Battle for PG&E Hinges on Rival Plans and Uncertain Costs
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SAN FRANCISCO (CN) – Lawyers pushing for a bankruptcy plan that would pay $25.5 billion in wildfire claims and give hedge funds control of Pacific Gas and Electric argued in court Monday that fire victims support a corporate takeover of the embattled utility.
“We’re talking about a felon, a utility that has blown up neighborhoods, burned down towns,” fire victims’ attorney Cecily Dumas said. “So what if there’s a replacement of the board and management of PG&E?”
Dumas was responding to U.S. Bankruptcy Judge Dennis Montali, who asked why tens of thousands of fire victims should wait for a battle between two powerful groups – PG&E shareholders and outside investors – to play out in bankruptcy court before they can get paid.
Montali spent more than three hours hearing arguments Monday on a motion to end PG&E’s exclusive right to propose its own bankruptcy plan. PG&E’s plan would cap wildfire claims at $18.9 billion, including $12 billion in previously reached settlements with insurers and 18 government entities.
“Why do you want to be sitting there waiting to get your victims paid watching a corporate battle that has nothing to do with paying the victims?” Montali asked.
Dumas noted that the $6.9 billion left for fire victims after settlements in PG&E’s plan would dwindle dramatically after that money is used to pay regulatory fines and compensate other government entities, including the California Department of Forestry and Fire Protection and Federal Emergency Management Agency.
The plan proposed by fire victims and bondholders would allocate $13.5 billion for fire claims, nearly twice the amount PG&E is offering.
Supporters of the competing proposal argue that because time is of the essence, PG&E’s plan is too risky to advance without an alternative. The company must exit bankruptcy by June 30, 2020, to access a $21 billion state-established insurance fund for future wildfire claims, which provides financial security going forward.
Representing a group of bondholders including the $38 billion hedge fund Elliot Management, attorney Abid Qureshi said the ongoing process to estimate PG&E’s total wildfire liability poses substantial risks to the company’s future.
If the estimate comes in higher than the cap proposed by PG&E, the company’s plan would fail and it might miss the June 2020 deadline, Qureshi insisted.
“If their plan fails, we don’t have time for another alternative unless your honor terminates exclusivity today,” Qureshi said, adding he could allow both plans to move forward on a parallel track.
Lawyers for PG&E and its shareholders countered that they could find other sources of funding if their liability estimate turns out higher than expected.
“The right answer is not to terminate exclusivity,” PG&E attorney Stephen Karotkin argued. “The right answer is to maintain the status quo.”
Noting that fire victims’ lawyers have dramatically decreased their demands from an initial $40 billion, Karotkin said Montali should order the parties into mediation. He indicated a compromise could be reached between the $6.9 billion PG&E has offered and the $13.5 billion fire victims now propose.
Dumas said fire victims will not voluntarily submit to mediation unless PG&E’s exclusive right to propose its own bankruptcy plan is terminated.
Fire victims’ attorney Frank Pitre said changing who controls PG&E is also imperative to his clients.
“I think the most important thing is corporate governance,” Pitre said. “We want to prevent the next fire. We want to prevent the next calamity.”
Montali said he will try to issue a “quick decision” on the exclusivity motion.
Also on Monday, U.S. District Judge James Donato set guidelines in a separate hearing for estimating PG&E’s total wildfire liability.
Donato said he would approach the estimation process like a settlement, looking at the probability PG&E might lose or prevail at trial.
Fire victims’ attorney Robert Julian said he intends to provide emails that show PG&E knew of deadly risks associated with its aging equipment that sparked the Camp Fire, which killed 85 people and destroyed more than 18,000 buildings.
PG&E said it has evidence that in some cases, branches from healthy trees leaning away from power lines were propelled into lines during windstorms, causing fires for which PG&E was not negligent.
However, the judge rejected PG&E’s request for an in-depth examination into the cause of each fire.
“To go through the long and arduous task of going through what caused each fire, that’s not an efficient way,” Donato said.
The judge said he wants to hear from witnesses, including fire victims, PG&E representatives and damages experts, during a two-to-three-week trial he set to begin Feb. 18, 2020.
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