Pacific Gas and Electric’s chief financial officer took to the virtual stand in bankruptcy court Thursday to face questions about the “feasibility” and “fairness” of the utility’s reorganization plan for the thousands of victims of wildfires sparked by its equipment.

The second day of the confirmation hearing for the plan once again played out over a Zoom conference call and not in the U.S. Bankruptcy Court in San Francisco, where the utility filed for Chapter 11 in January 2019.

After fire victims last week voted in favor of a PG&E reorganization plan that will leave those victims with a $13.5 billion trust half-funded by utility stock, Thursday’s hearing provided dissenters a final chance to sway the judge against approving that outcome. (See Trial Begins to End PG&E Bankruptcy.)

Tom Tosdal, an attorney representing about 1,000 victims of the 2018 Camp Fire, pressed CFO Jason Wells on the soundness — and justness — of the trust.

Of the nearly 40 classes of claimants in the bankruptcy proceeding, Tosdal noted, only the fire victims were being compensated with stock whose value is tied to PG&E’s future performance — a risk in the face of ongoing wildfire threats that could bring more claims against the utility in the future.

Tosdal said the fire victims were being treated worse than subrogation claimants poised to receive full cash settlements. He said the subrogation class itself consisted of two “types”: insurers that have paid out claims to their customers and PG&E shareholders that purchased subrogation claims against the company before it entered bankruptcy.

Tosdal cited the hedge fund Baupost, a PG&E investor that starting in November 2018 bought $6 billion in claims against the utility for 30 to 35 cents on the dollar — prompting an objection from PG&E attorney Theodore Tsekerides.

“I don’t think that’s relevant to any of the discussions of the classification issue — who holds those claims. They are what they are,” Tsekerides said.

“It goes to fairness, your honor,” Tosdal said. U.S. Bankruptcy Judge Dennis Montali allowed Tosdal to proceed.

Tosdal asked Wells if Baupost owned many shares of PG&E common stock.

“They do,” Wells replied.

“And do you understand that Baupost bought those subrogation claims at a discount, meaning less than 100% on the dollar?” Tosdal asked.

“I do,” Wells said.

But Wells demurred when Tosdal then asked if he knew that PG&E investors paid a “substantial discount” in their purchase of company subrogation claims.

“So, when this bankruptcy ends, and the subro class is paid $11 billion cash, those PG&E investors, who purchased subro claims against their own company at a substantial discount, stand to make a big profit, correct?” Tosdal continued.

Tsekerides again objected, saying the issue of the discount is “completely irrelevant” to the issue of confirming the bankruptcy plan. Such claims are traded “all the time” in Chapter 11 cases, he said.

Montali turned to Tosdal: “Why is it helpful for to me to make a determination? It is a fact of life that claims are traded at discounts in lots of companies. Why is it relevant to my determination?”

“Because, your honor, when we started this case, I remember that you told everybody on the record, [in the] first hearing, that the most important group in this case to be taken care of are the fire victims,” Tosdal said. “And instead, what is happening here is that the fire victims are getting stock instead of cash, and the effect of that is to provide investors in this company, who have purchased subrogation claims at a discount, with billions of dollars of profit. That is the reality, whether it’s customary for there to be a second market.”

Montali shut down Tosdal’s argument, sustaining Tsekerides’ second objection.

“The fact that an investor, whether it be Baupost or Joe Blow, bought a claim at a discount has nothing to do with how that person will end up being treated,” the judge said. “Your argument tells me that you or your clients don’t like the plan. But the plan isn’t going to turn on the discount rate that an investor paid or didn’t pay. The fact of the matter is a subrogation creditor who didn’t sell his claim at a discount is going to be treated the same as a speculator who bought another subrogation claim at a discount. It doesn’t matter.”

The question of the “feasibility” of the wildfire victims’ trust was at the heart of questions from Will Abrams, an outspoken victim of the 2017 fires that ravaged California’s wine country and burned out a section of Santa Rosa. Abrams focused on the concern that claims from future wildfires could compromise the value of a trust heavily dependent on the company’s share price.

“Would you agree that more wildfires are a risk to the feasibility of the plan?” Abrams asked Wells.

“The risk of catastrophic fires is something that we’re actively managing,” Wells responded. “The combination of all of the work we’re doing to prevent those fires, as well as the passage of Assembly Bill 1054, create the conditions that would make our plan financially feasible.” Passed by the California legislature last year, AB 1054 establishes a wildfire insurance fund for the state’s utilities. PG&E must exit bankruptcy by June 30 to qualify for coverage under the bill.

Abrams questioned PG&E’s ability to mitigate future wildfire risk, citing its past record and what he called its current lack of preparedness. Wildfires are up 60% in California for the first four months of this year compared with last, according to Gov. Gavin Newsom.

Abrams pointed to recent finding by U.S. Judge William Alsup, who is overseeing PG&E’s criminal probation for causing the 2010 San Bruno pipeline explosion, that the company must quickly improve its safety performance to avoid sparking new wildfires. (See Judge Orders PG&E to Improve Line Inspections.)

Overcoming an objection from Tsekerides, Abrams pressed Wells about the number of C-hooks the company has replaced in its aging transmission network (Wells didn’t know) and how much of its annual vegetation management program it has completed this year (one-third as of the end of the first quarter, Wells said).

While Montali provided Abrams with ample time to argue his points and air his views, the judge also evinced skepticism that he will be swayed by his challenge to the utility’s plan.

“You, for one, don’t have a lot of confidence in PG&E going forward, but that’s not the point,” Montali told Abrams. “I have to see if the Bankruptcy Code has been satisfied, and it gets [to be] more than that, because the governor has to be satisfied; the Public Utilities Commission has to be satisfied. And you may be unsatisfied, but if all of those things come together, I then have to be persuaded that PG&E is not likely to need further reorganization under the bankruptcy laws.”

The California PUC on Thursday voted unanimously to approve PG&E’s bankruptcy plan, a key step in moving the plan forward. (See related story, CPUC Approves PG&E Bankruptcy Plan.)

Confirmation hearings will continue into next week, when the bankruptcy court will listen to legal arguments related to the plan.