Pacific Gas & Electric (PG&E) has reached an agreement with California Gov. Gavin Newsom over his concerns about the utility's bankruptcy exit plan, a development that is "the final component of [PG&E's] comprehensive restructuring," the utility announced on Friday.
PG&E made several commitments to allay Newsom's complaints, including barring dividends for another three years and creating a process to sell the beleaguered utility to the state of California, or a different party, if it is unable to confirm its reorganization plan by June 30.
PG&E on Monday also announced it has agreed to plead guilty to 84 counts of involuntary manslaughter related to the 2018 Camp Fire, as part of an agreement with the district attorney of California's Butte County. Investigators found that the fire, which is the most destructive in state history, was sparked by a PG&E transmission line.
Newsom has previously voiced his opinion that PG&E's reorganization plan doesn't comply with Assembly Bill 1054 — state legislation adopted in 2018 that set up a wildfire insurance fund for California utilities.
Under the legislation, PG&E needs to exit bankruptcy by June 30 with a plan that doesn't increase ratepayer costs and aligns with state climate goals in order to access the fund. In December, the governor wrote to PG&E Corp President and CEO Bill Johnson saying the utility's proposal did not meet the bill's requirements.
PG&E has agreed to several conditions to appease these complaints, including supporting measures from the California Public Utilities Commission (CPUC) to reform its governance, implementing a $7.5 billion securitization transaction after it emerges from bankruptcy, and promising not to pass on the $25.5 billion it has committed to resolving wildfire claims to its ratepayers.
In addition, the utility agreed to a "case resolution contingency process," whereby if it doesn't have a confirmed plan by June 30, it will appoint a chief transition officer and initiate a sale of the company.
"We appreciate the Governor's statements in the Bankruptcy Court. We now look to the California Public Utilities Commission to approve the Plan through its established regulatory process, so that we can exit Chapter 11, pay wildfire victims fairly and as soon as possible, and participate in the State's Wildfire Fund," Johnson said in a press release.
PG&E filed a motion with the bankruptcy court Friday seeking approval of the agreed upon process. In a separate filing, Newsom said the utility's commitments resolve his previous concerns.
Last week, the company received court approval for backstop financing commitments that would support its exit from bankruptcy, including its wildfire victim payouts — although PG&E lawyers said in a filing with the CPUC that those deals could be jeopardized by a $2.1 billion fine imposed on it in connection with the fires.
However, the utility still has to receive approval from the CPUC and push its plan through the necessary processes at the bankruptcy court. U.S. Judge Dennis Montali has scheduled a hearing on May 27 to tackle the issue of confirming the plan.
The compromise with Newsom is "pretty extraordinary," since it eliminated a large barrier to the approval of PG&E's plan, according to Michael Sweet, bankruptcy attorney and partner at Fox Rothschild, who represents some creditors in PG&E's bankruptcy proceeding.
"There will still be, I suspect, individual creditors who will take issue with the bankruptcy plan — fire victims, and other creditors who don't like what PG&E is proposing — but I think to take the governor and presumably the state legislature and the PUC out of the objection column … and put them with PG&E, bodes very well for plan confirmation," he told Utility Dive.
While neither the legislature nor the PUC has voiced explicit approval of the plan, it would be unlikely for either to vociferously oppose it given Newsom's support, according to Sweet.
PG&E also announced on Monday that it will plead guilty to 84 counts of involuntary manslaughter and a single charge of unlawfully starting a fire, in connection with the Butte County district attorney's investigation into the 2018 Camp Fire.
The agreement with the district attorney — which requires approval from the bankruptcy court as well as the Butte County Superior Court — would require PG&E to pay around $4 million in fines, and fund water provisions for communities that relied on a canal destroyed in the fire.
Clarification: The headline of the story has been updated to clarify that PG&E pleaded guilty to involuntary manslaughter.