Bankrupt utility giant PG&E Corp. has removed a requirement that California Governor 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 its 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.
Citigroup Inc. analyst Praful Mehta said in a research note that PG&E’s move to circumvent Newsom is apt to ratchet up tension.
“There were likely more elegant ways to allow for an extension,” Mehta wrote. “What is clear is that tensions are rising in a very public way and that cannot be good for shareholder value of a regulated utility.”
Nonetheless, PG&E’s move makes clear that the utility’s deal with wildfire victims remains intact — and that’s crucial for the judge to approve its bankruptcy plan, said Kit Konolige, an analyst at Bloomberg Intelligence.
“The wildfire victims are the ones who really matter here,” Konolige said. “As long as the wildfire victims are on your side — that’s good for an exit package.”
PG&E shares were up 3.4% at 11:43 a.m. in New York after earlier surging as much as 9.5%. Its bonds fell, with PG&E’s 6.05% senior unsecured notes maturing in 2034 losing 0.25 cents on the dollar to 106.8 cents at 9:35 p.m. in New York, according to Trace data.
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.
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.
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.
–With assistance from Joshua Fineman and Christopher Martin.
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