Pacific Gas & Electric Facing $2Bn Shortfall for Wildfire Victims' Trust

Pacific Gas & Electric is facing a nearly $2 billion shortfall in a $13.5 billion trust created during the company's bankruptcy for wildfire victims who have filed claims of devastation against PG&E.

The shortfall comes from half of the trust's funding being placed in company stock, despite critics saying it was a poor decision with the company's track record, and leaves most of the roughly 70,000 victims still waiting for payment. The wildfire victims' trust owns nearly one in every four PG&E shares, which is more than any other investor.

"Of course, I am nervous. My biggest fear is what is going to happen to the stock," said John Trotter, head of the wildfire victims' trust.

The shares have been doing poorly in the stock market, and though PG&E's shares may rebound, the trust would face an even bigger shortfall if the stock falls further. There has been genuine concern about the stock's value should the company be responsible for another wildfire in the next four months.

Extreme drought and climate change have contributed to worsening fire conditions in the western U.S. There were 58,950 wildfires in the U.S. in 2020 alone.

For more reporting from the Associated Press, see below.

The nation's largest utility has long vowed to change its reckless ways. After leaving a trail of death and destruction through Northern California from wildfires sparked by its equipment, PG&E's fifth CEO in less than three years is again pledging that the future will get "easier" and "brighter."

But those promises made by CEO Patricia "Patti" Poppe in her first letter to shareholders are ringing hollow a year after PG&E emerged from one of the most complex bankruptcy cases in U.S. history, an act of desperation driven by a succession of harrowing wildfires ignited by its long-neglected electrical grid.

The bankruptcy, PG&E's second in less than 20 years, was billed as an opportunity for a utility that provides power to 16 million people—a population greater than all but a handful of states—to finally hit the reset button.

So far, however, it has looked more like a reminder of problems that have resulted in tragedy after tragedy the past six years, including a 2018 wildfire that killed 85 people and destroyed the town of Paradise, about 170 miles (274 kilometers) northeast of San Francisco.

Already a twice-convicted felon, PG&E has been charged with another round of fire-related crimes that it denies committing. The utility also has been rebuked by California regulators and a federal judge overseeing its criminal probation for breaking promises to reduce the dangers posed by trees near its power lines.

Trotter, a retired federal judge who is being paid $1,500 per hour as the trustee, has other headaches, too. He and over 300 workers have come under heavy criticism for the slow pace of payments to victims who lost family, homes and other property anywhere from nearly three to six years ago.

During its first six months of operation last year, the trust doled out just $7.2 million to victims while running up nearly $39 million in operating expenses that reduced the amount available to be paid out, according to its financial records.

"I look at it like a locomotive, starting slowly, but we're puffing out the steam now and we are starting to roll now," Trotter told The Associated Press in an interview. "I just wish I had a magic wand and could make it go more quickly, but I can't. We are doing everything we can."

Trotter said he has a plan for eventually selling the stock without having to pay taxes on potential gains but wouldn't disclose his target price. The shares, which have recently been hovering around $10, will need to rise to about $14 per share for the trust to reach $13.5 billion.

Wall Street analysts project that PG&E's stock could reach $13 to $17 during the next 12 months, which would mark a dramatic turnaround. The shares have dropped by 17 percent so far this year, while the S&P 500 has climbed by 14 percent.

The trust has been making some progress. As of June 30, it had paid out $436.4 million. That is still just 3.2 percent of the $13.5 billion that was supposed to be earmarked for fire victims, a sign of "designed dysfunction" built into the utility's bankruptcy settlements, said Will Abrams, a victim of a PG&E-caused wildfire that terrorized his hometown of Santa Rosa, California, in 2017.

"I have been really disappointed," Abrams said. "The bankruptcy was sold as something that was going to hold PG&E to account, and it was not. Bankruptcy is not a process to reorganize. It is a process to divide up the dollars."

But nearly 45,000 victims voted for the plan, with only 6,109 opposed, according to court documents, clearing the way for its approval by U.S. Bankruptcy Judge Dennis Montali.

Many victims were swayed by lawyers who participated in settlement negotiations and argued that the plan was the best option. Eight of those lawyers are now part of a nine-person oversight committee for the victims' trust, an arrangement that Abrams believes is a conflict of interest.

Amy Bach, the only member of the trust oversight committee who wasn't involved in the PG&E bankruptcy negotiations, insists everyone is trying to ensure all the wildfire victims get as much money as quickly as possible. The lawyers involved are motivated to make that happen, she said, because their fees are contingent on their clients getting paid.

"We have kept as much pressure as we can on the claim reviewing team," said Bach, executive director for United Policyholders, a nonprofit group she formed nearly 30 years ago to fight insurers on behalf of fire victims. "They seem to be hearing us, it feels like things are speeding up."

Frank Pitre, another member of the oversight committee and one of the lawyers who has been representing fire victims, acknowledged that things have been moving slower than he hoped. That's one of the reasons he gives Trotter and his team a "B" grade for their efforts so far.

"There is a lot of room for improvement," Pitre said, but added that "there is no doubt in my mind that the effort is there."

PG&E believes it has already done its part to help fire victims.

"We funded the trust in accordance with our plan of reorganization," the utility said in a statement to the AP. "PG&E is not involved in distributing trust funds."

Sumeet Singh, PG&E's chief risk officer, listed a wide range of improvements that include using more advanced technology to avoid setting wildfires and help detect them quicker.

While PG&E hasn't lived up to expectations, Singh said, "I am very encouraged with new leadership, (a) new playbook, rigor and discipline that we are on the right track. We know we can do better and we will do better."

Trotter, meanwhile, is holding his breath as the weather heats up and the landscape in Northern California dries out.

"We are dealing with the hand we were dealt," Trotter said. "(PG&E) is saying the right things. Now we just have to see if they do the right things."