By Tom Hals and Steve Gorman
(Reuters) – California Governor Gavin Newsom was expected to decide late on Friday whether a bankruptcy reorganization plan submitted by PG&E Corp (N:), the state’s largest investor-owned utility company, complies with a recently enacted state wildfire law.
The state has until midnight on Friday to inform PG&E if its plan, including a $13.5 billion settlement with victims of wildfires blamed on the company’s power lines, meets criteria established under the statute, known as Assembly Bill 1054, which was enacted in July.
Newsom was expected to make a public statement on the reorganization plan on Friday night, according to a spokesman for the governor, Nathan Click.
The law requires the utility under reorganization to show improved safety in operating its transmission lines, progress toward achieving state clean-energy goals and fair treatment of ratepayers. Otherwise the state might take action on its own to force a restructuring.
If Newsom decides PG&E’s plan falls short, the company would still have until Tuesday to propose changes to meet the state’s demands, a necessary step before it can submit its plan for a vote by creditors and final approval from a bankruptcy judge in San Francisco.
PG&E filed for Chapter 11 bankruptcy protection in January citing projected civil liabilities in excess of $30 billion from blazes in 2017 and 2018 sparked by its equipment, including a wildfire last year that killed 85 people and destroyed the town of Paradise, ranking as California’s deadliest wildfire on record.
In recent months, PG&E resorted to a series of widespread power shut-offs that left hundreds of thousands of its customers without electricity for days during periods of extremely high winds and dry conditions.
But the blackouts enraged consumers, regulators and politicians, including Newsom, who accused PG&E of failing through greed and mismanagement to invest in proper maintenance and upgrades of its power system. PG&E has denied putting profits ahead of public safety while acknowledging it needs to do a better job of protecting the grid from fire hazards.
Newsom had floated the idea of a state takeover of the utility if it failed to satisfy his demands, and has insisted that whatever entity emerges from bankruptcy must be “completely transformed” and more accountable.
The governor’s determination that PG&E’s reorganization plan comply with the new law, AB 1054, was a prerequisite for the utility’s proposed settlement with wildfire victims.
The law creates a wildfire liability fund that investor-owned utilities can access for wildfire claims, provided the utilities contribute toward the fund and make a combined $5 billion investment toward improvement in their electrical grids.
To participate in the fund, PG&E must exit bankruptcy by June 30, putting intense pressure on the utility to resolve its complicated Chapter 11 quickly.
Prior to its $13.5 billion deal with victims, the company recently reached an $11 billion settlement with insurance companies and a $1 billion settlement with local governments.
Bondholders led by Elliott Management opposed the reorganization plan championed by PG&E. However, the $13.5 billion compensation package agreed to by the utility – more generous than expected – makes it much more difficult for bondholders to upend PG&E’s plans.