The June 30, 2020, deadline for Pacific Gas & Electric to emerge from bankruptcy if the giant utility wants to be eligible for a $21 billion wildfire relief fund set up by Gov. Gavin Newsom and the Legislature earlier this year may end up an unofficial deadline of another sort: for the parties interested in taking over all or part of PG&E to put forward their best plans to win over Newsom, the Legislature, Wall Street and the public.

That’s because Newsom’s announcement of his opposition to PG&E’s plan to come out of bankruptcy contains such fundamental objections that it is hard to see a possible compromise. While the governor cannot single-handedly prevent the plan from being approved by regulators and a U.S. bankruptcy judge, his opinion is sure to carry weight. Without his support, PG&E’s path out of bankruptcy is sharply complicated.

Newsom described PG&E’s proposal as being “woefully short” of the commitments needs to ensure the scandal-plagued utility is able “to provide safe, reliable and affordable service to its customers.” His critique included what seemed akin to one of the “poison pills” that the corporate world uses to make sure deals are rejected: a demand that the utility replace every member of its board of directors.

The governor’s position appears encouraging to the coalition of Northern California cities that announced in early November that they were working together to craft a plan take over PG&E operations. Those cities: San Jose, Oakland, Berkeley, Sacramento, Hayward, Sunnyvale, Richmond, Redwood City, Petaluma, Sonoma, Windsor, Cotati, Elk Grove, Clovis, Chico, Redding, Davis, Santa Cruz, Scotts Valley and San Luis Obispo. Supervisors from San Mateo, Santa Cruz, Marin, Yolo and San Benito counties also endorsed the effort. The coalition includes local governments with about one-third of PG&E’s 16 million customers in the utility’s 70,000-square-mile service area.

Cities push for power provider run like credit union

San Jose Mayor Sam Liccardo – de facto leader of the coalition – told the San Francisco Chronicle that he envisioned a electricity supplier run more like a nonprofit credit union than a government-run utility. Backers cited the Georgia Electric Membership Corp., a 501(c)(6) nonprofit that distributes energy from three power providers to 41 not-for-profit local utilities with a total of 4.4 million customers.

But another approach has the strong backing of one of the richest cities in America: San Francisco. Mayor London Breed has long been on record as saying local power infrastructure should be under local control and in September joined with City Attorney Dennis Herrera to offer PG&E $2.5 billion to buy local power lines. 

The measure was quickly rejected by PG&E and appears to have little support beyond city limits. In October, the editorial page of the San Francisco Chronicle called the plan unlikely to be approved by state regulators for a basic reason: Utilities use big-city profits to keep power affordable in rural communities, and any break-up of PG&E means “the state would almost certainly have to help provide power to rural areas — likely at taxpayer expense.”

Newsom has not explained his view of what a PG&E takeover might look like, but he appears to agree with the Chronicle about the need to keep intact the basic framework of a large utility. 

Gov. Newsom wants Warren Buffett to buy utility

In October, he made headlines when he said he hoped that Warren Buffett’s Berkshire Hathaway holding group considered buying the utility.

“We would love to see that interest materialize, in a more proactive, public effort,” Newsom told Bloomberg News.

While Buffett has shown no public interest in the idea of acquiring a controlling interest in California’s largest power utility, several hedge funds have been plain with their interest in taking over PG&E for nearly a year. They have drawn little support from lawmakers because of the perception they would be as indifferent to safety as the owners they hope to replace.

PG&E entered into bankruptcy in January, citing potential liabilities of $30 billion because of massive recent wildfires in recent years that have often been blamed on the utility’s poorly maintained infrastructure. 

The utility believed it had crossed a huge hurdle to emerging from bankruptcy on Dec. 6 when it announced a $13.5 billion settlement of damage claims from four of the largest blazes, sending its stock price higher. Seven days later, Newsom announced his opposition to the utility’s overall plan to emerge from bankruptcy, sending the stock price down to near 52-week lows.

The giant investor-owned utility’s proposal revealed last month to provide at least $235 million in bonuses to its employees drew incredulity both from attorneys for wildfire victims suing PG&E and from those closely monitoring its Chapter 11 bankruptcy. A decision on the request could come Tuesday from U.S. Bankruptcy Judge Dennis Montali.

Gov. Gavin Newsom also again made clear that he would not be nearly as accommodating as predecessor Jerry Brown, who said little about the utility even as its scandals mounted in recent years. Newsom took strong exception to a proposal by PG&E to fill some vacancies on its board of directors with hedge-fund executives, which goes against his demand that the board focus on safety, not protecting PG&E’s bottom line. PG&E proceeded with the plan last week despite the governor’s criticisms.

Bankruptcy judge: Will probation be revoked?

But this criticism didn’t keep the utility from scoring a court victory that’s crucial to its plan of using Chapter 11 proceedings to reorganize its assets, adequately compensate creditors, then emerge at some future date with relative fiscal and management stability. That’s what happened in 2004 after PG&E went through three years of Chapter 11 proceedings triggered by its inability to pay $9 billion in debt stemming from the winter 2000-01 state energy crisis, in which utilities were forced to pay far more on the spot energy market than they were allowed to charge customers because of a flawed 1996 energy deregulation law.

Montali recently decided to allow PG&E to access all the $5.5 billion in financing it had lined up from major banks to give it liquidity as it pursued bankruptcy. The decision normalized the Chapter 11 process – crucial to PG&E’s stock price and to its hope for a return to status-quo operations.

As recently as a month ago, this seemed far from a sure thing.

At a March 13 hearing on PG&E’s request to gain full use of the financing it had lined up in January, the bankruptcy judge noted that the utility also faced the possibility of severe sanction from another judge in San Francisco’s federal courthouse. U.S. District Judge William Alsup is serving as PG&E’s de facto probation officer, overseeing the utility’s actions after its 2016 conviction on six federal felonies for its lax oversight and stonewalling of investigators after a 2010 gas pipeline explosion (pictured) in San Bruno killed eight people. PG&E has admitted to new problems with gas-line safety inspections – including records being falsified – since the 2010 disaster.

Montali raised the prospect that Alsup would appoint a trustee to run the utility. The observation raised the hopes of lawyers for wildfire victims, who believe that the circumstances of PG&E’s recent behavior require that it not get the usual Chapter 11 treatment. One key argument: Would JP Morgan Chase, Bank of America, Barclays and Citigroup ever have agreed to the loans had the banks known PG&E would lose effective control of its management?

Banks agree to go slow if trustee takes over utility

But after meeting with lawyers for those suing PG&E for a long variety of claims, the bankruptcy judge concluded that for now, PG&E’s Chapter 11 proceedings could unfold on the conventional track.

According to the Chronicle, a key to Montali’s decision was the reassurance offered by lenders that the appointment of a trustee by a federal judge would not trigger the banks to declare a default within seven days, as they could have done under the previous agreement. Instead, they will wait at least 21 days. This would give more breathing room for the loans to be renegotiated on terms more favorable to the banks.

PG&E stock closed at $19.37 a share on Friday. That’s down nearly 60 percent from November.