California Regulator Sets Terms for PG&E to Exit Bankruptcy

California regulators have proposed conditions for Pacific Gas & Electric to win state approval to exit bankruptcy and access a state wildfire insurance fund seen as critical for its future financial stability. Among those demands: PG&E must subject itself to enhanced oversight over safety improvements, or face possible state takeover if it fails to prevent future deadly wildfires. 

Monday’s proposed decision from the California Public Utilities Commission sets the terms for one of the last hurdles for PG&E to clear as it seeks to emerge from its Jan. 2019 bankruptcy, brought about by billions of dollars in damages from wildfires caused by its equipment in 2017 and 2018. The CPUC has the authority to deny a PG&E bankruptcy reorganization plan that fails to protect the public interest. 

PG&E must exit bankruptcy by June 30 to gain access to a $21 billion state wildfire insurance fund to protect it and other California utilities from future wildfire-driven bankruptcies. A federal bankruptcy judge must still approve PG&E's own bankruptcy exit plan, and the utility must line up financing for its deal by the end of September to gain state approval. 

The CPUC’s plan closely matches demands from California Gov. Gavin Newsom, who last month agreed to a compromise that will see PG&E reduce its reliance on newly raised debt, replace half of its board of directors with California residents selected by an independent recruiting firm under state oversight, undergo a regional restructuring that will prioritize safety and accountability to its customers, and forego paying dividends to shareholders for three years, a move expected to save about $4 billion to strengthen its balance sheet. 

The proposed decision from CPUC Administrative Law Judge Peter Allen will be up for a vote by the full commission on May 21. It includes an “enhanced oversight and enforcement process if [PG&E] fails to improve safety.” That’s a key concern for state lawmakers and a public outraged over PG&E’s failure to prevent its equipment from causing deadly wildfires including the Nov. 2018 Camp Fire, for which it pleaded guilty to 84 counts of involuntary manslaughter last month, as well as its criminal convictions related to the 2010 San Bruno gas pipeline explosion.

PG&E has also been criticized for its massive fire-prevention blackouts last year that left millions of people without power for hours or days at a time. 

Big consequences for future failures

This proposed enhanced oversight would include steps that could allow California's regulators to punish PG&E for safety failures by demanding immediate remedial action, increasing CPUC oversight of PG&E’s activities or placing it under state receivership. As a final step, the CPUC could revoke PG&E's certification to operate as a utility in the state. 

This step could satisfy demands from some state lawmakers and city and county officials to take the more drastic step of converting PG&E to a publicly owned utility, a move they say could allow the public to ensure the utility doesn’t continue to shirk investments in safety and maintaining its aging infrastructure, such as the transmission line that failed and started the Camp Fire. 

Newsom reached a compromise with PG&E on these demands last month, as the coronavirus pandemic and resulting economic disruption threatened to undermine PG&E’s share price and weaken the finances of its plan to pay out wildfire victims. Still, he described the deal as “the end of business as usual for PG&E,” with “real accountability tools to ensure safety and reliability.”

PG&E Corp., the utility’s holding company, intends to raise $9 billion in new equity and $6.75 billion in equity to fund a trust fund for payments to wildfire victims, as well as issue $4.75 billion in debt -- a figure it dropped from $7 billion after negotiations with Gov. Newsom. The utility PG&E plans to raise $23.8 billion in new debt and reissue $9.6 billion in debt as part of its negotiated settlement with creditors who had offered a competing bankruptcy plan last year. 

PG&E last month won bankruptcy court approval for its plan, which includes $11 billion in debt commitments and $9 billion in new equity, along with $3 billion to be raised by issuing new shares. It has also concluded settlements to pay out $13.5 billion to wildfire victims, and an additional $12 billion to wildfire victims, insurers and county and local governments damaged by the fires caused by its equipment. 

PG&E spokesman Paul Doherty said the utility views the CPUC’s proposed decision as “another positive step as we continue to work diligently to emerge from Chapter 11 and get wildfire victims paid fairly and quickly. While we will need time to fully review all the modifications and changes in the proposed decision, this approval, along with that of the Governor’s Office, keeps PG&E on track to have our Plan of Reorganization confirmed before June 30, 2020.”