California governor rejects PG&E’s bankruptcy plan

California Gov. Gavin Newsom has rejected a $13.5 billion settlement that Pacific Gas and Electric struck just last week with thousands of people who lost homes, businesses and family members in a series of devastating fires that drove the nation’s largest utility into bankruptcy.

The decision announced Friday in a five-page letter to PG&E CEO William D. Johnson marks a major setback in the utility’s race to meet a June 30 deadline to emerge from bankruptcy protection.

The San Francisco-based company needs to pull a deal off to be able to draw from a special fund created by Newsom and state lawmakers to help insulate utilities if their equipment sparks other catastrophic fires. The risks have escalated during the past few years amid dry, windy conditions that have become more severe in a changing climate.

In his letter, Newsom said the proposed settlement announced last week does not achieve the goal of addressing what he considers its most important elements, providing safe and reliable power to PG&E customers.

“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,” he said.

Newsom went on to say that PG&E’s problems are the result of decades of mismanagement that must be addressed before he will sign off on any proposed settlement.

“PG&E’s board of directors and management have a responsibility to immediately develop a feasible plan,” the governor said. “Anything else is irresponsible, a breach of fiduciary duties, and a clear violation of the public trust.

Newsom played a pivotal role in prodding Pacific Gas & Electric to work out a settlement with the fire victims instead of sticking to its original plan to earmark about $7.5 billion for them. That amount became particularly galling to the governor and other critics after the company agreed to pay $11 billion to resolve a potential $20 billion liability with insurers that had already paid their policyholder claims in the fires that killed more than 120 people and destroyed nearly 28,000 homes and other buildings during 2017 and 2018.

The settlement would have meant fire victims were in line to get $6.75 billion, paid out in installments ending in early 2022, and $6.75 billion in company stock that would give them a nearly 21% stake in the reorganized PG&E.

The settlement also required significant concessions from the victims. Their lawyers had been contending victims were owed at least $36 billion and were likely to seek even larger amounts had they pursued their claims in a state trial and federal court hearing that had been scheduled for early next year.