GLOSSARY of commonly used terms in this bankruptcy

  • AB 1054 is a California law passed in 2019 that creates the $21 billion ‘Go Forward Wildfire Fund’. PG&E and other large investor owned utilities (‘IOU’s) may draw from the Fund to pay liabilities for fires started after July 2019. To participate, PG&E must make an initial contribution to the Fund of approximately $4.8 billion and annual contributions of approximately $193 million. Crucially, PG&E must also meet state-mandated safety standards. While some of PG&E’s contributions will be absorbed by the company, the law permits PG&E to add $2.50 per month to each customer bill to cover safety and wildfire expenses. In order for PG&E to participate in the Go Forward Wildfire Fund, the law requires PG&E to emerge from bankruptcy by June 30, 2020, and the Bankruptcy Plan must be approved by Governor Gavin Newsom and the CPUC. As of February 20, 2020, those approvals have not been granted.

  • Bankruptcy - Chapter 11 is the current bankruptcy process being used by the PG&E bankruptcy court, and involves a reorganization of a debtor's business affairs, debts, and assets. The debtor (PG&E) remains in business and continues operations, but all lawsuits and collection actions against the debtor are “stayed” (paused). This gives the debtor time to renegotiate its debts and pull together a Bankruptcy Plan (a long and complex document spelling out exactly how the debtor will exit bankruptcy and meet it’s obligations to all creditors going forward). A Chapter 11 bankruptcy is the most involved and expensive of all bankruptcy case types.

  • Bankruptcy - Chapter 7 is an alternative bankruptcy process used by a debtor that is liquidating its assets, meaning selling them off, and is the main alternative to a Chapter 11 Bankruptcy for corporations. As assets are sold, the money is used to first pay the expenses of operation and liquidation, and then to pay creditors. Creditors are paid in order of priority: secured creditors are paid before unsecured creditors (fire victim claimants are unsecured creditors). Please note that in a Chapter 7 bankruptcy, fire victims WILL get paid - however resolving the bankruptcy could take longer.

  • Bondholder owns bonds in PG&E. Bonds are much like loans, and bondholders are entitled to receive interest and to be paid for the face value of the bond when it matures (come due). Bonds are usually tradable on an exchange, like stock, and can go up and down in value depending on prevailing interest rates, and the reputation and solvency of the bond issuer (in this case PG&E).

  • Cal OES is the California Office of Emergency Services. It has filed a claim against PG&E for about $2.3 billion to cover expenses relating to the Camp Fire. Our understanding is that about $2 billion of that claim overlaps with FEMA’s claim.

  • Claimant is an individual, business, insurance company, or governmental entity that has filed a claim for payment from PG&E in the bankruptcy.

  • Chapter 7 Analysis will be an exhibit to PG&E Bankruptcy Plan that shows PG&E’s calculation of what claimants (including fire victims as a group) would get if PG&E were liquidating its assets under Chapter 7 instead of adopting a reorganization plan under Chapter 11. As of February 20, 2020, we haven’t seen this Analysis.

  • Confirmation or Plan Confirmation generally means the Bankruptcy Plan has been approved by (i) more than 50% in number and 2/3’s in dollar value of at least one class of impaired creditors and (ii) the Bankruptcy Judge. There are exceptions and technicalities to these confirmation requirements, which are beyond our expertise. For more information about confirmation, see this NOLO Press site.

  • CPUC means the California Public Utilities Commission. The CPUC describes its role in the PG&E bankruptcy as follows: “The CPUC’s role as a regulator is to ensure PG&E’s responsibilities are being discharged so that its customers receive safe and reliable service at reasonable rates consistent with achieving California’s climate goals. The CPUC will consider the impacts on ratepayers of PG&E’s proposed plan. The CPUC must also make other findings, pursuant to Assembly Bill 1054 passed in July 2019, in order to ensure that PG&E’s proposed plan and other documents resolving PG&E’s insolvency proceedings meet California’s climate goals, are neutral on average to ratepayers, and that the resulting governance structure of the reorganized utility are acceptable in light of PG&E’s safety history criminal probation, and recent financial condition.

  • Creditor is an individual (including individual fire victims), business, entity, or governmental unit that has a claim for payment.

  • Debtors are the parties that file for bankruptcy protection. In this case, there are actually two Debtors, PG&E Corporation and Pacific Gas and Electric Company. PG&E Corporation is a publicly-traded holding company that owns 100% of Pacific Gas and Electric Company, the utility that provides gas and electrical service. The stock to be issued to the Fire Victims Trust is common stock PG&E Corporation. When people refer to “PG&E,” they usually mean both companies.

  • Disclosure Statement contains (i) a summary of the Bankruptcy Plan, (ii) a description of the voting process, (iii) a list of factors to consider before voting, and (iv) a litany of the risks and tax consequences of the Bankruptcy Plan. Every creditor entitled to vote will receive or get access to the Disclosure Statement. In the PG&E case, we will also receive a Summary of the Disclosure Statement.

