George Boardman: Officials seek political cover while PG&E’s victims fight to recover damages
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PG&E has become everybody’s favorite piñata, whacking away at the lumbering giant to either release their frustration or obscure the weak oversight that led to the current situation where we pay first-world rates to get third-world service.
Led by Gov. Gavin Newsom, politicians are quick to do anything they can to divert attention from their willingness to accept PG&E’s money and go easy on regulation in the past. All of a sudden, the Public Utilities Commission is asking the tough questions nobody bothered to ask in the last 20 years.
Newsom in particular is haunted by the ghost of Gray Davis, who was recalled from office in 2003 after an energy crisis triggered rolling blackouts across the state and near financial ruin for utilities.
The crisis was caused by the illegal market manipulation of Enron Corp. and other energy companies that took advantage of California’s decision to deregulate the utility industry before Davis took office. The underpinnings of the 2000-01 energy crisis were too complex to easily explain to the public and Enron’s deceit wasn’t exposed until the crisis had passed. To the public, Davis appeared to be too politically paralyzed and inept to deliver a basic, essential service to millions of Californians.
It didn’t take Newsom long to realize he was in danger of repeating Davis’ mistake. The morning after the lights were first shut off in Northern California in October, Newsom was at the opposite end of the state holding news conferences trumpeting housing legislation and other bills he was signing into law. The Twitterati soon attacked, roasting him for tweeting about capping rent and cracking down on robocalls while children sat in dark classrooms and food spoiled in warm refrigerators.
But Newsom had an easier out than Davis because PG&E was clearly the bad guy in this crisis.
“In Newsom’s case, he has the advantage of being able to say that this is not the state’s fault, this is not the (federal) government’s fault, this is not the customers’ fault. This is PG&E’s fault,” said Garry South, long-time Democratic Party consultant who advised Davis.
Lost in all of this political posturing are the 70,000 to 100,000 victims of PG&E’s negligence that led to the death of more than 100 people, the destruction of 26,000 buildings, and the burning of at least 330,000 acres in 2017 and 2018. Thanks to the utility’s ability to take refuge in the bankruptcy courts, the victims of the company’s criminal behavior have lost their negotiating power and are likely to get a fraction of the compensation they might receive in a jury trial.
Lawyers for the fire victims estimate the utility is liable for as much as $54 billion in wildfire claims, but PG&E won’t pay anything near that amount. Before filing for bankruptcy, the utility said its fire-related liabilities could total more than $30 billion. Now PG&E is offering $20.4 billion to cover all damages, including reimbursement to insurance companies. Just $7.5 billion of that is for residents and business owners hurt by the fires.
Bankruptcy rules are designed to give troubled companies a fresh start by allowing them to negotiate with creditors rather than answer to a jury. Wildfire victims are considered creditors owed a debt by the utility.
The amount wildfire victims get will be determined in a process known as estimation. In the estimation hearings scheduled to start Feb. 18, PG&E’s lawyers will try to reduce the compensation amount while lawyers for the victims will seek more.
Arriving at a figure for fire damages will involve weeks of debate on such matters as the cost of replacing destroyed homes, and what a life is worth. Only a handful of victims will get the chance to testify about their harm. Victims’ lawyers can also seek punitive and emotional damages, but unless there is a settlement, a judge decides how much PG&E will pay.
There’s a good chance PG&E will be forced to offer more money. Bondholders led by hedge fund Elliott Management Corp. are fighting PG&E and its shareholders for control of the company, alleging the company is protecting shareholders at the expense of fire victims.
Fire victims have agreed to back the bondholder plan, which would pay them $13.5 billion, a substantial improvement over PG&E’s initial offer of $7.5 billion. The utility has since initiated settlement talks that could result in a payout close to $13.5 billion.
Still, that’s a fraction of what fire victims could recover if they had their day in court, more than two years after their lives were upended. PG&E last faced a jury after the 2010 gas pipeline explosion in San Bruno that killed eight people and wrecked a neighborhood. After a judge found PG&E criminally liable, it settled with plaintiffs in civil lawsuits, often shortly before trials were scheduled to begin.
As it turns out, the victims of the recent Kincade Fire in Sonoma County that burned more than 400 buildings may be the lucky ones, if that’s the word. Bankruptcy rules put them ahead of other claimants.
By law, claims made after PG&E’s January filing must be fully paid on or before the day the utility exits bankruptcy, and the last thing the utility wants to do is face juries.
“They are terrified of seeing a jury,” said Jared Ellias, a law professor at UC’s Hastings College of Law. “It’s difficult to overstate the antipathy toward PG&E here. I can’t imagine a less popular company.”
George Boardman lives at Lake of the Pines. His column is published Mondays by The Union. Write to him at email@example.com.
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