PG&E Reaches Deal With Regulators but Faces More Hurdles

Pacific Gas & Electric reached a $1.7 billion settlement with California regulators for deadly wildfires started by its equipment in 2017 and 2018, resolving one of several obstacles facing the company, which sought bankruptcy protection in January.

The deal was announced by the California Public Utility Commission on Tuesday as the company also won the approval from United States Bankruptcy Court for a multibillion-dollar settlement with victims of wildfires. For PG&E, the settlement addresses one potential regulatory challenge and the court ruling is a step forward. But the company still needs to secure the support of Gov. Gavin Newsom before it can put its wildfire liabilities behind it.

After months of painstaking legal maneuvering, PG&E is trying to resolve various claims stemming from its role in California’s devastating wildfires ahead of a June 30 deadline set by state lawmakers.

Two weeks ago the utility appeared to have cleared a big hurdle by reaching a $13.5 billion settlement with victims of wildfires. But late last week the governor raised new objections to the company’s proposed restructuring, as a group of hedge funds vying for control of PG&E are seeking to change the terms of the settlement with victims.

The outcome of those battles will shape how fire victims are compensated for lost homes and loved ones. It will also determine how California fixes and updates an energy system strained by the high costs of more frequent fires fueled by hotter, drier conditions.

On Tuesday, United States Bankruptcy Judge Dennis Montali, who is overseeing PG&E’s case, approved the company’s deal with victims, as well as a separate $11 billion accord the utility reached earlier with holders of insurance claims.

The utility commission said its settlement would require the company’s shareholders to pay a $1.625 billion penalty for several fires, including the Camp Fire of 2018 that killed 85 people and destroyed the town of Paradise. In addition, PG&E’s shareholders will have to spend $50 million to reduce the risk of future fires. The company cannot seek to recoup those costs from ratepayers.

The proposed penalty includes almost $800 million for expenses related to restoration of areas devastated in the 2018 Camp Fire and more than $150 million for the 2017 Northern California wildfires. About $700 million would pay for safety and transmission system inspections and repairs as well as some administrative costs. Under the proposed order, PG&E shareholders would pay those costs and the utility could not collect any of the funds from ratepayers.

The penalty is about the same as the fine the utility commission imposed on PG&E after a 2010 gas pipeline explosion in San Bruno, just south of San Francisco.

Eight people died in that accident, which investigators attributed to PG&E’s failure to properly maintain its gas pipeline system. The $1.6 billion penalty the commission imposed on the company at the time was the largest it had ever assessed.

The settlement for PG&E’s role in wildfires will be subject to public comments, a review by an administrative law judge and a vote by the utility commission’s members.

PG&E’s bankruptcy case became much more complicated when Mr. Newsom sent a letter to the utility Friday evening calling on the company to make more far-reaching changes to its leadership and plans for avoiding future disasters. Among the governor’s demands are the installation of a new board of directors, more detailed safety measures and a new process to allow the state to strip PG&E of its operating license and sell its assets in the event of another misstep.

“They asked the company to create its own self-destruct button,” said Jared Ellias, a bankruptcy specialist at the University of California Hastings College of the Law. “It feels very much like uncharted territory, where we have never seen a case where a state government was as involved.”

Mr. Newsom also questioned the math behind PG&E’s restructuring plan, which he said does “not result in a reorganized company positioned to provide safe, reliable and affordable service to its customers,” as required by state law.

In addition to getting its plan approved by Judge Montali, PG&E needs Mr. Newsom’s blessing. That’s because the governor must sign off on PG&E’s plan to emerge from bankruptcy by a June 30 deadline in order for the utility to participate in a new wildfire fund that the California Legislature created this year. The fund is expected to help pay for damages from wildfires started by equipment owned by investor-owned utilities like PG&E, Southern California Edison and San Diego Gas & Electric.

A group of hedge funds that own PG&E bonds, including Elliot Management, have seized on the dispute between the governor and the company to push the court to consider an alternative plan that they have proposed. Another group of hedge funds, including Abrams Capital Management, that own stock in the company are backing PG&E’s plan.

The dispute between the two groups of hedge funds centers on how much debt PG&E would have after emerging from bankruptcy. The bondholders have proposed less debt in a plan that would effectively wipe out the current shareholders. PG&E’s plan would leave the company with more debt but leave current shareholders with a greater stake in the company.

The latest uncertainty also throws into question two other legal proceedings set to start early next year, if a settlement between PG&E and fire victims remains elusive.

A state judge has temporarily delayed a civil trial, set to begin in early January, over whether PG&E should be held responsible for the 2017 Tubbs Fire. State investigators had previously said the utility did not cause that fire, which devastated Santa Rosa, north of San Francisco. In February, a separate court is set to begin expert testimony in an estimation process to value other unresolved claims against PG&E.

Some 73,000 fire victims have filed bankruptcy claims against PG&E ahead of a Dec. 31 deadline, which was extended by the court after lawyers said tens of thousands of survivors missed an earlier cutoff.

Another dispute poised to culminate in 2020 is how much of any funds set aside for victims may be used to compensate government agencies for the money they spent on rescue and recovery operations for wildfires ignited by PG&E equipment. The Federal Emergency Management Agency and other federal departments have filed claims totaling more than $4 billion, which lawyers for fire victims have urged the bankruptcy court to reduce.

A lawyer for some fire victims, Cecily Dumas, said on Tuesday that the deal was the best route in an “imperfect world” for her clients. “People need to start rebuilding their lives,” Ms. Dumas said, “and to do that they need some money made available from this bankruptcy case.”

Peter Eavis contributed reporting.