Dive Brief:
- Pacific Gas & Electric (PG&E) has resolved its disputes with the Federal Emergency Management Agency (FEMA) and California Governor's Office of Emergency Services, which filed billions of dollars of claims against the utility due to wildfires that occurred in 2015, 2017 and 2018, an attorney told U.S. Bankruptcy Judge Dennis Montali on Tuesday.
- FEMA has agreed to reduce its ask to $1 billion and have its claims subordinated to those filed by victims of the wildfires, according to attorneys at the Tuesday hearing. The California Governor's Office of Emergency Services would also withdraw its claims of around $2.7 billion — which represents costs incurred by it as well as FEMA — under the deal.
- Lawyers for wildfire survivors had objected to the claims, which threatened to take a slice out of the $13.5 billion payout promised by PG&E to individual fire victims. Montali on Tuesday also postponed a decision on PG&E's disclosure statement — a filing summarizing the company's reorganization plan for the creditors who will vote on it — after raising concerns that the proposed version is too lengthy.
Dive Insight:
PG&E declared bankruptcy in January 2019, amid billions of dollars of liability connected to wildfires caused by its electrical equipment. More than 72,000 claims have been filed against the utility by individuals and businesses harmed by the fires, according to lawyers for the victims.
Last October, FEMA filed three claims in the utility's bankruptcy proceeding amounting to more than $3.9 billion for costs it incurred as a result of the wildfires. The largest chunk of this — $2.55 billion — came from the 2018 Camp Fire, which led to more than 80 fatalities and burned over 153,000 acres in Northern California.
The tort claimants committee, which represents victims of the fires, objected to FEMA's claims since it could eat into the $13.5 billion set aside for individual victims. In a December filing, the committee argued that PG&E has no liability to the federal agency.
In a February response, however, the U.S. government said FEMA discharged its duties by filing claims for work conducted during the fires, and attributed the tort committee's arguments to "a novel reading" of a federal law.
PG&E intends to file motions to approve these settlements in the next several days, according to attorney Stephen Karotkin.
Montali also heard arguments on PGE's disclosure statement, a filing that summarizes the key points of its reorganization plan.
In its disclosure statement, filed with the court in February and amended Monday, the company said its current plan is "the fastest way for fire victims and other claimants to receive payments on their claims." Its plan commits $13.5 billion to resolve claims from the wildfires, through a trust to which PG&E will transfer $6.75 billion in cash paid out over a period of time and $6.75 billion in stock.
Stakeholders, including the company itself, the bondholder committee and a group of insurance companies, recommended that creditors vote to approve PG&E's reorganization plan. Votes are due by May 15, and the utility plans to hold a hearing to confirm the plan on May 27 — around a month before the June 30 deadline by which state law requires PG&E to exit bankruptcy in order to participate in California's wildfire insurance fund.
But other parties had concerns about portions of the disclosure statement, including Will Abrams, a survivor of the 2017 Tubbs Fire, who argued that the statement doesn't provide fire victims with an adequate picture of the risks they could face due to the reorganization plan, including the possibility that PG&E causes another catastrophic wildfire.
The disclosure statement should tie in those issues "so [victims] can have an educated understanding of what the risks are moving forward," according to Abrams.
PG&E's Karotkin stressed the importance of issuing a decision on the disclosure statement within the next few days, so that the utility can begin soliciting votes for its reorganization plan in time to meet the June deadline. But Montali questioned why the disclosure statement — which amounted to 71 pages —needs to be so complex, saying he was worried about the tens of thousands of wildfire victims who didn't want to become involved with the bankruptcy.
"Why is it important for me to approve for you to send 20 or 30 pages of no significance to … the people who are going to vote on this plan?" Montali questioned, adding that the statement doesn't need to be so "verbose," "redundant" and "duplicative."
Montali will resume consideration of the disclosure motion on Wednesday afternoon.
PG&E is making progress in concluding its bankruptcy case, utility spokesperson Ari Vanrenen said in an emailed statement after the hearing. He said that pending approval from the court, FEMA's claim will be reduced, the state emergency office claim withdrawn and "substantial progress was made in court today to resolve objections to PG&E's disclosure statement."
