SACRAMENTO, Calif. — PG&E Corp. made a landmark agreement with its bondholders Wednesday that wards off a hostile takeover attempt, but the utility encountered fresh headwinds from California Gov. Gavin Newsom over its plans to exit bankruptcy.
After months of squabbling with the hedge funds that hold billions in bond debt, PG&E said it secured a compromise plan with those investors. PG&E now has made deals with three of the main groups in its Chapter 11 bankruptcy case: wildfire victims, insurance companies and the bondholders.
“This agreement helps achieve our goals of fairly compensating wildfire victims, protecting customers’ bills and emerging from Chapter 11 as the utility of the future,” said PG&E Chief Executive Bill Johnson. Spokesmen for the bondholders declined comment.
Yet the company must still make peace with Newsom, who voiced strong objections Wednesday’s to PG&E’s plan to finance its exit from bankruptcy. The irate governor renewed his warnings that the state might take over the company if his demands for a “transformed utility” aren’t satisfied.
“They have to file a new plan,” Newsom’s spokesman Nathan Click said in an interview.
In a filing in U.S. Bankruptcy Court, lawyers for the governor officially protested PG&E’s request for court approval of its financing proposal, which calls for the utility to borrow billions of dollars in order to pay its bills and exit bankruptcy. Newsom said the plan is too heavily weighted with debt, hurting PG&E’s ability to strengthen its electrical grid and reduce wildfire risks.
Newsom’s lawyers complained that the PG&E plan would leave the utility with “insufficient financial flexibility to make billions of dollars in critically needed safety investments.”
Newsom filed his objections about two hours before PG&E announced it had reached a truce with its bondholders following several weeks of negotiations.
The bondholders had been trying to take over PG&E for months and put PG&E on the defensive last September when they got support from wildfire victims on a plan to pay $13.5 billion for damages.
PG&E complained that the bondholders’ takeover would essentially wipe out shareholders’ investment in the company. But it wasn’t until PG&E matched the bondholders’ $13.5 billion payout offer — and won the backing of the fire victims — that the utility regained the upper hand.
In settling their differences, the two sides compromised on how much PG&E owes the bondholders for as-yet unpaid interest on their bonds. The dispute was headed to a court hearing soon. Details of the settlement were unclear Wednesday, but PG&E said in a news release that ratepayers will save about $1 billion through the compromise.
But even as the bondholders have dropped their fight, objections to PG&E from Newsom continue to loom large in the utility’s effort to pull out of bankruptcy.
Newsom last month rejected PG&E’s proposed bankruptcy reorganization plan, demanding that the company be “radically restructured and transformed” with new leadership and a greater emphasis on wildfire prevention. PG&E filed for bankruptcy nearly a year ago while facing billions in liabilities from the 2017 wine country fires and the November 2018 Camp Fire. The fires killed more than 100 people combined.
In Wednesday’s court filing, Newsom’s lawyers said PG&E has “yet to make a single modification” to its earlier plan, despite extensive discussions with the governor’s staff. The protest serves notice that Newsom remains a PG&E critic and a significant obstacle to the company’s hopes for leaving bankruptcy quickly.
The company released a statement saying it’s aware of Newsom’s concerns and “additional changes to the plan are forthcoming.” In a filing with the Public Utilities Commission last week, PG&E said it expects to amend the bankruptcy plan in the near future, although those changes would be limited to “certain nonfinancial terms” of its plan.
Newsom was incensed when PG&E imposed a series of deliberate blackouts during fierce windstorms last October, and still wasn’t able to prevent the Kincade Fire in Sonoma County. The fire, which appears to have been caused by a faulty transmission tower, killed no one but forced the evacuation of 190,000 residents.
In the days that followed the Kincade Fire, Newsom said he would consider some sort of public takeover of the company, including a state takeover. In December, when he rejected the company’s first plan for exiting bankruptcy, he demanded a new board of directors and the legal right to seize control of PG&E’s operations if he believes the company is falling short on wildfire safety.
In Wednesday’s court filing, Newsom’s lawyers warned that the company must make changes that “are not insubstantial or cosmetic.”
The clock is ticking: PG&E must exit Chapter 11 by June 30 to be eligible to tap into a $21 billion insurance fund created by the Legislature to help cushion utilities from damages from future wildfires. The insurance pool is funded equally by utility shareholders and ratepayers. The ratepayers’ share comes from extending a $2.50 monthly surcharge on utility bills, left over from the energy crisis, that was supposed to expire this year.
