Deal Moves PG&E Closer to Bankruptcy Exit
PG&E said it has reached an $11 billion settlement with insurance companies over wildfire claims, a significant step toward emerging from bankruptcy. The deal covers insurance carriers and hedge funds that were seeking compensation from PG&E for payouts insurers made to homeowners and businesses in connection with fires sparked by the utility’s equipment.
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It leaves wildfire victims as the only major group of claimants that has not reached a settlement with the San Francisco utility, which is pushing to emerge from bankruptcy next year.
The settlement is the second major agreement PG&E has reached with claimants. In June, PG&E agreed to pay $1 billion to local governments and state agencies to settle claims from fires in 2017 and 2018, obtaining their support for the company’s bankruptcy plan. Representatives for wildfire victims criticized the settlement Friday, saying the company appeared to be trying to isolate those who lost homes and lives to the fires.
“PG&E is taking money out of the pockets of people whose homes and businesses it burned down and handing the money to insurance companies to buy their cooperation,” said Cecily Dumas, one of the lead lawyers representing fire victims in the bankruptcy. “This settlement violates the rights of the victims under California law to be compensated first. The settlement shows that PG&E puts victims’ needs last.”
The settlement was negotiated with carriers that hold roughly 85% of so-called insurance subrogation claims against the company, which allow insurance companies to pursue those deemed responsible for damage. A PG&E spokeswoman said she expected the deal would cover all insurance claims. PG&E added that it was continuing to work to resolve claims with individual plaintiffs.
PG&E has been negotiating for some time with insurance companies that own claims for fire damage payments, including affiliates of Farmers Insurance Exchange and Hartford Accident & Indemnity Co., as well as Baupost Group LLC, a hedge fund that bought more than $2.5 billion worth of insurance claims.
“We hope that this compromise will pave the way for a plan of reorganization that allows PG&E to fairly compensate all victims,” a spokesman for the insurance group said in a statement. PG&E, which provides gas and electric service to 16 million people, filed for bankruptcy protection earlier this year, citing $30 billion in liabilities from a series of deadly and destructive wildfires sparked by its equipment.
Since then, it has begun inspecting and repairing thousands of miles of its wires to reduce the risk of sparking future wildfires—and it has been engaged in complex negotiations with California lawmakers, claimants, bondholders and shareholders to restore the century-old company to firm financial footing.
PG&E faces a June 30, 2020, deadline to exit bankruptcy if it wants to participate in a fund being set up by California to help utilities pay for wildfire-related damages, which are growing as the state deals with the impacts of drought and climate change.
For the past several months, the company has been battling insurers and wildfire victims over how much it should set aside to cover existing fire-related damages. The settlement with insurers will ultimately include a support agreement that requires the insurers to favor PG&E’s plan to exit from bankruptcy, according to a person familiar with the matter. Final papers have yet to be prepared on the insurance settlement.
California fire investigators have found that PG&E equipment sparked numerous fires in the state in 2017 and 2018, including last November’s Camp Fire, which killed 85 people and destroyed the town of Paradise. But state investigators concluded that the company didn’t cause the most destructive 2017 fire, known as the Tubbs Fire.
Lawyers representing fire victims strongly dispute that conclusion, however, and PG&E’s culpability in the Tubbs Fire is now set for a state trial, creating significant uncertainty about the total liability the company faces.
The settlement with insurers, which involves both PG&E Corp. and its Pacific Gas and Electric Co. utility, is subject to the approval of the bankruptcy court overseeing PG&E’s Chapter 11 plan. On Monday PG&E unveiled a $18 billion plan to resolve all wildfire-related claims and exit bankruptcy next year as it seeks to prevent creditors from taking over the embattled company.
That plan disappointed representatives for fire victims, however, who have said in court filings that they are owed $54 billion, and the ultimate figure PG&E has to pay may wind up being substantially higher. With the tentative settlements to insurance companies and local governments, PG&E has already struck deals for a combined $12 billion to settle claims, excluding fire victims.
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The company said it still planned to raise $14 billion in new equity to pay claims, according to papers filed with the U.S. Bankruptcy Court in San Francisco. PG&E said it has received commitments of $1.5 billion and will seek remaining equity financing commitments over the next several weeks.
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