The short-term decision by PG&E Corp. to cut California Governor Gavin Newsom out of its settlement with wildfire victims will not solve a major long-term problem. The solution: strike a deal with the governor's office.
After taking off a late Monday clause requesting Newsom's sign-off for a $13.5 billion fire victim contract, the company is still negotiating with its office.
Among other issues, the governor has requested that the energy company overhaul the entire board and develop a better funding plan to escape the largest bankruptcy in U.S. history.
The object of scrapping the clause was to buy more time from both sides to resolve their differences without slowing up the rest of the bankruptcy process, said people familiar with the situation.
It Doesn't End There
PG&E and the governor have made progress in resolving some of the concerns of Newsom, but they have to discuss more, the sources said.
However, the clause involving the sign-off of Newsom has threatened to kill the contract entirely with victims since the agreement is scheduled to take place in the bankruptcy court on Tuesday.
The extended negotiations underline how long the bankruptcy process for PG&E has become. The firm has been trying to formulate a viable restructuring plan since it declared bankruptcy in January in the wake of $30 billion in liabilities related to the catastrophic wildfires.
A Burning Issue
The fact that the investors and bondholders of the company are embroiled in the struggle for control of the company is exacerbating their efforts.
Negotiations between PG&E and the office of the governor could hold a rival restructuring plan in check. Pacific Investment Management Co. and Elliott Management Corp. lead a group of creditors who offered to inject $20 billion in exchange for nearly all of their equity into the company.
The bondholders persuaded the office of Newsom to oppose the proposal of PG&E and see theirs as an alternative.
Newsom's office, which last week rejected the project of PG&E, referred to a filing made in the bankruptcy court on Monday outlining its issues with the proposal of PG&E.
A Tough Demand
According to Praful Mehta, a utility analyst for Citigroup Inc., "the demands of the governor are likely to be very difficult" for PG&E and its investors to satisfy.
And yet, this buy-in is essential to the reorganization of the group. Any plan would require the authorization of the California Public Utilities Commission, appointed by the governor.
As this developed, PG&E shares were up 5 percent on Tuesday to $10.17, as Wall Street saw the company's move as an indication that its deal with the wildfire victims remains intact for the time being.
