PG&E Corp. is floating a plan in the California Legislature to repay victims of the 2017 and 2018 wildfires by having the state issue billions of dollars in new bonds. The bankrupt utility’s shareholders would repay the bond out of future profits, a source familiar with PG&E’s plan said Tuesday.
The plan is designed to augment the insurance plan proposed by Gov. Gavin Newsom, which is meant to raise funds for victims of future wildfires caused by equipment owned by PG&E and the California’s other major utilities. Newsom’s plan, AB 1054, leaves it up to PG&E to find a way to pay for the billions of dollars it owes victims of the 2017 wine country fires and November’s Camp Fire.
Under the PG&E plan, the state would issue tax exempt notes called “equity contribution bonds,” according to the source, who was not authorized to speak publicly about the matter.
Customer rates wouldn’t go up, and the plan “works for victims by getting them paid quickly,” said the source.
The source said PG&E still hasn’t determined how much money it would need to raise. When it filed for Chapter 11 bankruptcy in January, PG&E estimated its wildfire liabilities at $30 billion. Bloomberg reported that PG&E is considering raising $14 billion to pay those claims — a figure that lobbyists for wildfire victims called inadequate.
“We’re opposing this plan until we see that they’re serious about making victims whole,” said Patrick McCallum, a Sacramento lobbyist who lost his home in the 2017 Tubbs Fire in Santa Rosa and leads an organization called Up from the Ashes. “We’re told PG&E that, and we’ve also briefed the governor’s office.”
Aides to Newsom weren’t immediately available for comment.
Republican Assemblyman James Gallagher, whose district includes the Camp Fire burn zone, said he’s focused on getting money for fire victims and needs to see details of PG&E’s proposal.
“I still would like to see a plan from PG&E as to how they intend to do this and address outstanding recovery and safety issues,” he said in a text message. Gallagher added that he’s still not committed to voting for the governor’s plan.
PG&E is circulating its plan in part to counter a rival proposal unveiled June 25 by PG&E’s major bondholders. Under that plan, filed in U.S. Bankruptcy Court, the bondholders would inject up to $30 billion in new money into PG&E to repay existing wildfire victims and other creditors. Victims of the 2017 and 2018 fires would get up to $18 billion.
A source familiar with the bondholders’ plan disputed PG&E’s contention that its plan wouldn’t lead to higher rates. This source, who wasn’t authorized to speak publicly for bondholders, said the billions in new debt would weaken the company and ultimately lead to higher borrowing costs that would translate into rate increases.
It would also give these bondholders a significant ownership stake in the company – a development that PG&E opposes because it would reduce the value of stock owned by existing shareholders. PG&E’s own plan, according to the source familiar with the utility’s proposal, “protects existing equity holders like the state pension funds, the retirees.”
Shortly after PG&E filed for bankruptcy, CalPERS said it owned about 1.8 million shares of PG&E stock. CalSTRS, the teachers’ pension fund, said it owned about 960,000 shares.
PG&E shares closed Tuesday at $22.40, down 95 cents, on the New York Stock Exchange.
Newsom has said he wants the Legislature to pass AB 1054 by July 12, when the main legislative session ends.
His plan focuses on the creation of a $21 billion insurance fund, largely financed by ratepayers and shareholders of PG&E, Southern California Edison and San Diego Gas & Electric, to pay future wildfire claims. Ratepayers would contribute through a $2.50-a-month bill they’ve been paying since the 2001 energy crisis – a bill that was scheduled to disappear next year.
Utilities could tap the fund to pay new claims quickly if their equipment caused a big fire. They’d only have to reimburse it if the Public Utilities Commission declares that they’d operated the equipment recklessly. Also, their reimbursement would be capped at 20 percent of their rate base, the value of all their equipment.
The legislation gives the utilities another big boost: greater certainty about the ability to charge ratepayers for wildfire liabilities. Currently, they have to prove that they acted “prudently” in order to bill customers. Under AB 1054, they’d be considered prudent unless proven otherwise.