Thousands of California wildfire victims who are due payments under a $13.5 billion settlement with the state’s major utility are finding out that the amount they receive is dependent to Wall Street’s whims. According to court filings and other documents reviewed by CNBC’s “American Greed,” the retired California appellate judge overseeing the trust fund set up as part of PG&E’s bankruptcy reorganization last year, as well as the retired California appellate judge overseeing the trust fund set up as part of the bankruptcy reorganization last year. “We don’t know how much money we have because a significant portion of the assets that will be used to pay you are in the form of common stock of Pacific Gas and Electric,” said court-appointed trustee John K. Trotter of the Fire Victim Trust in a video message sent to the more than 70,000 fire victims who have filed claims last month. The fund will help victims of 24 wildfires, including the disastrous Camp Fire in 2018, which killed at least 84 people and devastated much of Paradise. The largest and most catastrophic fire in California history was sparked by the failure of a piece of equipment known as a C-hook on a century-old PG&E transmission tower, according to an inquiry. “This is the clincher. This is the weapon that took 84 of our Butte County residents’ lives, hopes, dreams, and souls “Mike Ramsey, the Butte County District Attorney, said as much. Target that is moving Those who have survived are still trying to reconstruct their lives. Nearly 19,000 structures were destroyed in the fire. Because a bankruptcy immediately puts all other legal actions on hold, PG&E’s bankruptcy filing on Jan. 29, 2019, essentially precluded victims from suing the business. Instead, the court-approved reorganization plan established the fund, with Trotter, a seasoned arbitrator, in charge. After the Camp fire ravaged the region in Paradise, California on November 12, 2018, Alameda County Sheriff Coroner officials search for human remains. Getty Images | Josh Edelson | AFP Experts say that funding a portion of the trust with stock is unusual. The trust received 478 million shares of equity in the restructured firm, making it the utility’s largest shareholder. The potential tax implications of cashing in the stock to recompense the victims further complicates matters, according to Trotter. According to Trotter, the stock was valued at roughly $9 per share when the trust was founded. Anything exceeding that, he warned, might trigger substantial capital gains taxes. The stock has recently been trading at roughly $10, implying a possible taxable gain of $478 million on paper. “45% of that would go to the government,” Trotter explained. The trust recently obtained a judgement from the Internal Revenue Service, he claimed, which should allow it to avoid paying taxes. However, the wait for that judgement, as well as the difficult procedure of monetizing the stock without incurring tax implications, has caused payments to the victims to be delayed. Another point to consider is that, while the stock has risen in value since PG&E emerged from bankruptcy last year, it has not risen as much as some of the settlement’s architects may have anticipated. “The stock has dropped 17% this year, despite the fact that the stock market has been very strong. So far, it hasn’t fared well “Trotter said. He estimated that the stock would be worth $4.8 billion at present prices. “Your settlement stipulated that you have $6.75 billion in stock,” he explained. “That is not the case.” Settlement of historical significance When the fund was granted by a court in June as part of PG&E’s strategy to emerge from Chapter 11 bankruptcy, the company hailed it as a “important milestone” in turning the company around and compensating victims. “While nothing can heal the scars left by the Camp Fire, we hope that the steps we’re taking to reduce wildfire risk, harden our system, and compensate victims will help restore our communities’ trust in us and their belief that we’re doing everything we can to keep them safe,” said PG&E President and CEO Bill Johnson in a statement. On November 9, 2018 near Magalia, California, a Cal Fire firefighter monitors a burning home as the Camp Fire spreads through the neighborhood. Getty Images/Justin Sullivan The company’s $6.75 billion valuation was “based on an agreed-upon calculation,” according to the statement, which also highlighted that “the eventual value of the shares could be higher or lower.” The pace of payouts under the settlement has been particularly worrisome for victims. Cathy Yanni, the trust’s claims administrator, has estimated that paying all of the claims will take at least two years. The procedure took a long time to get going. According to Trotter’s first annual report submitted with the bankruptcy court in April, the fund had paid just around $7.2 million in claims to 499 victims while piling up $38.7 million in running expenditures from the trust’s formation on July 1, 2020 through the end of the year. According to a KQED investigation in San Francisco, the trust spent an extra $12.7 million granted by PG&E to set up the claims procedure, totaling $51.4 million — more than seven times what the trust had paid out. This year, the amount of money paid to victims has climbed considerably. The trust announced this week that it has paid out more than $436 million to over 13,000 claimants as of June 30. More than half of the money was distributed under a unique method that permits victims to apply for up to $25,000 in early payouts with minimum paperwork in order to get through the initial difficulty. Furthermore, the trust is suing a number of third parties, including former PG&E officers and directors as well as outside contractors, with the goal of potentially boosting the amount of money available to victims. The trust has not given updated operational expense information. Trotter defended the enormous sum of money paid upfront in an earlier video message for the victims, saying it was necessary due to the difficult effort of processing all of the claims — in most cases, numerous claims per victim — not to mention putting up the entire claims system from scratch. Trotter stated, “We have nearly 250,000 individual claims.” “The gravity of this case is also what distinguishes it.” He explained, “We’re establishing the procedure by which you’ll be compensated.” “If we weren’t spending money, I’m sure you’d be concerned. That’s when you should be concerned if we weren’t employing 300 employees to assist us in resolving your claims.” Trotter stated that he aimed to keep expenses to 1% of the dividend in the end. In circumstances like this, he noted, a more common expense ratio is roughly 4%. “One percent is a very small percentage,” he remarked. “I’m not sure I’ll be able to hold on to that. But I’m going to give it my all.” A new beginning The stock’s price, on the other hand, complicates things. Victims, according to Trotter, should be rooting for the reformed company’s success. On November 15, 2018, an aerial image of Paradise, California, taken from Clark Road. In Paradise, the Camp Fire has destroyed almost 7,000 structures. Getty Images | Carolyn Cole | Los Angeles Times “You own 25% of PG&E, or 24 1/2 percent, therefore it’s crucial for you to want PG&E to succeed,” he continued. “I don’t have to tell you that the old PG&E was anything but a model corporate citizen. The new PG&E, which now appears before the California Utilities Commission on a regular basis, is trying harder and doing a better job.” The “old” PG&E pleaded guilty to 84 counts of involuntary homicide in connection with the Camp Fire after filing for Chapter 11 bankruptcy protection in 2019. A judge imposed a $3.5 million fine on the corporation. The business denied putting profits ahead of safety in a response to “American Greed.” The corporation stated, “While we cannot change the past, we can learn from it.” “In our pursuit of safety and doing what is right, we must never give up.” Thousands of fire victims, on the other hand, are still living in a nightmare. Learn how PG&E went from being a model utility to becoming a convicted murderer. On Monday, July 5 at 10 p.m. ET/PT, only on CNBC, see an ALL NEW episode of “American Greed.”/n
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