PG&E Corp. put $16.9 billion on the table to pay wildfire claims Monday as it offered its formal reorganization plan in U.S. Bankruptcy Court.
The court filing by the troubled utility represents the first formal step in what could be a protracted tug-of-war between wildfire victims, insurance companies and other creditors over the future of PG&E. The plan needs approval from creditors, the bankruptcy judge and the state Public Utilities Commission.
It’s far from certain that the wildfire victims and insurers will accept PG&E’s offer. Mike Danko, a Bay Area lawyer who represents fire victims, called the offer “just woefully inadequate.”
PG&E faces challenges elsewhere. A group of hedge funds are owed billions of dollars by PG&E are mounting a hostile takeover plan to seize control of the company.
The company, though, considers its plan credible. “It’s a framework for compensating wildfire victims and other stakeholders,” said Chief Financial Officer Jason Wells in an interview.
The proposal “is rate-neutral for customers,” he added, and is designed to lift PG&E out of bankruptcy by next June 30. That’s the deadline set by the Legislature to make PG&E eligible to participate in an insurance fund to pay claims for future wildfires.
But it’s the existing wildfire liabilities that loom as PG&E’s biggest hurdle to getting out of bankruptcy.
PG&E filed its reorganization plan just days after the Legislature postponed, at least until January, action on a bill that would have given PG&E access to low-interest, tax-free state bonds to raise money for wildfire claims. The bill, AB 235, would have given PG&E a big advantage over the hedge funds trying to take the company over.
Despite that defeat, the company has alternative funding sources. In court papers filed Monday, the company said its major shareholders — a separate group of hedge funds that control about half of PG&E’s stock — are prepared to inject up to $14 billion into the company.
In addition, the company said it is confident it can borrow up to $25 billion through private sources, and supplied the court with letters from major investment banks Barclays Capital and Citigroup saying they can line up the financing.
Over the weekend, PG&E rebuffed an offer by its hometown, the city of San Francisco, to buy PG&E’s electrical operations in the city for $2.5 billion. However, the utility said it’s willing to discuss the issue with the city.
PG&E said its reorganization plan pays all other debts in full and honors the billions of dollars in contracts the company has signed with providers of solar, wind and other forms of renewable energy. The commitment to renewable power is crucial because California officials have insisted PG&E stick with clean energy, and the company had gone to court to get legal authority to sever some of those contracts.
Still, the big unknown is how wildfire creditors will view the PG&E plan. PG&E filed for bankruptcy in January because it said it couldn’t pay an estimated $30 billion in claims from the 2017 wine-country fires and last November’s Camp Fire. The November fire destroyed most of Paradise and killed 86 people, more than any other wildfire in California history.
Lawyers for fire victims have said in court papers that the claims could be worth as much as $54 billion — or roughly three times what PG&E has offered.
Steve Campora, a Sacramento lawyer for fire victims, called the offer “a joke” and added: “You’re sitting in your home, they burn you up ... and then try to cheat you on the other end.”
Yet Jared Ellias, a bankruptcy expert at the UC Hastings College of Law in San Francisco, said PG&E has spent months in settlement talks and the utility’s offer “is probably something that isn’t clearly unreasonable.”
In its plan, PG&E said it will create two trust funds. One, capped at $8.4 billion, will go for wildfire victims whose insurance policies didn’t cover all their losses. The second, capped at $8.5 billion, will reimburse insurance companies for the payouts they’ve made to fire victims.
The bankruptcy court hasn’t yet begun the process of sorting out total wildfire liabilities, and Wells said the PG&E reorganization plan could be amended “as additional details are confirmed.”
In addition to the $16.9 billion offered Monday, the company remains committed to paying a $1 billion settlement, previously negotiated, to local governments affected by prior wildfires.