PG&E Surges on Overhaul Plan, But Still Needs to Win Over Newsom

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(Bloomberg) -- PG&E Corp. shares surged after the company proposed its most sweeping reform plan yet, offering to overhaul its board with safety experts in a bid to win state approval for its bankruptcy reorganization.

The question is whether it’s enough for California Governor Gavin Newsom.

PG&E detailed the proposed changes in filings late Friday with the California Public Utilities Commission and U.S. bankruptcy court. The plan calls for half the company’s board members to reside in California.

While the revised restructuring offers several steps Newsom wants, it falls short of handing the governor his entire list of demands -- most notably giving the state an option to take over the company. PG&E filed for Chapter 11 last year facing $30 billion in liabilities from wildfires blamed on its equipment, and Newsom has threatened to seize control if the utility doesn’t aggressively reform itself.

“PG&E continues to struggle to satisfy Governor Gavin Newsom’s demand that the utility commit to wide-ranging changes,” Sandhill Strategy LLC analyst Katie Bays said in a note Monday. “Ultimately, PG&E likely must offer Newsom an olive branch.”

Nonetheless, Wall Street appeared to optimistic about PG&E’s latest plan. The company’s shares rose as much as 11% in New York.

The governor’s office did not reply to a request for comment.

PG&E needs Newsom’s blessing to exit bankruptcy by a June 30 deadline to qualify for a state program offering assistance with future fire claims. Last week, the governor reiterated his objections to PG&E’s previous restructuring plan, saying it didn’t comply with state law. He’s criticized PG&E’s present board, saying it’s stacked with Wall Street hedge fund appointees.

In its statement Friday, the company said its latest reorganization plan addresses Newsom’s concerns.

“Under our Plan, the company will emerge from Chapter 11 as a reimagined utility with an enhanced safety structure, improved operations, and a board and management team focused on providing the safe, reliable, and clean energy our customers expect and deserve,” PG&E Chief Executive Officer Bill Johnson said in a statement.

What Bloomberg Intelligence Says

“PG&E’s board-overhaul plan omits mention of capital-structure changes and a state-takeover trigger that California Governor Gavin Newsom has sought, while satisfying one of his demands: adding Californians and safety experts as directors. Still, we believe that further discussions between Newsom and the bankrupt utility could ultimately lead to a conclusive deal.”

-- Kit Konolige, senior utilities analyst

Click here to view the research

The governor also said the earlier bankruptcy plan depended too heavily on debt and short-term financing that would leave the company without enough capital to fund safety upgrades.

PG&E said in its filing with regulators that it will have “investment-grade credit metrics” when it emerges from Chapter 11. The utility has reduced its holding-company debt by $2 billion compared with its earlier restructuring plan.

It also plans to pursue securitization financing to cover $7 billion in wildfire claims costs, according to the filings. The securitization would help improve the utility’s credit metrics and accelerate payments to a trust for wildfire victims, PG&E said.

Regionalization Plan

The company would also expand the role of its chief risk officer and increase the number of members on its independent safety oversight committee comprised of outside experts.

Under the regionalization plan, a number of local units would each have an executive officer who would report directly to the company’s chief executive. Each region would also have its own chief safety officer.

The move to create regional units also comes as San Francisco and three county-level agencies in Northern California have made offers to buy parts of PG&E’s system, with each saying they want more local control over their power supply. PG&E has so far rejected all of the offers.

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