The new charge, which PG&E expects to take by year’s end, would raise the company’s total recorded fire-related charges to over $25 billion. The higher amount reflects the increase over the $8.4 billion PG&E initially offered to resolve wildfire victim claims, which stem from more than a dozen fires linked to the company’s equipment in recent years.
The victims settlement agreement unveiled Friday would remove a substantial roadblock to PG&E’s emergence from bankruptcy, even as it puts additional strain on its balance sheet. PG&E shares were up more than 18% Monday morning following news of the deal.
However, obstacles remain to making the settlement a reality—notably, it requires approval from California Gov. Gavin Newsom, who is demanding concessions from the company, including the potential addition of public board members chosen by the state, as part of any deal. Mr. Newsom is also pushing for governance changes that could give the public members more authority if the company fails to meet certain safety metrics, the governor’s office has said.
PG&E has a limited amount of time to persuade the Democratic governor that its chapter 11 exit plan will meet the requirements to participate in a California wildfire fund established earlier this year to help the state’s largest utilities handle liability costs if their equipment sparks more fires. Those requirements include a deadline for PG&E to exit bankruptcy by June 30, 2020, to qualify for the wildfire fund.
According to Monday’s securities filing, Gov. Newsom is expected to let PG&E know by Dec. 13 whether its new chapter 11 plan will comply with the state law creating the wildfire fund. If the governor rejects PG&E’s plan, the company has until Dec. 17 to make the necessary changes to save it.
PG&E must also get approval from the U.S. Bankruptcy Court in San Francisco on the settlement with victims. However, the SEC filing says the settlement with wildfire victims terminates if PG&E doesn’t comply with the state law, in the sole judgment of Mr. Newsom.
PG&E sought bankruptcy protection in January, citing more than $30 billion in potential liability costs. Its equipment was determined to have sparked 19 wildfires in 2017 and 2018 that collectively killed more than 100 people.
The new deal with victims puts PG&E on equal footing with a rival bankruptcy-exit proposal backed by Elliott Management Corp. and other investors in the bonds of California’s largest utility. The bondholders had earlier struck a tentative $13.5 billion settlement with fire victims.
If the new settlement with PG&E wins bankruptcy court approval, the fire victims will withdraw their support from the bondholder chapter 11 exit plan.