  • Effective Date means the date the confirmed Bankruptcy Plan is put into effect. Generally, on the Effective Date, new stock and bonds are issued, prior debts are paid, and payments are made into trusts for claimants. On the Effective Date in the PG&E case, PG&E will deliver to the Fire Victims Trust (i) $5.4 billion in cash, and (ii) $6.75 billion in common stock of PG&E Corporation, which will represent not be less than 20.9% of the company on the Effective Date. (Under the Bankruptcy Plan, PG&E is agreeing to deliver to the Fire Victims Trust another $650 million on January 15, 2021 and $700 million on January 15, 2022.) The Effective Date is supposed to happen before August 29, 2020.

  • FEMA means the Federal Emergency Management Association. It has made a $4 billion plus claim against PG&E to cover a long list of expenses relating to the Fires.

  • Fires means the wildfires commonly called Atlas, Camp, Cascade, Cherokee, Highway 37, Honey, La Porte, Lobo, Mayacamas, McCourtney, Nuns (which includes Adobe, Norrbom, Patrick, Pressley, and Oakmont fires), Pocket, Point, Potter/Redwood, Sullivan, Sulphur, and Tubbs fires.

  • Fire Victim Equity Value - the projected total dollar value of the reorganized PG&E stock component funding the Fire Victim Trust, as of an agreed upon date. It is ‘projected’ because it relies on estimates of future net income and a ‘reasonable’ P/E (price to earnings) ratio.

  • Fire Victim Trust will hold the cash and stock delivered by PG&E on the Effective Date and will administer the valuation of claim and distribution of payments. We are expecting to learn more about the trust procedures in March 2020.

  • Go Forward Wildfire Fund – see AB 1054 above.

  • Impaired and Unimpaired creditor. An unimpaired creditor is getting paid in full and an impaired creditor is one that is not.  Fire victims are impaired creditors.

  • NOL or Net Operating Loss - an accounting result permitted by the IRS - a corporation experiences an NOL when it’s allowable tax deductions in any given tax year exceeds its taxable income - thus generating an apparent operating loss for tax purposes. This ‘loss’ can then be used to offset tax liability (tax that is due) in future years (called a ‘carryforward’). Instead of using this result to reduce it’s own future taxes, PG&E can assign the potential tax savings as a cash contribution to a trust that is designed to pay creditors in the bankruptcy.

  • Normalized Estimated Net Income - an accounting method used by PG&E to estimate future net income*. Importantly, this estimated net income would be used by outside investors, and by PG&E (when it funds the Fire Victim Trust), to estimate the expected price of the reorganized PG&E stock, thru assigning a reasonable P/E (price to earnings) ratio (with the price of the stock then simply: P/E ratio multiplied by this estimated net income). [*the exact method of calculation is involved - but in the end it is nothing more than an educated guess based on estimates of how much PG&E will earn in each of it’s service lines less projected deductions.]

  • Public Entities means a group of governmental units that are participating in the Public Entities settlement agreement with PG&E. PG&E will be paying Public Entities a total of $1 billion. The Public Entities are City of Clearlake, the City of Napa, the City of Santa Rosa, the County of Lake, the Lake County Sanitation District, the County of Mendocino, Napa County, the County of Nevada, the County of Sonoma, the Sonoma County Agricultural Preservation and Open Space District, the Sonoma County Community Development Commission, the Sonoma County Water Agency, the Sonoma Valley County Sanitation District and the County of Yuba the Town of Paradise; the County of Butte; the Paradise Recreation & Park District; the County of Yuba; and the Calaveras County Water District.

  • Reorganized PG&E means the two PG&E companies (PG&E Corporation and its subsidiary Pacific Gas & Electric Company) on and after the Effective Date.

  • RSA or Restructuring Support Agreement by and among PG&E and the various creditor groups. The RSA spells out the terms of settlement and payment of claims and are incorporated into the Bankruptcy Plan.

  • Subrogation Rights is the right of an insurance company to recover what it pays to its insured from a responsible party. If you received insurance proceeds, your insurance company has the right to recover those payments from PG&E. In this case, subrogation claims are estimated to total $21 billion. However, many of these claims have been sold by insurance companies to hedge funds at a substantial discount. News reports say these claims sold for as low as 25 cents on the dollar.

  • Subrogation Rights Holders (aka Subro) is someone who holds a Subrogation Right either because it is an insurance company or it bought the rights from an insurance company.

  • Subro is a shorthand way of referring to the Subrogation Rights Holders in the PG&E case.

  • Subrogation RSA is the settlement agreement between PG&E and virtually all the Subrogation Rights Holders including AIG, Allstate, CIGA, Hartford, Liberty Mutual, State Farm, TLFO and Travelers. It also includes various investment funds managed by The Baupost Group which bought Subrogation Rights from at least a dozen insurance companies including CSAA, IDA, Nationwide, AMCO, Farmers and 21st Century. To see an example of insurance companies who have sold their rights look at the last pages of Claim 55574 on the Prime Clerk Docket.