By Hudson Sangree

Pacific Gas and Electric scored major wins Tuesday in its effort to emerge from Chapter 11 bankruptcy with its shareholders still in control of the utility.

In U.S. Bankruptcy Court in San Francisco, Judge Dennis Montali approved PG&E’s $13.5 billion settlement with wildfire victims, despite objections from Gov. Gavin Newsom and lawyers for a group of bondholders trying to seize control of the company.

Montali also approved a controversial $11 billion settlement between PG&E and the subrogation claimants, a coalition of insurance companies and hedge funds that hold claims against the utility for insurance payments to businesses and homeowners.

And PG&E announced it had made a pact with the California Public Utilities Commission’s Safety and Enforcement Division over its role in starting wildfires in its service territory in 2017 and 2018, agreeing to not seek reimbursement from ratepayers for more than $1.6 billion in wildfire-related costs.

“If approved, this would be the largest dollar amount ever imposed by the commission in connection with alleged wildfire-related violations,” lawyers for the parties wrote in a joint motion to the CPUC.

Lawyers argued on Tuesday for six hours before Montali, who weighed the ramifications of the utility’s deal with fire victims and the governor’s harsh criticism of the restructuring support agreement between PG&E and the Tort Claimants Committee (TCC), which represents fire victims.

The judge noted that Newsom — in a court filing Monday and a letter to PG&E CEO Bill Johnson last week — had not objected to the $13.5 billion amount but had said the utility’s amended bankruptcy plan failed to meet the requirements of AB 1054, a law the governor championed last summer.

Newsom told Johnson that he wanted wholesale change in PG&E’s governance as well as provisions to let the state more quickly takeover the utility if needed. (See PG&E Chapter 11 Plan Won’t Do, Governor Tells Judge.)

Cecily Dumas, a lawyer representing the TCC, told Montali she believed the company’s reorganization plan could be amended to meet the requirements of AB 1054 and satisfy Newsom.

“Notwithstanding the fact that the governor is sending nastygrams to PG&E every few days, we have not lost hope that the debtor will be able to improve the plan so that it is AB 1054-compliant and can be confirmed,” Dumas said.

Montali said he wouldn’t overrule the decision by fire victims to back PG&E’s proposal. It was the same reasoning he used to admit the bondholders’ reorganization plan in early October. Fire victims initially backed the bondholder plan because it offered them $13.5 billion. When PG&E met that offer two weeks ago, the TCC switched its allegiance. (See Judge Admits Takeover Plan as PG&E Starts Blackouts.)

Dumas and other lawyers said they think PG&E’s plan has a better chance than the bondholders’ proposal to be quickly confirmed by the court and CPUC, allowing PG&E to exit bankruptcy by June 2020, as AB 1054 requires. If it can meet that deadline, the utility can participate in a $21 billion wildfire recovery fund established by the state.

Lawyers for wildfire victims also switched their stance on PG&E’s $11 billion settlement with the subrogation claimants. After initially opposing the settlement, the victims withdrew their opposition when PG&E agreed to up its offer to them.

Victims weren’t thrilled that their $13.5 billion settlement with PG&E will consist of cash and stock but agreed to accept it as the best deal they were likely to get from the utility. Under the agreement, a trust to pay fire victims will receive shares equal to about 20% of a reorganized PG&E.

“We see this as the most expedient path forward,” Dumas told the judge. “This is by no means a perfect solution.”

The agreement between PG&E and the CPUC was announced Tuesday afternoon as lawyers argued in bankruptcy court. It provides that the utility will spend $1.625 billion on transmission and distribution line inspections and repairs and other wildfire measures without seeking rate recovery.

It also requires PG&E shareholders to spend $50 million on system enhancements and community engagement.

“Today’s filing sets in motion the next steps,” which include review by an administrative law judge and the CPUC, the commission said in a news release.

PG&E declared bankruptcy in January after a series of catastrophic wildfires in 2017 and 2018 saddled it with potentially billions of dollars in liabilities. The blazes included the Camp Fire, the deadliest and most destructive in state history, which killed 86 people in and around the town of Paradise.