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California Governor Newsom Rejects $13.5 Billion Agreement Between PG&E and Wildfire Victims

PG&E wildfire settlement

Last week, a $13.5 billion settlement agreement between California Utility giant, Pacific Gas & Electric Company (PG&E), and personal injury attorneys representing victims of the state’s recent wildfires (the Butte Fire in 2015, the Ghost Ship Fire in Oakland in 2016, the Tubbs Fire in 2017, and the Camp Fire in 2018) was reached (at least, in principle).

Late Friday afternoon, however, one week after the agreement was announced, California Governor, Gavin Newsom, declared that he was rejecting it, causing a major setback for the utility company. PG&E has faced numerous multi-billion dollar tort lawsuits, as well as bankruptcy litigation, throughout much of 2019 for wildfires that killed dozens of people and destroyed thousands of businesses and homes

The San Francisco Chronicle reported on Friday that Newsom believes PG&E’s amended plan “falls woefully short” under the new AB1054 law, part of a new California state assembly bill passed in July. According to the San Francisco Chronicle, the agreement would have entailed settling “billions of dollars in wildfire liabilities” by accessing a “state-backed fund to pay out fire claims.” But Newsom examined the agreement and concluded it ultimately did not address PG&E’s failure to meet its responsibility to adequately “provide safe, reliable, and affordable service to its customers.”

For PG&E to have access to money made available through the Newsom-backed AB1054, which created a fund the company could tap to protect itself from future fire costs, they must, in addition to making safety improvements intended to reduce future wildfires, resolve their bankruptcy issue by June 30.

Upon reaching the tort settlement agreement with lawyers for the wildfire victims last week, PG&E subsequently amended its bankruptcy exit plan to accommodate the $13.5 billion damages figure. On December 6, the day the agreement was reached, Reuters reported that one resulting effect would be to help “smooth the way for the beleaguered company to emerge from bankruptcy.” With Newsom’s rejection, PG&E’s bankruptcy exit strategy is confounded, and the company’s future becomes increasingly uncertain.

In September, PG&E rejected a $24 billion counteroffer (to PG&E’s initial offer of $11 billion) by wildfire victims and company bondholders. PG&E’s proposed $11 billion offer was part of the company’s plan to exit bankruptcy, and included capping payments to wildfire victims at $8.4 billion. That agreement would have covered insurance carriers and hedge funds that sought compensation from PG&E related to claims by homeowners and businesses over fires sparked by the company’s equipment.

Personal injury attorney, Cecily Dumas, of Los Angeles-based BakerHostetler, represents the official committee of tort claimants in PG&E’s bankruptcy hearings. When the agreement was announced in September, Dumas called it “totally unacceptable” and “unfair” because it placed government agencies such as the Department of the Interior and the Federal Emergency Management Agency (which could, and likely will, file billions of dollars in claims against PG&E), ahead of the victims of the wildfires. Ultimately, from Dumas’ perspective, that agreement would have left far less for victims than the proposed $8.4 billion.

In January, PG&E declared bankruptcy, announcing it faced potential liabilities of $30 billion.

How soon victims’ attorneys and PG&E will have an amended agreement to reflect Newsom’s critique available, especially in light of the holidays, remains unclear. Newsom effectively controls PG&E’s bankruptcy proceedings, as he will have to approve all settlement agreements.

PINews will provide updates once a new agreement is reached and announced.