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PG&E Could Avoid Jury Trial if $13.5 Billion Settlement Gets OK From Governor, Judge

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Pacific Gas & Electric workers install conduit in trenches for underground electric lines in Paradise, California. (Robyn Beck/AFP/Getty Images)

Pacific Gas and Electric will be able to avoid two major legal obstacles — ones that could have tripped up its efforts to bounce back from bankruptcy — if its $13.5 billion settlement offer to victims of catastrophic fires is approved by California's governor and a federal judge.

PG&E provided more details about the deal in a Monday regulatory filing, revealing that the settlement will allow the utility to skip a January civil trial intended to determine whether it was liable for the 2017 Tubbs fire in Northern California's wine country that killed 22 people.

The deal would also scrap plans for a federal court hearing that was supposed to estimate the company's total bill for all the fires between 2015 and 2018 linked to its power systems.

Facing potential damages of up to $30 billion, PG&E filed for bankruptcy last January.

If a judge had deemed the liabilities much higher in a trial, the company could have been rendered insolvent, which would have blown up its plan to reorganize its finances and resume normal business operations after emerging from bankruptcy protection next summer.

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"This is exciting news for PG&E. They didn't want to have anything to do with going before a jury," said Jared Ellias, a professor at UC Hastings College of the Law who has been closely following the bankruptcy case.

Investors also seemed relieved: PG&E's stock climbed nearly 16% Monday to close at $11.18.

For now, both the state and federal court hearings are on hold and expected to be shelved entirely, as long as the settlement with fire victims gets the required approvals within the next two weeks.

Gov. Gavin Newsom has until this Friday to sign off on the settlement, which meets his demand that PG&E increase the $7.5 billion it had previously earmarked for fire victims.

U.S. Bankruptcy Court Judge Dennis Montali has until Dec. 20 to approve it.

The governor's office said Newsom is reviewing the settlement to ensure it meets his goal of treating both the fire victims and PG&E employees fairly while also putting the utility on more stable financial footing to make extensive upgrades to its grid.

Both the company and the lawyer representing the bankruptcy committee for fire victims declined to comment on Monday.

The deal with the fire victims will make it easier for PG&E to meet a June 30 deadline set by the state to get out of bankruptcy in order to be partially protected from future fire losses by a special fund.

But it still isn't all smooth sailing for the state's largest utility. The San Francisco company still must defeat a competing plan for its reorganization submitted by a group of its bond holders. The proposal lost its previous support from fire victims as part of the $13.5 billion settlement.

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The company is also still awaiting Montali's approval for a separate $11 billion settlement with 110 insurers who have already paid policyholder claims in the fire. That deal had been facing fierce resistance from fire victims who had feared it would drain PG&E of all its cash, leaving them in the lurch or forced to accept nothing but stock in a company that could be worthless.

The new deal with fire victims calls for the company to pay out half the settlement in cash, staggered in installments that will begin with the settlement's approval and continue through January 2022. The second half will consist of stock in the reorganized company, giving fire victims a nearly 21% stake in the utility, according to Monday's filing.

The stock payment will be a boon for fire victims if PG&E fares as well as it did after it ended a three-year stint in bankruptcy protection in April 2004. The company's stock soared from about $29 to a high of $71.57 in Sept. 2017, just before the Tubbs fire signaled that it could be facing huge financial headaches for many years ahead.

The fire risks underlying the utility's current trip through bankruptcy make this time around much different from the previous one, which was caused by a botched attempt at electricity deregulation. As a result, PG&E is likely to face a bumpier ride out of bankruptcy, making it more likely that its stock will swing more wildly too.

"There is nothing in this settlement that solves the problem that PG&E is still going to be running a really risky business," Ellias said.

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