Pacific Gas & Electric, a giant California dealership, said Wednesday it had resolved differences with its creditors on how to restructure the company, removing one of the last major obstacles to its exit from bankruptcy.
However, even before the announcement, Governor Gavin Newsom declared that the plan was insufficient. He said he did very little to ensure "safe, reliable and affordable energy for Californians" after the series of forest fires attributed to the company's equipment.
The company's billions of dollars in debt from these fires prompted it to seek bankruptcy protection a year ago. The governor's approval of its reorganization plan is essential for PG&E to participate in a $ 20 billion fund designed to help protect state utilities from claims for future fire damage.
Newsom's objections were filed with the federal bankruptcy court hearing the case in San Francisco. The terms of the PG&E agreement with the bondholders should have been considered at a hearing on Thursday, but the judge postponed the matter until next week.
As of Wednesday, PG&E and its bondholders had competing plans to resolve the company's finances.
The plan offered by bondholders – including Elliott Management, a large hedge fund, and Pimco, the mutual fund giant – initially won support from the group representing the victims of bankrupt fires. The plan would, in theory, have left PG&E in a stronger financial position when it emerged from bankruptcy. But it would also have almost completely wiped out current shareholders, dominated by hedge funds.
When the victims changed their support for the PG&E plan, bondholders lost much of their influence on the outcome of the bankruptcy.
The deal reached on Wednesday resolves the interest payments that bondholders will receive in the period after PG&E files for bankruptcy protection. The two sides also agreed on the size of the "do it all" payments, or on the extra amounts given to bondholders when the bonds are paid off before maturity.
"Reaching a resolution with the bondholder group is a positive development to move forward with our reorganization plan," said Bill Johnson, president and chief executive officer of PG&E Corporation. "This contract helps achieve our goals of compensating victims of forest fires, protecting customers' accounts and emerging from Chapter 11."
Along with security and corporate governance concerns, Newsom objected to the financial aspects of PG&E's plan, saying it would leave the company "with insufficient financial flexibility to make billions of dollars in necessary security investments."
But the decision by bondholders to support the plan isolates Newsom, who must now decide how hard it is to push for his goals. He could use provisions in a state law passed last year to deny PG&E access to the forest fire fund, a move that could cause the company's stock to fall, putting pressure on hedge funds. This approach can also drag bankruptcy and delay payments to fire victims.
In a statement, the company said it was taking the governor's concerns seriously. “While PG&E has made substantial progress in resolving victim complaints and restructuring our finances, additional changes to the plan are in the pipeline. We will continue to engage with the governor's office to resolve your concerns, "said the company.
Title holders played a large role in securing a larger sum for victims. PG&E initially offered $ 8.4 billion, but then raised the amount to $ 13.5 billion, the sum that bondholders offered to pay.
Fire victims remain skeptical. They plan a protest in Sacramento on Friday morning as opposed to the profits that shareholders could make from the bankruptcy deal and plan to finance part of the company's damage payments with shares.
"Investor groups have hijacked the bankruptcy process to ensure that they reap billions in profits, while individual fire victims are paid pennies, paid in installments and have their recoveries financed in large part by restructured PG&E stocks," said Helen Sedwick, a lawyer who lost her home in Santa Rosa due to the 2017 forest fires. "Fire victims do not want to own any part of the company that burned their houses and killed their neighbors."
The company's role in the past three years of forest fires – along with the preventive blackouts that PG&E imposed last year when the danger of forest fire was at its highest level – have prompted residents and local government officials to request the acquisition of the company, with some proposing a government-run operation, and others looking to create a customer-owned cooperative.
Newsom said it would consider all options if PG&E did not pay enough money to meet the claims of fire victims and ensure that employees' jobs were protected. He also called for a safety plan that would help prevent future forest fires and a strategy that would continue to meet the state's goals of turning the power grid into a carbon-free system.