PCG PG&E Corporation

By Katherine Blunt 

California Gov. Gavin Newsom on Friday dropped his opposition to PG&E Corp.'s plan to emerge from bankruptcy protection after striking a deal requiring certain concessions from the company.

As part of the deal, PG&E has agreed to put itself up for sale if it can't exit bankruptcy by June 30, a state-imposed deadline for its emergence if it wants to qualify for a state wildfire fund.

PG&E also agreed to use shareholder funding to reduce its debt load and submit to more stringent regulatory oversight that could lead to a state takeover of the company if it fails to make safety improvements.

"Because of these new tools, the state will have the legal authority to continue demanding total transformation even after the company emerges from bankruptcy," Mr. Newsom said in a statement. "We aren't taking our foot off the gas."

The move clears one of the last major remaining hurdles for PG&E to exit Chapter 11. The company sought bankruptcy protection last year due to billions in potential liabilities from wildfires sparked by its equipment. The company disclosed the details of the agreement in a bankruptcy court filing.

The plan is now subject to approval by the California Public Utilities Commission, as well as a vote by the company's creditors, which include wildfire victims as well as shareholders and bondholders.

"We now look to the California Public Utilities Commission to approve the Plan through its established regulatory process, so that we can exit Chapter 11, pay wildfire victims fairly and as soon as possible, and participate in the State's Wildfire Fund," PG&E Chief Executive Bill Johnson said in a statement.

Mr. Newsom, a Democrat, had for months opposed PG&E's reorganization plan, which proposes raising billions of dollars in debt and equity to pay damages tied to a series of deadly wildfires throughout its service territory. He raised concerns that the plan would leave the company too leveraged to make safety investments in the electric grid and failed to ensure operational change within its leadership.

As part of the deal, PG&E has agreed to submit to an "operational observer" selected by the state to monitor its safety compliance. The company earlier this year agreed to replace many of its current directors and expand safety positions and performance metrics after it emerged from bankruptcy protection.

The company will now be subject to stricter regulatory oversight from the California Public Utilities Commission to ensure its compliance with state regulations. Marybel Batjer, the agency's president, last month proposed a series of escalating sanctions for continual violations, culminating with a process to revoke the utility's license to operate if necessary.

The company is seeking regulatory approval to issue $7.5 billion in low-interest bonds to replace pricier short-term loans included in its reorganization plan. As part of the deal with the governor, shareholders would have to foot the repayment of those bonds.

PG&E also agreed not to reinstate dividend payments to shareholders for about three years. Those payments have been suspended since the end of 2017, after a series of deadly wildfires in California's wine country.

A U.S. district judge overseeing PG&E's federal probation tied to a 2010 natural-gas pipeline explosion has also restricted the company from reinstating dividend payments until it dramatically reduces the risk of its equipment sparking more wildfires.

State fire investigators have tied PG&E's equipment to 18 wildfires in 2017 and 2018 that collectively killed more than 100 people and destroyed roughly 15,700 homes. The company has agreed to settle claims from insurers, individual fire victims, cities and public agencies for more than $25 billion.

Write to Katherine Blunt at Katherine.Blunt@wsj.com

(END) Dow Jones Newswires

March 20, 2020 18:57 ET (22:57 GMT)

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