Dive Brief:
- Bankruptcy Judge Dennis Montali on Wednesday terminated Pacific Gas & Electric's period of exclusivity, allowing a group of creditors and wildfire victims to present a plan of reorganization alongside the utility's proposal.
- The decision came the same day PG&E cut power to almost 800,000 customers as part of its largest-yet Public Safety Power Shutoff (PSPS), meant to reduce the risk of its electric grid sparking a wildfire during times of high wind and dry conditions.
- The massive power shutoff has prompted "outrage," but the PSPS program is part of the utility's state-approved wildfire mitigation plan. According to The Wall Street Journal, the blackout could cost residential and commercial customers $2.5 billion, as it will take days to restore power.
Dive Insight:
Montali's decision is a setback for PG&E, but creditors say it is the best way to move the utility towards solvency.
"Allowing competing reorganization plans to advance simultaneously helps move the process along and brings us closer to reaching a successful resolution," PG&E's Official Creditors Committee, which represents the interests of creditors with claims against the utility, said in a statement.
PG&E must exit bankruptcy by a statutory deadline of June 30, 2020, in order to access a new wildfire mitigation fund aimed at helping utilities address costs. "Failure to meet the June deadline would have devastating consequences for wildfire victims, ratepayers, creditors, and insurers alike," the creditors committee said.
Last month, a group of creditors and wildfire victims floated a plan to inject $29.2 billion in new money into the utility in exchange for control of the company and new debt. Their proposal includes $14.5 billion to pay fire victims and $11 billion for insurance subrogation claims.
PG&E's own proposal includes $34.4 billion in debt financing to support its reorganization plan, and a total of $17.9 billion to pay wildfire claims.
Montali had previously expressed hesitation at allowing competing plans, fearing a windfall for lawyers and accountants rather than fire victims. But his four-page order indicated a change in thinking.
"While the court has expressed concerns about avoiding any type of litigation that deals with corporate control and
sophisticated and rarified bankruptcy issues at the expense of paying the wildfire victims, it will not second-guess the informed decision of two well-counseled groups who are willing to take the attendant risks that go with competing plan disputes," he wrote. "This is doubly important in light of the looming deadline for meeting the Wildfire Fund requirements."
The risk that PG&E's plan will not be confirmed "is not worth turning away a viable alternative," Montali wrote.
However, the judge's decision did note "significant progress" that PG&E has made on its proposal. "In sum, the plan is on track as well as can be expected for now," he said.
PG&E stock plunged on the news, with the share price down about 30% in early trading on Thursday.
The bankruptcy news comes as hundreds of thousands of customers are without electricity. The utility cut power across more than two dozen counties as high winds were predicted, potentially reaching 60 to 70 mph at higher elevations.
The utility said inspections, repairs and restoration can begin "once the weather event has passed." PG&E said it expects weather to subside around midday Thursday in some areas, and Friday in others.
