By Hudson Sangree

The countdown is on for Pacific Gas and Electric’s exit from bankruptcy, which all parties agree needs to happen by the end of June so the utility can participate in a state insurance fund to protect it from future wildfire liabilities, a key to its financial stability.

Lawyers for PG&E and its creditors, together with U.S. Bankruptcy Judge Dennis Montali in San Francisco, are trying to keep things moving toward that goal. Yet significant hurdles remain before PG&E — which the U.S. Energy Information Administration calls the nation’s largest electric utility, with nearly 5.5 million customer accounts — can free itself from legal entanglements and political threats.

The repeated insistence by Gov. Gavin Newsom that PG&E must undergo a fundamental shift in its leadership and safety culture or face a state takeover recently was joined by a legislative proposal that would create a mechanism to seize the company from its shareholders. (See PG&E Tries to Appease Governor with New Plan.)

Another threat has arisen recently from wildfire victims who don’t want the federal and state governments taking nearly $4 billion from a $13.5 billion fire victims’ trust promised by PG&E. The 70,000-plus victims of utility-sparked wildfires in 2015, 2017 and 2018 must ultimately vote on PG&E’s proposed reorganization plan.

And the California Public Utilities Commission, led by Newsom appointee Marybel Batjer, must approve any restructuring plan, including under the auspices of Assembly Bill 1054, the measure that created the wildfire insurance fund last year.

PG&E has to overcome those hurdles and more in the next four-and-a-half months. Here’s a look at this spring’s agenda and possible hurdles.

Fire Victims Object

PG&E filed its proposed disclosure statement Feb. 7, an important step in its Chapter 11 reorganization. The document is intended to lay out in relatively plain language the terms of the utility’s restructuring so that fire victims and others can weigh the plan and eventually vote on it.

In particular, the document describes the creation of the $13.5 billion trust, funded half in cash and half in PG&E common stock. The expectation is that the stock will be liquidated over time to provide money to pay claims.

Some victims don’t like the stock component. They’ve told their lawyers and Montali they worry the stock could decline in value if PG&E experiences financial setbacks after bankruptcy. Some fire victims wrongly believe they will be given stock directly in lieu of a check, the judge and lawyers said at PG&E’s latest bankruptcy hearing on Tuesday.

That’s why the disclosure statement says in bold letters, “No Fire Victim will receive stock of Reorganized PG&E Corp. directly.”

A more serious problem, however, is that federal and state agencies, including the Federal Emergency Management Agency and the California Office of Emergency Services, say they will seek recovery of their wildfire claims, totaling as much as $3.9 billion, from the victims’ trust.

The case’s official Tort Claimants Committee, PG&E and others have objected to that outcome, which could unravel PG&E’s reorganization plan. They say the government agencies must pursue other means of compensation under the law.

Montali tried to reassure fire victims that highly experienced lawyers were addressing the matter.

“They are issues that are being dealt with by principal players,” Montali said at Tuesday’s hearing, in response to objections from one fire victim, Will Abrams, who has appeared in person at the bankruptcy court to voice his criticisms of PG&E’s restructuring plan.

A hearing on the government agency claims is scheduled for Feb. 26, and a hearing on the proposed disclosure statement is planned for March 10.

Montali noted that other individual victims have been writing to him, expressing their concerns.

“Please hold PG&E fully accountable,” Tina Rezler, a survivor of the November 2018 Camp Fire, wrote to the judge earlier this month. “The current amount set aside isn’t enough. Please do not allow FEMA, insurance companies or any other organization to take funds set aside for survivors that the funds are intended for.”

Rezler said she lost her home and dog in the fire, which tore through the town of Paradise in a few hours early on a Thursday morning, killing 86 residents and destroying more than 18,800 homes and businesses.

The other large, deadly fires that PG&E plans to pay victims for are the Butte Fire in September 2015 and the North Bay or wine country fires of October 2017. The latter fires in Napa and Sonoma counties included the Tubbs Fire, which killed 22 residents and burned down a residential neighborhood in Santa Rosa, Calif.

In all, more than 70,000 fire victims have filed claims, attorneys said. Once the court adopts PG&E’s disclosure statement, the victims will have the opportunity to comment and vote on the plan. PG&E has to mail out the disclosure statements and ballots by March 31, and ballots have to be returned to the court by May 15.

“We are weeks away from my being asked to approve a disclosure statement and supporting documents that will be designed to explain to them — every one of them, if they are inclined to read it — what should influence their decision,” Montali told Abrams. “You and all 70,000 fire survivors have the right to vote the plan down if you choose to. That’s the way the system was designed.”

Governor Objects, Too

Another major obstacle to PG&E’s hopes of exiting bankruptcy by June lies with Newsom, who has said on a number of occasions that he will seek a state takeover of PG&E if the utility doesn’t meet his list of demands, such as an entirely new board of directors and a mechanism for the state to quickly assume control of the company if circumstances warrant.

Recently, state Sen. Scott Wiener (D-San Francisco) introduced a bill, SB 917, that would allow a state-created public-benefit corporation to acquire a utility through eminent domain, moving its assets to a proposed new entity called the Northern California Energy Utility District.

The bill doesn’t specifically mention PG&E, but Wiener made clear his intentions at a Feb. 3 news conference, saying his bill would “put an end to the dangerous roller-coaster ride that we have been on with PG&E over the past decade,” the San Francisco Chronicle reported.

Another of the governor’s primary concerns is the tens of billions of dollars in new shares and bonds PG&E would issue to pay for its restructuring plan. Newsom has said an over-leveraged PG&E would be unable to pay for the estimated $40 billion to $50 billion it needs to upgrade and harden its aging infrastructure, the source of catastrophic wildfires and the San Bruno gas pipeline explosion of 2010.

On Tuesday, Newsom’s lawyers told Montali they wanted to question witnesses about PG&E’s plan, which could happen on Feb. 19, Feb. 26 or in sworn depositions, attorneys said.

While Newsom has no authority over Montali, the judge is taking the governor’s objections seriously because Newsom could have significant influence on the proceedings.

The California Public Utilities Commission, whose members the governor appoints, has responsibility for approving PG&E’s Chapter 11 plan under the commission’s order instituting investigation (OII) and under AB 1054. The measure, championed by Newsom and quickly passed in July, would give PG&E access to a $21 billion wildfire insurance fund, paid for equally by ratepayers and the state’s big three investor-owned utilities.

The bill requires PG&E to exit bankruptcy by June 30 to participate in the fund. The utility also must compensate victims of past fires ignited by its equipment and demonstrate that its post-bankruptcy governance structure is acceptable “in light of the utility’s safety history, criminal probation, recent financial condition and other factors deemed relevant by the CPUC.”

PG&E was convicted in 2016 of six felonies related to the San Bruno pipeline explosion.

Without the AB 1054 funds to protect it from future liabilities, PG&E’s financial future could be in jeopardy and its bankruptcy plan could fall to pieces.

The CPUC is scheduled to gather evidence in its PG&E investigation during hearings from Feb. 25 to March 4 at its San Francisco headquarters.