Gov. Gavin Newsom on Friday rejected Pacific Gas & Electric’s proposal to pull itself out of bankruptcy, saying its reorganization plan falls “woefully short” of requirements set under state law.
The move complicates PG&E’s ability to remain in control of the company in an a bankruptcy process that has seen financial interests vying to take over and local politicians proposing models for an entirely new utility. PG&E triggered the bankruptcy in January citing an estimated $30 billion in financial liabilities from California wildfires sparked by its equipment.
“In my judgment, the amended plan and the restructuring transactions do not result in a reorganized company positioned to provide safe, reliable, and affordable service to its customers, as required by AB 1054,” Newsom wrote in a letter to PG&E. “The state remains focused on meeting the needs of Californians including fair treatment of victims – not on which Wall Street financial interests fund an exit from bankruptcy.”
Newsom’s approval was not required under state law, but PG&E asked the governor to weigh in after reaching a $13.5-billion settlement last week with victims of some of California’s worst wildfires on record.
The request was a political gamble for the company, which gave Newsom and his team of advisors five days to review whether the proposal met the requirements of a new state law that allows utilities that meet certain requirements to dip into a fund to pay costs from California wildfires.
Newsom was forced to take a public position on the company’s reorganization long before state regulators perform an extensive review and must formally sign off on the PG&E proposal next year. Rejecting the plan could risk delaying the bankruptcy process, said Jared Ellias, a bankruptcy law professor at UC Hastings.
“The company is kind of saying now, ‘You’re going to have to sign off on this,’” Ellias said. “‘We’re not going to let you have the benefit of distance from what we’re doing. If you say no, this thing could crash and burn, and you’re going to own the wreckage.’”
Among his list of concerns, Newsom said the new entity should have a new board of directors and a better financial model to ensure that ratepayers aren’t saddled with high rate increases to fund future safety investments.
“PG&E’s board of directors and management have a responsibility to immediately develop a feasible plan,” Newsom said. “Anything else is irresponsible, a breach of fiduciary duties, and a clear violation of the public trust.”