PG&E Takes California Governor out of $13.5B Wildfire Deal

Bankrupt utility giant PG&E Corp. has removed a requirement that California Gov. Gavin Newsom sign off on its settlement with wildfire victims, trying to buy more time for its restructuring plan.

PG&E reached an agreement Monday with representatives of the victims of fires ignited by its equipment to eliminate the provision after Newsom said Friday that the power company’s proposed reorganization plan doesn’t comply with state law.

San Francisco-based PG&E announced the decision one day before it was required by the $13.5 billion fire victims deal to respond to Newsom’s rejection and address his concerns. The governor had described the utility’s restructuring plan as falling “woefully short” and called for an entirely new board and a better financing structure, among other things. Newsom’s office didn’t return a request for comment late Monday.

Killing the clause buys PG&E more time to shape a restructuring plan around the settlement with wildfire victims, which has emerged as the main obstacle to its exit from the biggest utility bankruptcy in U.S. history. The settlement is scheduled for a hearing on Tuesday in bankruptcy court.

PG&E filed for Chapter 11 in January after its equipment was blamed for a series of catastrophic fires in 2017 and 2018, burying it in $30 billion in liabilities. Its shares, which fell 14% yesterday on the governor’s rejection, climbed 6.4% in pre-market trading.

The governor’s decision opened a path for a competing restructuring plan backed by Pacific Investment Management Co. and Elliott Management Corp., although the governor has said he also has issues with that proposal.

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Regardless of the new agreement with victims, PG&E’s restructuring plan will still come back to Newsom. Even if the governor’s sign off is no longer required for the wildfire settlement, his office will still have a chance to weigh in on PG&E’s bankruptcy court case and any reorganization proposal will still need the blessing of the state’s public utilities commission, whose members are appointed by the governor.

PG&E has been trying to balance Newsom’s interests with those of its shareholders, creditors and other stakeholders.

On Monday, Newsom’s office detailed its objections to the company’s overall bankruptcy proposal in court papers and raised issue with a provision of the wildfire settlement that would prohibit fire victims from supporting alternative restructuring plans.

PG&E said in its statement late Monday it has been engaged in “constructive dialogue” with Newsom to address his concerns and expects those talks to continue, and that it expects its plan to comply with state requirements.

Meanwhile, PG&E bond holders led by Pacific Investment Management Co. and Elliott Management Corp. have been lobbying Newsom on an alternative plan, which they say would comply with the governor’s requirements and leave PG&E on sounder financial footing. However, Newsom said in the court papers Monday that the note holders plan also fails to comply with state law.

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