A bankruptcy clause that would require California to take over troubled utility giant PG&E Corporation has emerged as a major sensitive case in the company's talks with Governor Gavin Newsom.
Newsom wants the power company to include a clause in its plan for reorganization that would allow the state to take control of its properties if efficiency and safety benchmarks are not met.
Negotiating such a provision has become one of the biggest challenges in the company's talks with the governor's office, said people familiar with the situation, who requested anonymity as the information is not public.
Support from Newsom is critical to PG&E's attempts to exit U.S. history's largest utility bankruptcy by a state-imposed June 30 deadline.
Bankrupt & Pressured
The power company filed for Chapter 11 bankruptcy in January after its power lines were connected to deadly blazes in 2017 and 2018 across Northern California, resulting in an estimated $30 billion in liabilities.
Now that PG&E has negotiated agreements with victims of wildfires and their insurers - two entities at the core of its reorganization - Newsom's sign-off becomes the biggest obstacle in the company's efforts to achieve a turnaround agreement.
PG&E plans to meet the requirements of the state and will continue to address the concerns that the governor presented in his letter, the company based in San Francisco said.
The power firm has engaged in constructive dialog to "address these concerns with the common goal of ensuring that it is safe, secure and financially stable when Chapter 11 arises," PG&E said in a statement.
PG&E said it expects this conversation to continue. On Tuesday noon, the company's stocks were up 5 percent to $11.47 on Wall Street.
Total Revamp Order
A public utility board appointed by the governor would have to approve any reorganization. And if the company wants to participate in a new fire insurance fund to avoid future catastrophic losses, it will have to prove to Newsom's office that it has resolved its past financial and wildfire liabilities by June.
The governor's office has also instructed PG&E to replace its entire board and develop a better funding plan that is cost-neutral to its customers and not so dependent on risky short-term bridge financing. Such requests are being discussed by the business and the governor's office, the sources disclosed.
Elsewhere, a competing privatization proposal proposed by PG&E bondholders including Pacific Investment Management Co. and Elliott Management Corp. also includes a clause allowing a state takeover.
