Four months ago, Pacific Gas & Electric seemed poised to emerge from bankruptcy after reaching a $13.5 billion settlement with tens of thousands of people who lost homes in wildfires started by the utility’s equipment.
Investors cheered that agreement, bidding up the company’s share price by nearly 40 percent. But the deal now appears to be in danger — and with it the company’s hopes of getting back on its feet by a crucial deadline.
Some homeowners say they no longer intend to vote for the deal in bankruptcy court because half the money they are set to receive will be in PG&E shares. The shares’ value has tumbled in recent weeks in the broad stock sell-off prompted by the coronavirus pandemic.
Three of the 11 victims on a bankruptcy court committee representing those with fire claims against PG&E have resigned. The remaining members rejected the deal in a court filing on Monday. .
The flare-up of opposition threatens a key element of PG&E’s reorganization plan. Unless the company can emerge from bankruptcy by June 30, it will be ineligible for a new state fund defraying damage claims from future wildfires — the kind of liability exposure that drove it into bankruptcy court last year.
“It’s a house of cards in that everything is interconnected,” said George Triantis, a professor at Stanford Law School. If a majority of victims vote down the agreement, PG&E will probably miss the state deadline. “I’m not sure that it’s in the interest of the tort victims to cause this to fail,” Mr. Triantis said.
Wildfire victims are not speaking with one voice. Some support the deal and are campaigning for a yes vote, arguing that this is the best deal they can get, including through newspaper ads.
Erin Brockovich, the consumer advocate made famous through her pursuit of a 1993 case against PG&E involving contamination of drinking water, urged wildfire victims to accept the agreement in an opinion article last week in The San Francisco Chronicle. She is a consultant for the law firms of Joseph M. Earley and Watts Guerra LLP, which represent thousands of wildfire victims.
With so much effort spent “pounding out the best possible agreement to make people whole,” Ms. Brockovich said in an interview, “to derail it and create more division at the 12th hour will be a travesty.”
The deal that some want to change gives the victims half of the $13.5 billion in cash and half in shares of the company that emerges from bankruptcy. In accepting stock, the victims and their lawyers were taking a risk. Even before the coronavirus outbreak, PG&E’s stock was volatile. A major fire involving its equipment could send its shares plunging, leaving victims short.
The stock closed at $8.56 on Monday, down from nearly $18 in late February.
PG&E defended the agreement in a statement on Monday, noting that lawyers representing thousands of victims still backed the deal. The company also said the recent drop in its share price was a result of broader economic anxieties.
“Since PG&E entered Chapter 11, the company’s primary goal has been to get victims paid fairly and in a timely manner,” the utility said.
But Kirk Trostle, who lost his home in the Camp Fire, says the company’s plan is “deeply flawed and very risky for all fire victims.” Mr. Trostle was one of the first members of the bankruptcy’s tort claimants committee that represents victims to resign his position.
“I’m not trying to force people to vote for or against the plan,” Mr. Trostle said in an interview. “I want all fire victims to make an educated decision.”
Adolfo Veronese and Karen Gowins, two other committee members who lost homes to fires started by PG&E equipment, have also resigned.
Ms. Gowin’s lawyer, Steven Kane, said that on a call last week involving scores of lawyers for victims of Northern California wildfires caused by PG&E’s equipment, several urged delaying any vote on the settlement to keep their clients from “holding the bag for PG&E’s recklessness and negligence.”
Other lawyers say they were not persuaded by those arguments.
Gerald Singleton, a lawyer based in San Diego who says he represents 7,000 fire victims in the bankruptcy, told the court in a brief filed Monday that he rejected arguments opposing the settlement. Mr. Singleton said the agreement was the best way for victims to be paid quickly.
“We certainly understand that there are risks and flaws in this plan, as there are in everything,” Mr. Singleton said. “This is really the only opportunity for our clients to get a fair settlement in a reasonable amount of time.”
Large shareholders behind PG&E’s restructuring plan will probably push back against opponents of the deal. Better terms for the victims would mean worse ones for shareholders, which, according to the most recent records available, include prominent hedge funds like Baupost Group, Abrams Capital Management and Knighthead Capital Management.
Because the bankruptcy plan rests on shareholders’ putting $9 billion of new money into PG&E — cash that will help pay victims — the shareholders’ participation is crucial. And they could be particularly resistant to compromise because the recent decline in PG&E’s stock may have left them with large losses on their stakes in the company.
“If you rattle the cage too much, the deal could collapse,” said Jared A. Ellias, a professor at the University of California’s Hastings College of the Law.
To get a better deal, the victims would have to change a central feature. Under the current plan, they would get shares valued at 14.9 times estimated future profits. Lawyers for the deal’s opponents are concerned that PG&E’s shares will trade well below that multiple, meaning the victims’ shares — meant to be valued at half the overall $13.5 billion settlement — would be worth much less. Because the shareholders putting in new money would get shares at a much lower valuation, their holdings would in theory have greater protection against losses.
Increasing how much cash the victims get may be a way to compromise, Mr. Ellias said, adding, “There is still a pathway to make this work.”
PG&E appeared to have cleared the last major hurdle when Gov. Gavin Newsom signed off on the reorganization plan last month after gaining several concessions from the utility, including veto power over new board members and a trigger to sell the company if certain benchmarks were not met.
The timing of the governor’s support was critical if not pragmatic, since the worsening pandemic has largely halted economic activity and dominated his attention.