California governor rejects PG&E bankruptcy reorganization plan
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[December 14, 2019]
By Tom Hals and Steve Gorman
(Reuters) - California Governor Gavin
Newsom on Friday rejected a bankruptcy reorganization plan submitted by
PG&E Corp <PCG.N>, the state's largest investor-owned utility, saying
its proposal fails to meet the requirements of a recently enacted
wildfire law.
The decision by Newsom, sent to PG&E in a letter, complicates the
company's push to exit bankruptcy and provide billions of dollars to
victims of devastating wildfires in 2017 and 2018 sparked by the
utility's power lines.
The embattled utility now has until Tuesday to further amend its plan to
Newsom's satisfaction, but his criticism of the reorganization package
as it was presented by PG&E a day earlier was sweeping.
Newsom said the plan lacks "major changes in governance" and tougher
safety enforcement mechanisms mandated under the state wildfire statute,
known as Assembly Bill 1054, which was enacted in July.
The governor also said PG&E's plan, including a proposed $13.5 billion
settlement with victims of wildfires blamed on its power lines, would
leave the company with a weakened capital structure and "limited ability
to withstand future financial and operational headwinds."
"In my judgment, the amended plan and the restructuring transactions do
not result in a reorganized company positioned to provide safe, reliable
and affordable service to its customers, as required by AB 1054," Newsom
wrote.
PG&E, in a statement after release of the governor's letter, disputed
Newsom's findings that its reorganization plan fails to live up to the
criteria of the wildfire law.
"We believe it does and is the best course forward for all
stakeholders," the company said. "We've welcomed feedback from all
stakeholders throughout these proceedings and will continue to work
diligently in the coming days to resolve any issues that may arise."
State approval of reorganization plan is a necessary step before PG&E
can submit the proposal for a vote by creditors and final approval from
a bankruptcy judge in San Francisco.
PG&E filed for Chapter 11 bankruptcy protection in January citing
projected civil liabilities in excess of $30 billion from wind-driven
blazes in 2017 and 2018 sparked by its equipment. Those included a
wildfire last year that killed 85 people and destroyed the town of
Paradise, ranking as California's deadliest wildfire on record.
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California governor Gavin Newsom speaks at a news conference in San
Diego, California, U.S. October 9, 2019. REUTERS/ Mike Blake
BLACKOUTS FOR SAFETY
In recent months, PG&E resorted to widespread power shut-offs that
left hundreds of thousands of its customers without electricity for
days at a time during periods of extremely high winds and dry
conditions.
But the blackouts enraged consumers, regulators and politicians,
including Newsom, who accused PG&E of failing through greed and
mismanagement to invest in proper maintenance and upgrades of its
power system over the years.
PG&E has denied putting profits ahead of public safety but
acknowledged it needed to do a better job of protecting the grid
from fire hazards.
Newsom had floated the idea of a state takeover of the utility if it
failed to satisfy his demands, and has insisted that whatever entity
emerges from bankruptcy must be "completely transformed" and more
accountable.
The governor's finding that PG&E's reorganization plan must comply
with the new law, AB 1054, is a prerequisite for the utility's
proposed civil settlement with wildfire victims.
The law creates a wildfire liability fund that investor-owned
utilities can access for wildfire claims, provided the utilities
contribute toward the fund and make a combined $5 billion, five-year
investment toward improvement in their electrical grids.
To participate in the fund, PG&E must exit bankruptcy by June 30,
putting intense pressure on the utility to resolve its complicated
Chapter 11 quickly.
Prior to its $13.5 billion deal with victims, the company recently
reached an $11 billion settlement with insurance companies and a $1
billion settlement with local governments for fire losses.
Bondholders led by Elliott Management opposed the reorganization
plan championed by PG&E. However, the $13.5 billion compensation
package agreed to by the utility - more generous than expected -
makes it much more difficult for bondholders to upend PG&E's plans.
(Reporting by Tom Hals in Wilmington, Delaware, and Steve Gorman in
Culver City, Calif.; Editing by David Gregorio, Bill Tarrant and
Sandra Maler)
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