PG&E Corp. made an $11 billion settlement Friday to reimburse insurance companies for claims paid following the 2017 and 2018 wildfires — but angered representatives for thousands of fire victims who are still waiting for checks.
The deal is designed to smooth PG&E’s exit from bankruptcy as the utility struggles with the financial fallout from the 2017 wine-country fires and last November’s Camp Fire.
However, the agreement appears to take money off the table for thousands of individual homeowners, business owners and others who were uninsured or under-insured, and are still owed billions.
Here’s why: The $11 billion settlement is $2.5 billion more than what PG&E offered the insurance carriers Monday, when it outlined a proposal to pay insurers $8.5 billion and individual victims $8.4 billion, for a total of $16.9 billion. Yet in a Securities and Exchange Commission filing Friday, the company said it was raising the combined payout to all claimants by just $1 billion, not $2.5 billion.
That suggests the company is scaling back its offer to the individual victims by $1.5 billion, said Patrick McCallum, a wine country fire victim and head of the lobbying group Up from the Ashes.
“They’re clearly trying to squeeze victims,” McCallum said. McCallum said his group could align itself with another major group involved in the PG&E drama: a group of hedge funds that control billions of dollars in PG&E bonds and are trying to seize control of the company in a hostile takeover.
“They’re not home free,” McCallum said of PG&E.
PG&E, however, insists it isn’t lowering its offer to fire victims; it could end up increasing the ante to them as well.
“I don’t think it’s fair to say that we’re taking from one pot to give to another,” said utility spokesman James Noonan. “The pot could change.”
Bill Johnson, PG&E’s chief executive, said in a prepared statement that the company is working “to resolve the remaining claims of those who’ve suffered.” The company also reaffirmed its commitment to paying an additional $1 billion to satisfy a previously-announced settlement with local governments affected by the wildfires.
PG&E on Friday said it is amending its reorganization plan and is working with financial backers to get additional funding for the insurers; it already has commitments of more than $14 billion from investors to settle all claims.
Jared Ellias, a bankruptcy-law expert, said it was “nonsensical” for PG&E to make it look like it was reducing its offer to fire victims. Lawyers might realize the company could offer more money eventually, but most victims will be angered. “If you’re sitting in one of those trailers people are living in, you might get upset,” he said.
In any event, investors welcomed the settlement as a step toward a successful close to the bankruptcy case. PG&E’s stock price shot up $1.08 a share, to close at $11.18, on the New York Stock Exchange. Shareholders had soured on PG&E’s stock in recent weeks; the company experienced a setback last week when state lawmakers deferred until January action on PG&E’s request for state-backed low-interest financing to help it pay wildfire claims.
Insurance companies holding about 85 percent of all insurance claims have agreed to the settlement announced Friday. The deal pays them a little more than 50 cents on the dollar.
The bloc of insurance companies, in a prepared statement, said: “While this proposed settlement does not fully satisfy the approximately $20 billion in group members’ unsecured claims, we hope that this compromise will pave the way for a plan of reorganization that allows PG&E to fairly compensate all victims and emerge from Chapter 11 by the June 2020 legislative deadline.”
Cal Fire blamed PG&E for most of the 2017 wine country fires and the Camp Fire. The Camp Fire, the deadliest in California history, destroyed more than 10,000 homes in Paradise and surrounding communities.
PG&E is scrambling to secure approval for its bankruptcy reorganization plan. Under a deadline set by the Legislature, it must have a deal to exit bankruptcy by June 30 to be eligible to participate in a wildfire insurance fund established by the state earlier this year. The fund will pay claim and limit liabilities for the major California utilities for damages resulting from future wildfires.
The company is also trying to fend off a hostile takeover attempt by a group of hedge funds that hold PG&E bonds and are owed billions of dollars. The bondholders have proposed a rival plan in which they’d pay wildfire claims and take control of as much as 95 percent of PG&E’s stock at a steep discount.
PG&E’s reorganization plan would repay the bondholder hedge funds in full. Because of that, PG&E considers those debts “unimpaired” and ordinarily the bondholders wouldn’t have the right to challenge the reorganization plan.
However, the bondholders probably will fight the plan, on the grounds that PG&E must repay the debt with a higher interest rate than the company is offering, Ellias said. As a result, the bondholders could inject themselves into the court fight over PG&E’s proposal, said Ellias, a professor at the UC Hastings College of Law in San Francisco.
A spokesman for the bondholders’ group had no comment.
Insurers’ losses on wildfires have created a crisis in the Sierra foothills and other fire-prone regions.
Insurance companies have spent about $24 billion paying wildfire claims in California the past two years, prompting them to impose stiff rate increases and pull out of some of the state’s most fire-prone regions. Insurers dropped more than 340,000 rural homeowners in four years, according to figures recently by the Department of Insurance.