco’s leaders have offered $2.5 billion to buy PG&E power lines and related infrastructure in the city and there’s been similar talks in Yolo County, west of Sacramento.
A small Central Valley irrigation district took the lead this week by submitting a formal request in bankruptcy court. The South San Joaquin Irrigation District is offering $116 million for PG&E’s transmission system and its 113-square-mile territory around Manteca, Ripon and Escalon.
PG&E has a long history of fighting such breakaways and argues the utility would be left to serve only hard-to-reach and less-affluent areas. The utility said South San Joaquin’s offer is “significantly below the actual value of the PG&E facilities that SSJID seeks to acquire.”
Dan Morain contributed to this report.
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