California Governor Threatens to Step In and ‘Restructure’ PG&E

(Bloomberg) -- California Governor Gavin Newsom threatened a state takeover of PG&E Corp. unless the beleaguered utility giant makes a swift exit from bankruptcy and improves its operations to reduce wildfire risks.

“We are gaming out a backup plan if Pacific Gas and Electric is unable to secure its own fate and future,” Newsom said in a media briefing Friday. Among options being considered are a state-led restructuring of the utility, he said.

Newsom has repeatedly bashed PG&E for its handling of a series of intentional and unprecedented mass blackouts -- intended to keep power lines from igniting fires during high winds -- that have left millions of Californians in the dark. The governor has expressed frustration that the utility hasn't moved faster to improve operations and speed up investments needed to prevent future shutoffs.

The swiftest way to transform the company is to get it out of bankruptcy quickly, Newsom said. He will hold a meeting next week with PG&E executives, shareholders, wildfire victims and creditors to help make sure the company meets a state-mandated target to exit Chapter 11 by June 30, 2020.

“If the parties fail to reach an agreement quickly to begin this process of transformation, the state will not hesitate to step in and restructure the utility,” he said in a statement. “All options are on the table.”

Disappointed with the utility's management of the blackouts, Newsom has encouraged others to bid on PG&E, including billionaire Warren Buffett's Berkshire Hathaway Inc.

Stakeholder Battle

“We share the governor's focus on reducing wildfire risk across California and understand that PG&E must play a role in these efforts,” the San Francisco-based utility said in a statement. “We welcome the governor's and the state's engagement on these vital matters and share the same goal of fairly resolving the wildfire claims and exiting the Chapter 11 process as quickly as possible.”

Read more: evacuations mount in Southern California as wildfire spreads

Some of Wall Street's biggest names are battling in court for control of the utility, which filed for bankruptcy in January in the face of $30 billion of estimated liabilities from wildfires blamed on its equipment.

A group of bondholders led by billionaire Paul Singer's Elliott Management Corp. and Pacific Investment Management Co. recently won court approval to pitch their reorganization plan alongside that of PG&E and its shareholders. The bondholders have aligned with wildfire victims with a plan that sets aside billions more for individual fire claims and would virtually wipe out existing shareholders. U.S. Bankruptcy Judge Dennis Montali recently ordered the principal parties in the case into mediation, a request made by PG&E.

Newsom said that he was appointing his cabinet secretary, Ana Matosantos, to serve as the state's “energy czar.” She will head up a team of advisers that will develop the backup plan for PG&E should the state need to take action.

Read more: How California's quiet fire season suddenly turned into chaos

He added that the team will evaluate several possible scenarios for PG&E -- including converting it into a state-operated utility or a “privately managed” government entity.

Newsom said PG&E could be structured like the state's independent grid operator, which is a non-profit corporation set up to manage the flow of power across the state. He has also tasked his team to craft a blueprint on how to transform the company's culture and operations that will be presented in the coming weeks.

“PG&E as we know it cannot persist and continue,” he said. “It has to be completely transformed.”

To contact the reporter on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, Boris Korby, Kara Wetzel

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