Thomas Elias: Already burned, will fire victims also be cheated?
It might have been Gov. Gavin Newsom’s best move yet, both politically and on its merits: Disapproving the ballyhooed $13.5 billion settlement Pacific Gas & Electric Co. reached in mid-December with lawyers for tens of thousands of homeowners and businesses burned out in fires at least partially caused by PG&E equipment over the last three years.
But not mainly for the reasons Newsom stated. As critical as Newsom was of the deal, approved in December by PG&E’s bankruptcy judge and possibly assuring quick payment of more than $2 billion in contingency fees to trial lawyers, he ignored the worst parts of the deal. Those could result in fire victims also being cheated.
One big problem is that a supposed one-half of the settlement ($6.75 billion) would take the form of PG&E shares. This stands to turn fire victims from severe critics of PG&E into the company’s staunchest allies because PG&E’s victims could suddenly have a very strong financial interest in the company’s survival.
If the victims all sold their new PG&E shares quickly, they could be big losers because share prices would likely drop sharply in a selloff involving multiple millions of shares. As a result, many victims will hang onto them, at least for awhile.
Then there’s the starting value of the shares: The deal sets shares going to fire victims at a minimum of 20.9 percent of PG&E’s total stock. With overall stock worth about $5.8 billion on the day the deal was made, this means the victims’ shares will most likely be worth no more than $1.22 billion unless PG&E stock soars. It would have to quintuple from recent levels for the offering to be worth the stated $6.75 billion. When asked, not even PG&E offered any reason why that should happen soon.
Newsom mentioned none of this, even as he made other valid points. In his rejection letter, the governor said the plan doesn’t comply with the state’s newest wildfire law, last summer’s AB 1054, which set up a $20 billion consumer-financed Wildfire Fund to pay utilities for liabilities from fires caused by their equipment. While Newsom has no direct power over the agreement, he could influence whether his appointees to the state Public Utilities Commission approve it – and whether PG&E gets to tap the Wildfire Fund.
The governor also griped the settlement would not “result in a reorganized company positioned to provide safe, reliable and affordable (electricity) service.”
He demanded that PG&E set up a new board of directors and a financial model letting it function without big new rate increases. He also told PG&E its safety improvement plans must be better.
But the inclusion of so much PG&E stock of uncertain value has the potential to cheat fire victims more than anything Newsom mentioned. If, for one possibility, PG&E runs up more liability in future fires, the share value would drop, not rise. Which means victims who want to rebuild have no idea how much cash they’ll eventually get.
It’s fundamentally immoral for the company and the trial lawyers to so grossly mislead people already harmed by the company’s negligence. It was also wrong that some law firms did not tell fire victims what proportions of PG&E stock and cash they would accept to cover their fees.
But Newsom’s refusal to OK the settlement might make some of this moot. Changes PG&E could propose for the settlement might include less stock and more cash, or might include even more stock. That’s not yet determined, as Newsom’s stance likely will force PG&E to devise a new formula both to settle its liabilities and to include money for much faster equipment fixes than it has so far planned.
The test for Newsom is whether he will demand truly fair treatment for the victims along with more safety and a major corporate reshaping of PG&E, his longtime financial backer.
Newsom, just one year into office, is still building a record. Having watered down a needed public health measure passed by legislators last summer to prevent fake exemptions from vaccination requirements for schoolchildren, he cannot politically afford to accept a watered-down utility settlement.
Email Thomas Elias at email@example.com. His book, “The Burzynski Breakthrough: The Most Promising Cancer Treatment and the Government’s Campaign to Squelch It,” is now available in a soft cover fourth edition. For more Elias columns, go to http://www.californiafocus.net
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