Pacific Gas & Electric Co. (PG&E) employees work on gas lines in Paradise, California, U.S. (Photographer: David Paul Morris/Bloomberg)  

PG&E Erases Settlements With Fire Victims Ahead of Bankruptcy

(Bloomberg) -- As PG&E Corp. prepares to file for bankruptcy, victims of wildfires are getting a preview of how they’re likely to be treated as the utility reorganizes -- harshly.

Ahead of an expected filing for Chapter 11 protection this week, the company is skipping payments it agreed to make to people whose property was destroyed in a 2015 blaze in the Sierra Nevada foothills caused by a tree falling on a power line that officials have blamed on the utility.

So far, California’s largest investor-owned utility has failed to make payments of about $1.5 million to four families whose properties were destroyed by the Butte fire, and appears prepared to turn its back on at least another seven settlement agreements worth about $2.5 million, according to plaintiffs’ lawyer Amanda Riddle.

The utility explained to a judge in a Jan. 23 letter that money is too tight now to commit to honoring the settlements -- two days before PG&E said its board approved a $75,000 raise for its senior vice president of gas operations

“They have wildfire victims who’ve been through litigation, went through a mediation, negotiated a settlement, reached an agreement with PG&E and are ready to be paid,” Riddle said. “And PG&E refuses to pay them.”

The utility has said that bankruptcy is in the best interests of wildfire victims to ensure fair and expeditious resolution of their claims while it faces billions of dollars in liabilities from 2017 and 2018 wildfires across its service area in Northern California.

The company already settled with 2,900 Butte fire victims and has shared its position on remaining settlements with lawyers and mediators “to ensure that everyone is fully aware of what’s happening,” according to a statement by a PG&E spokeswoman.

Victims of wildfires caused by PG&E’s equipment are unsecured creditors, meaning their legal claims in bankruptcy get paid after secured lenders such as banks, and even after financial analysts and bankruptcy lawyers expected to charge hundreds of millions of dollars.

But the victims of the 2015 fire say they’re different because they have agreements in hand, fought for and negotiated over years before PG&E decided to file for bankruptcy, and a date by which they were supposed to be paid.

PG&E hasn’t cited the Butte fire -- which burned 70,000 acres and destroyed almost 500 homes -- as a reason for its needing protection from creditors.

PG&E is backing out of settlements even as it was exonerated by state fire investigators last week for causing the Tubbs fire that tore through part of the city of Santa Rosa, the most devastating blaze of 2017 -- which may release the company from more than $9 billion in potential liabilities. Riddle said some of the agreements were reached in December, after November’s Camp fire, which became the most destructive in California history and is suspected of having been ignited by PG&E equipment.

The conflict over Butte fire settlements is “as straightforward as it is unfortunate,” Christopher Tayback, a lawyer for PG&E, said in a Jan. 23 letter to California Superior Court Judge Allen H. Sumner in Sacramento.

Until the company files for bankruptcy, Tayback wrote, “PG&E hopes and expects that it will be able to make payments as they come due, including contractual obligations such as settlement agreements.”

“However, PG&E faces liquidity problems,” and is prioritizing payments to deliver gas and electricity, the lawyer added. “As a result of all these factors, PG&E cannot commit to pay one potential creditor over any other in the days prior to filing for bankruptcy.”

Under federal law, PG&E’s bankruptcy filing would automatically put on hold thousands of claims by fire victims filed in California courts. In that scenario, the Butte fire cases would be lumped with all fire victims fighting it out against other unsecured creditors, such as bondholders, to extract a recovery from the utility.

Mike Danko, a lawyer representing fire victims suing PG&E, said bankruptcy will prolong any recovery for homeowners, who only get paid if they can prove their cases.

Even then, victims will get repaid in full for property damage and other claims “only if PG&E’s assets exceed its liabilities, and if the professional fees and other costs associated with a bankruptcy don’t eat those assets up,” Danko said. “Bankruptcies are unbelievably expensive.”

The case is Butte Fire JCCP 4853, California Superior Court, Sacramento County (Sacramento).

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