By Hudson Sangree

California Gov. Gavin Newsom filed court papers Monday saying he objects to the Chapter 11 reorganization plan that Pacific Gas and Electric submitted last week, including the utility’s proposed $13.5 billion settlement with fire victims.

The agreement would prohibit fire victims from supporting any other bankruptcy plan except for PG&E’s, “even one that provides identical treatment of the fire victims’ claims,” Newsom’s lawyers wrote in a motion filed with U.S. Bankruptcy Court Judge Dennis Montali in San Francisco.

“Progress toward fair treatment of victims is good … [but] that type of ‘progress’ is more about creating an illusion of momentum than it is about advancing the Chapter 11 cases,” Newsom’s attorneys said.

The motion included a copy of a letter Newsom sent Friday to PG&E CEO Bill Johnson, in which the governor said the utility’s reorganization proposal failed to meet the requirements of Assembly Bill 1054, a measure Newsom pushed through the State Legislature in July. The bill created a $21 billion wildfire recovery fund for the state’s investor-owned utilities, provided that the IOUs meet certain conditions meant to protect the public from utility-sparked wildfires. (See Calif. Lawmakers Rush to Pass Utility Wildfire Aid.)

“In my judgment, the amended plan and the restructuring transactions do not result in a reorganized company positioned to provide safe, reliable and affordable service to its customers, as required by AB 1054,” the governor wrote to Johnson.

PG&E’s proposed reorganization plan, filed Thursday, would create a trust for wildfire victims funded by $13.5 billion in cash and stock — the same as a competing plan filed by the utility’s bondholders earlier this year as part of their takeover bid. (See PG&E Reaches $13.5B Deal with Wildfire Victims.)

But PG&E’s plan to exit bankruptcy fails to enact the “fundamental change” Newsom called for after a series of massive blackouts this fall, the governor said in his letter.

PG&E’s bankruptcy “punctuate[s] more than two decades of mismanagement, misconduct and failed efforts to improve its safety culture,” Newsom wrote. He cited the San Bruno gas pipeline explosion that killed eight people in September 2010 and a series of catastrophic wildfires, including the Camp Fire, which killed 86 people and destroyed the town of Paradise in November 2018.

The utility’s decision to shut off power to millions of residents this fall to prevent wildfires “did not restore public confidence,” Newsom said. (See California PUC Orders Investigation of Power Shutoffs.)

“For too long, PG&E has mismanaged, failed to make adequate investments in fire safety and fire prevention, and neglected critical infrastructure. PG&E has simply violated the public trust,” Newsom wrote. “It is against this backdrop that compliance with AB 1054 must be measured.”

Newsom told Johnson he believes a “transformed” PG&E should have a board of directors with a majority of Californians and more members with extensive safety experience.

“To facilitate transformation, the board that will lead the reorganized company should be acceptable to me and approved by the [California Public Utilities Commission] and identified in the amended plan,” the governor wrote. “I do not expect that the post-confirmation board of directors will include the current directors.”

Those current directors, many from out of state, include Chair Nora Mead Brownell, a former FERC commissioner. She moved to California to assume her role, as did Johnson, the former head of the Tennessee Valley Authority.

Newsom also called for “strict, clearly defined operational and safety metrics to which the reorganized company will be held accountable” and an “escalating enforcement process that provides for greater oversight of the reorganized company.”

The governor repeated his threat of a public takeover should PG&E fall short of state expectations.

“Because of this company’s history, the license to operate should be conditioned on it agreeing to this process,” Newsom said. “This should also include a streamlined process for transferring the license and the operating assets to the state or a third party when circumstances warrant.”

Newsom also said he thinks PG&E’s plan puts the company and public in peril because it relies so heavily on borrowing that a reorganized utility may be unable to access the billions of dollars in capital it needs to make safety upgrades.

PG&E and Wall Street Respond

PG&E was expected to move forward with its Chapter 11 plan at a hearing tomorrow in U.S. Bankruptcy Court in San Francisco, but Newsom’s criticism casts uncertainty on the proceedings. The utility’s plan relies on having access to AB 1054’s wildfire fund, which will be difficult without the governor’s blessing.

AB 1054 requires that the CPUC, headed by Newsom appointee Marybel Batjer, approve PG&E’s bankruptcy plan — and the resulting governance structure — before it can take effect.

PG&E has said it hoped the court would confirm its reorganization plan by January to give the CPUC time to approve it. Under AB 1054, the utility must emerge from bankruptcy by June 30, 2020, to have access to the wildfire fund.

In response to Newsom’s letter, PG&E issued a statement saying, “We believe our restructuring plan meets the requirements of Assembly Bill 1054 and is the best course forward for all stakeholders. We’ve welcomed feedback from all stakeholders throughout these proceedings and will continue to work diligently in the coming days to resolve any issues.

“Looking ahead, we are committed to getting victims paid, continuing to implement changes across our business to improve our operations for the long term and emerging from Chapter 11 as a financially sound utility. In the meantime, we remain focused on delivering safe electric and gas service to 16 million people in Northern and Central California and working hard every day to reduce the ever-growing threat of catastrophic wildfires.”

Newsom’s letter to Johnson was made public over the weekend and caused PG&E’s stock price to tumble Monday morning.

The company’s stock had risen to a recent high of $12.32/share on Dec. 10 on news of PG&E’s $13.5 billion settlement with wildfire victims. News of the governor’s letter pushed down PG&E stock to $8.84/share at the start of trading Monday, though it recovered somewhat during the day’s trading and closed at $9.67/share.

PG&E’s stock sunk to a 2019 low of $3.80/share on Oct. 28 after the blackouts. In September 2017, its stock price had reached a 40-year high of nearly $70/share.

That was just prior to the catastrophic fires of October 2017 that wreaked havoc on Northern California’s famed wine country and started the series of disasters that led to the utility filing for bankruptcy in January, citing more than $30 billion in wildfire liabilities.