Amid lingering opposition from a range of creditors, attorneys for Pacific Gas and Electric Co. and its parent company, PG&E Corp., on June 8 made their final arguments to the U.S. Bankruptcy Court for the Northern District of California in San Francisco to approve their joint $58 billion restructuring plan.

Saying that the proposal has won a "virtual universal consensus" among the most critical stakeholders, including the California Public Utilities Commission, Gov. Gavin Newsom and the vast majority of voting wildfire victims, Stephen Karotkin, lead attorney for the embattled debtors, urged prompt confirmation of the reorganization plan as the only viable outcome.

"Any other path would be value-destructive, eliminate any chance of meeting the [state-mandated June 30] deadline and getting the protection of the [$21 billion] go-forward wildfire fund prior to the next wildfire season, and perhaps most importantly ... will delay distribution to the fire claimants for months, if not years," Karotkin said.

But even as Pacific Gas and Electric, or PG&E, seeks approval of the plan in order to advance financing deals required to emerge from nearly a year-and-a-half in Chapter 11 bankruptcy protection, California's largest utility must still tie up several important loose ends.

The company must reach a resolution with wildfire victims' attorneys on a "registration rights agreement," which would provide timing and other details on the estimated $6.75 billion stock portion of wildfire victims' $13.5 billion settlement. In addition, power suppliers and other parties holding various contracts with the utility requested last-minute amendments to the restructuring plan.

At issue is whether PG&E has the right to make certain modifications to power purchase agreements, or PPAs, it said it would assume as part of its reorganization. The utility holds 387 contracts with 350 PPA counterparties for 13,668 MW, valued at roughly $42 billion. Over half of those are for renewable energy, and PG&E's assumption of those contracts was a key aspect of regulators' decision to approve its restructuring plan and declare it in compliance with state climate policies.

'Orwellian interpretation'

While a small number of contract counterparties have agreed to contract price changes, attorneys representing PPA holders voiced concern at the June 8 hearing about PG&E's move to eliminate some rights from contracts through its restructuring plan, including the right of counterparties to seek indemnity claims for damages caused by the utility.

"This is not a hypothetical concern," said Mark McKane, an attorney representing Houston-based Calpine Corp., which holds numerous renewable energy and natural gas contracts with PG&E.

Calpine operates a large network of geothermal power plants in Sonoma and Lake counties that were partially affected by the 2019 Kincade Fire. The fire, which started near Calpine's Calistoga Geothermal plant, remains under investigation, but Calpine may seek to file an indemnity claim against PG&E, depending on the outcome.

The company fears that unless changes are made to the plan, its right to do so could be "cut off" before the Kincade Fire probe and related claims are resolved.

"It seems... we started this case with PPA controversies and it looks like we are potentially ending this case with PPA controversies," added Hugh McDonald, an attorney for Consolidated Edison Development Inc., an affiliate of Consolidated Edison Inc. that holds 16 renewable energy contracts with PG&E. Consolidated Edison Development is also concerned about PG&E's attempt to strike indemnity rights from power contracts and interconnection agreements, calling it a "non-consensual modification."

PG&E's restructuring plan "is essentially fatally flawed," said Gregory Bray, an attorney for an official court committee representing the interests of PPA counterparties and other creditors who were treated in the bankruptcy proceeding as unimpaired, and thus not entitled to vote on the plan. By saying it was going to assume all PPAs, then modifying its plan to strike PPA counterparties' indemnification and other contractual rights, PG&E was making "an almost Orwellian interpretation" of its legal requirements, Bray added.

While parties proposed numerous changes to the restructuring plan to address their concerns, PG&E does not appear willing to concede.

"You don't get a free pass on an assumption," Karotkin, PG&E's lead attorney said. Rather than a "blanket pass," claims should be addressed on a case by case basis as they arise, he added.