PG&E bankruptcy plan approved by court
Pacific Gas & Electric Company (PG&E) was cleared to emerge from Chapter 11 bankruptcy after lining up the financing necessary to settle billions of dollars in claims stemming from a series of wildfires in its northern California service territory.
A federal bankruptcy judge in San Francisco approved PG&E’s plan over the weekend, 10 days ahead of the June 30 deadline that had been imposed by the state. PG&E said it expected to formally climb out of Chapter 11 in July, at which time the utility would ante into the state’s Fire Victim Trust, which will funnel $25.5 billion into settlements with residents, insurance companies, and various municipal entities affected by the fires that cost more than 100 lives and destroyed scores of homes and other structures in 2015, 2017 and 2018.
“Today’s ruling in the Chapter 11 proceeding concludes the process of approving PG&E’s Plan of Reorganization and is a critical milestone that brings us one step closer to compensating wildfire victims fairly and quickly and sets the course for PG&E’s future,” Bill Johnson, CEO and president of PG&E Corp., said in a statement.
“PG&E is committed to emerging from Chapter 11 as a fundamentally improved and transformed utility that meets the highest safety, governance, and operational standards,” Johnson added.
The reorganization plan will also include the appointment of a Chief Risk Officer and a Chief Safety Officer as well as expanding the company’s board of directors. The company also pledged to honor current labor agreements and suspend the payment of stock dividends until it reaches $6.2 billion in non-GAAP (generally accepted accounting principles) core earnings.
The California Public Utilities Commission gave its approval of the bankruptcy plan in late May.
To fund the payouts to the Fire Victim Trust, PG&E said it raised $8.92 billion in debt in mid-June to pay for capital improvements and also the civil claims. It will also provide $3 billion to help cover PG&E’s participation in the state’s AB 1054 wildfire insurance fund.
PG&E said the deal would give it access to lower-cost capital that would refinance existing debt at a more favorable rate and enable the company to reduce its costs by around $250 million per year; the savings will be reflected in customers’ bills later this year.
“The Chapter 11 proceedings also allowed us to refinance our debt which will result in real savings for customers starting this year, after we emerge from Chapter 11, consistent with our commitment to keep prices as low as possible for customers,” PG&E Chief Financial Officer Jason Wells said.
“The primary purpose of our Chapter 11 filings was to address the billions of dollars in claims from victims of recent wildfires,” Wells said. “This financing effort takes us one step closer to compensating victims for their losses.”
Wall Street appeared pleased with PG&E’s direction. Fitch Ratings issued a BB Long-Term Issuer Default Rating and a “stable” ratings outlook for PG&E on June 15. “The sharp decline in deadly catastrophic wildfires in 2019 compared to the 2017-2018 fire seasons is an encouraging sign that wildfire mitigation efforts may be bearing fruit,” Fitch said in its announcement.
“Nonetheless, risk of future wildfire activity on par with 2017-2018 cannot be ruled out and remains a primary credit concern.”
