While the Legislature successfully passed and the Governor signed legislation aimed at guarding against financial harm from wildfires (AB 1054, Holden), some work on this matter may remain in the coming year.

As if PG&E issues were not enough, in the waning hours of the session, the Legislature advanced a measure that seeks to block the Trump Administration’s rollbacks of Obama-era environmental standards. While Governor Newsom has sought to position himself as one of the leading domestic critics of President Trump, his office announced that while Newsom fully supports the principles behind SB 1 (by Senate President pro Tem Toni Atkins), he will veto the bill.

Governor’s statement:

The measure does not “provide the state with any new authority to push back against the Trump Administration’s environmental policies and it limits the state’s ability to rely upon the best available science to protect our environment.”

Although Newsom’s announcement might have come as a surprise, Legislators were well aware of his unease about the bill. Newsom had signaled he was receptive to the water issues raised in a letter from California’s U.S. Senator Feinstein and several House Democrats who represent the Central Valley.

Atkins told reporters that she had debated for several days over whether to move the bill forward — not because she didn’t think it could pass the Legislature, but because of Newsom’s concerns.

While PG&E dominated the legislative session on energy matters, a bill that did not ultimately make it, the PG&E sponsored AB 235 (Mayes), a bill that would provide $20 billion in the form of state-issued tax-exempt to PG&E for its wildfire liabilities, stalled – but is likely to return in January 2020 – however, much will depend on how the bankruptcy proceedings move and how much confidence the utility can regain with the Legislature.

Four days after filing their bankruptcy reorganization plan, PG&E said Friday (9/13) that the company had reached an agreement to settle wildfire claims against the utility for $11 billion, far below the $20 billion the insurers had originally sought in bankruptcy court.

The announced settlement is between PG&E and a group of insurers known as the ad hoc subrogation group that has been formally recognized in bankruptcy court as one of the company’s major creditors. The group holds 85% of uninsured insurance claims from the 2017 and 2018 fires, which destroyed more than 20,000 homes and killed 130 people.

In a statement to the press, PG&E CEO Bill Johnson said:

“Today’s settlement is another step in doing what’s right for the communities, businesses and individuals affected by the devastating wildfires. As we work to resolve the remaining claims of those who’ve suffered, we are also focused on safely and reliably delivering energy to our customers, improving our systems and infrastructure, and continuing to support California’s clean energy goals. We are committed to becoming the utility our customers deserve.”

The settlement, however, does not cover individual wildfire victims who have sued PG&E.

Wildfire victims’ attorney Amanda Riddle was highly critical of the settlement, which she said came as a surprise:

“They are putting the needs of victims to the bottom – it is their last priority and that speaks volumes.”

The settlement is subject to final approval by U.S. Bankruptcy Judge Dennis Montali, is much less than the $20 billion in claims filed by members of the ad hoc subrogation group.

The $11 billion settlement figure is substantially more than what the company proposed in a reorganization plan filed with the bankruptcy court just four days ago. Under that plan, the company proposed paying insurance companies $8.5 billion. In its Friday statement, PG&E said it will secure additional equity financing to cover the higher settlement amount.

The company has yet to come to terms with the tens of thousands of individual wildfire victims who have sued PG&E in the wake of fires that ravaged communities across Northern California in October 2017 and November 2018.

Plaintiffs’ attorney Riddle said there could be as many as 50,000 victims who file claims through the bankruptcy court by the October 21, 2019, deadline.

Riddle estimated that those victims should be entitled to as much as $30 billion to $33 billion based on past PG&E settlements with individual plaintiffs, which she said have run about three times the amount paid to insurance companies.

The wildfire plaintiffs are also formally recognized in bankruptcy court as a PG&E creditor, and their attorneys continue to negotiate a settlement with the company.

Even with all the uncertainties surrounding the individual victims’ cases, the proposed deal with insurers represents one major box that PG&E needed to check off as it works to exit bankruptcy.

As the Legislature was deciding to put AB 235 on ice, PG&E filed an $18 billion formal reorganization plan in U.S. Bankruptcy Court this week (9/9) that proposes to pay for all wildfire claims. The filing represents the first formal step in what might be a protracted struggle between wildfire victims, insurance companies and other creditors over the future of PG&E. The plan requires approval from creditors, the bankruptcy judge and the CPUC.

It’s far from certain that the wildfire victims and insurers will accept PG&E’s offer. At the same time, a group of hedge funds are owed billions of dollars by PG&E are mounting a hostile takeover plan to seize control of the company.

In a statement following the filing, PG&E’s Chief Financial Officer, Jason Wells offered the following: 

“It’s a framework for compensating wildfire victims and other stakeholders. Our proposal is rate-neutral for customers.” 

Wells added that the plan is designed to lift PG&E out of bankruptcy by June 30, 2020. That’s the deadline set by the Legislature to make PG&E eligible to participate in an insurance fund to pay claims for future wildfires (AB 1054).

But it’s the existing wildfire liabilities that loom as PG&E’s biggest hurdle to getting out of bankruptcy.

PG&E filed its reorganization plan just days after the Legislature postponed, at least until January, action on legislation that would have given PG&E access to low-interest, tax-free state bonds to raise money for wildfire claims. AB 235, would have given PG&E a big advantage over the hedge funds trying to take the company over.

Despite not having the benefit of the additional funding form AB 235, PG&E said it has alternative funding sources and that the company is prepared to pay claims using billions of dollars in fresh capital that has been pledged by a separate group of hedge funds that control about half of PG&E’s stock.

Importantly, PG&E said its reorganization plan pays all other debts in full and honors the billions of dollars in contracts the company has signed with providers of solar, wind and other forms of renewable energy. The commitment to renewable power is crucial because California officials have insisted PG&E stick with clean energy, and the company had gone to court to get legal authority to sever some of those contracts.

Still, the big unknown is how wildfire creditors will view the PG&E plan. In its plan, PG&E said it will create two trust funds: One with $8.4 billion to pay wildfire victims and the other for $8.5 billion for insurers that had to pay claims from deadly Northern California blazes in 2017 and 2018. Another $1 billion would go to local governments.

PG&E Chief Executive Bill Johnson:

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“Under the Plan we filed today, we will meet our commitment to fairly compensate wildfire victims, and we will emerge from Chapter 11 financially sound and able to continue meeting California’s clean energy goals.”

Lobbyist Patrick McCallum, who barely escaped the Tubbs fire and represents wildfire victims group Up From The Ashes: 

“What they’re proposing is just a fraction of what’s needed to rebuild wildfire victims’ lives. They’re not serious about making victims whole.”

The bankruptcy court hasn’t yet begun the process of sorting out total wildfire liabilities, and PG&E said the reorganization plan could be amended “as additional details are confirmed.”

Victims’ attorneys are preparing for a state court trial about whether PG&E is responsible for the 2017 Tubbs Fire, even though state investigators said a private electrical system was to blame. U.S. District Court Judge James Donato is beginning proceedings to estimate how much money the company owes victims of all past fires, including the 2018 Camp Fire.

The outcomes of all those proceedings will ultimately influence the exact amount of money PG&E has to reserve for wildfire victims.