California eyes record $1.6 billion penalty against PG&E for deadly wildfires
PG&E Corp. has agreed to pay a $1.675 billion penalty over the disastrous 2017 and 2018 wildfires, eclipsing the record punishment the troubled utility was given after the San Bruno pipeline explosion.
The California Public Utilities Commission and PG&E announced a settlement Tuesday afternoon, shortly before a bankruptcy judge approved two other agreements designed to lift PG&E out of Chapter 11. The utility, however, still faces considerable hurdles as it tries to satisfy Gov. Gavin Newsom’s demands for a thorough makeover of PG&E’s leadership and operations.
The settlement with the PUC stems from the Napa and Sonoma fires of October 2017 and the Camp Fire in Paradise in November 2018. The fires killed a total of 129 people, and the estimated $30 billion in liabilities drove PG&E into bankruptcy in January.
The PUC technically isn’t issuing a fine. Instead, PG&E’s shareholders will eat $1..625 billion in “wildfire-related costs” and not bill its ratepayers. In addition, PG&E shareholders agreed to spend another $50 million on “system enhancements” to improve wildfire safety, beyond hundreds of millions of dollars the company is already spending on more aggressive tree-trimming and other measures.
“This settlement agreement underscores our commitment to learning from the past and doing what’s right for safety in the future,” Chief Executive Bill Johnson said in a prepared statement.
The proposed deal requires approval of the five-member commission. The penalty would be the largest in PUC history; PG&E paid $1.6 billion in fines and other penalties following the 2010 San Bruno explosion.
The PUC staff, in its report to the commission, called the settlement “reasonable” in part because of PG&E’s “numerous other financial obligations.”
About an hour after the deal was announced, PG&E’s lawyers secured approval in U.S. Bankruptcy Court for the two anchors of the utility’s Chapter 11 reorganization plan: plans to pay a combined $24.5 billion in damages to wildfire victims, insurance companies and state and federal agencies.
Judge Dennis Montali, after a daylong hearing, signed off on PG&E’s plan to pay $11 billion to insurance companies. That represents about half of what the insurers paid to property owners for damages from the 2017-18 fires as well as the 2015 Butte Fire in Amador and Calaveras counties.
Montali also approved PG&E’s plan to pay $13.5 billion to fire victims for damages not covered by insurance. That fund will also cover the approximately $4 billion in claims submitted by the Federal Emergency Management Agency and various state agencies.
The twin settlements “form a great foundation for moving forward with this case,” Bruce Bennett, a lawyer for PG&E’s largest shareholders, told Montali.
PG&E’s bondholders, who are trying to take over the company, attempted to block approval of the fire victims’ settlement.
Even with the settlement agreements in hand, PG&E is still struggling to get its bankruptcy reorganization approved. Newsom rejected the utility’s plan last Friday, saying it would leave the company buried under billions in new debt and leave it unable to make the necessary investments in safety upgrades. Newsom also wants an entirely new board of directors and the right to seize control of the company if it falls short on safety or operational goals.
PG&E lawyer Stephen Karotkin told the bankruptcy judge that PG&E has met with the governor’s staff and is working on a new reorganization plan.
PG&E needs the state’s approval for its bankruptcy plan before it can qualify for a $21 billion insurance fund designed to cushion California utilities from future wildfire damages. The law creating the fund, AB 1054, also says PG&E must exit bankruptcy by June 30.
The insurance pool is to be funded by shareholders and ratepayers, with the ratepayers’ share coming from extending a $2.50-a-month surcharge that originated during the energy crisis and was supposed to expire next year.
This story was originally published December 17, 2019 at 5:27 PM with the headline "California eyes record $1.6 billion penalty against PG&E for deadly wildfires."