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JACOB T. BEISWENGER (S.B. #321012) 

jbeiswenger@omm.com 

O’MELVENY & MYERS LLP 

400 South Hope Street 

Los Angeles, California 90071-2899 

Telephone: (213) 430-6000 

Facsimile: (213) 430-6407 

PETER FRIEDMAN (pro hac vice) 

pfriedman@omm.com 

O’MELVENY & MYERS LLP 

1625 Eye Street, NW 

Washington, DC 20006 

Telephone: (202) 383-5300 

Facsimile: (202) 383-5414 

Attorneys for Governor Gavin Newsom 

 

NANCY A. MITCHELL (pro hac vice) 

nmitchell@omm.com 

MATTHEW L. HINKER (pro hac vice) 

mhinker@omm.com 

O’MELVENY & MYERS LLP 

7 Times Square 

New York, New York 10036 

Telephone: (212) 326-2000 

Facsimile: (213) 326-2061 

UNITED STATES BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA 

SAN FRANCISCO DIVISION 

In re: 

PG&E CORPORATION, 

-andPACIFIC GAS & ELECTRIC 

COMPANY, 

Debtors. 

Case No. 19-30088 (DM) 

Chapter 11 Lead Case 

(Jointly Administered) 

 

OBJECTION OF GOVERNOR GAVIN 

NEWSOM TO DEBTORS’ AMENDED 

MOTION FOR ENTRY OF ORDERS (I) 

APPROVING TERMS OF, AND DEBTORS’ 

ENTRY INTO AND PERFORMANCE 

UNDER, EQUITY BACKSTOP 

COMMITMENT LETTERS, (II) 

APPROVING TERMS OF, AND DEBTORS’ 

ENTRY INTO AND PERFORMANCE 

UNDER, DEBT FINANCING 

COMMITMENT LETTERS AND (III) 

AUTHORIZING INCURRENCE, 

PAYMENT AND ALLOWANCE OF 

RELATED FEES AND/OR PREMIUMS, 

INDEMNITIES, COSTS AND EXPENSES 

AS ADMINISTRATIVE EXPENSE CLAIMS 

 Affects PG&E Corporation 

 Affects Pacific Gas & Electric 

Company 

 Affects both Debtors 

*All papers shall be filed in the Lead 

Case, No. 19-30088 (DM) 

[Related to Docket No. 5267] 

Date: January 29, 2020 

Time: 10:00 a.m. (Pacific Time) 

Place: United States Bankruptcy Court 

 Courtroom 17, 16th Floor 

 San Francisco, CA 94102 

Case: 19-30088 Doc# 5445 Filed: 01/22/20 Entered: 01/22/20 14:00:06 Page 1 of

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Governor Gavin Newsom, by and through his counsel, O’Melveny & Myers LLP, 

respectfully submits this objection (the “Objection”) in response to the Debtors’ Amended Motion 

for Entry of Orders (I) Approving Terms of, and Debtors’ Entry into and Performance Under, 

Equity Backstop Commitment Letters, (II) Approving Terms of, and Debtors’ Entry into and 

Performance Under, Debt Financing Commitment Letters and (III) Authorizing Incurrence, 

Payment and Allowance of Related Fees and/or Premiums, Indemnities, Costs and Expenses as 

Administrative Expense Claims [Docket No. 5267] (the “Plan Funding Motion). 1 Governor 

Newsom files this Objection in his official capacity as Governor of the State of California, but not 

on behalf of any agency, department, unit or entity of the State of California.2 In support of the 

Objection, Governor Newsom respectfully states as follows: 

1. The state of California’s objectives remain clear: (i) Californians must have access 

to safe, reliable and affordable service; (ii) wildfire victims must be treated fairly; and 

(iii) California must continue to make progress on its climate change goals. PG&E’s historical 

failures—including decades of mismanagement and inadequate investments in fire safety and fire 

prevention—require that any plan of reorganization must position the reorganized entity for 

transformation, include stringent governance and management requirements and enforcement 

mechanisms, and provide for a capital structure that allows the reorganized entity to undertake 

critical safety investments. In his December 13, 2019 letter to PG&E [Docket No. 5138-1] (the 

“December 13 Letter”), Governor Newsom made clear that the Debtors’ Plan, and the 

restructuring transactions contemplated therein, did not, in his judgment, result in a reorganized 

utility capable of satisfying the requirements of Assembly Bill 1054 (Holden, Chapter 79, Statues 

of 2019) (“AB 1054”). 

2. Since the December 13 Letter, the Governor’s staff—through numerous discussions 

and meetings with the Debtors’ advisors—provided the Debtors clear guidance on modifications 

that, in the Governor’s judgment, would align the Debtors’ Plan more closely with the requirements 

set forth in AB 1054. The modifications required for the Debtors’ Plan to meet AB 1054 are not 

 

1

 Capitalized terms used but not defined herein have the meaning given to such terms in the Plan Funding Motion. 

2

 The Attorney General has appeared in these proceedings on behalf of certain agencies and departments of the State 

of California. The Governor does not take a position on the issues raised in those filings in this pleading. 

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insubstantial or cosmetic. The Governor’s expectation is that the Debtors’ Plan must be materially 

amended to incorporate necessary changes to the governance and management provisions, 

enforcement mechanisms and proposed capital structure to allow the necessary transformation of 

the Utility. 

3. The Debtors and the shareholder proponents are well aware that the Debtors’ Plan 

must comply with AB 1054 for the emerging utility to have access to the fund provided in the 

statute (the “Wildfire Fund”). In fact, absent AB 1054 the Debtors appear to lack a path to a 

feasible plan. Yet, despite the Governor’s unequivocal statements, and continuous engagement by 

the Governor’s advisors, the Debtors and the shareholder proponents have yet to make a single 

modification to the Debtors’ Plan as filed with this Court to address its many deficiencies. It seems 

clear that rather than amend the Debtors’ Plan to incorporate the necessary changes, the Debtors 

instead intend to try to leverage the chapter 11 process to force the California Public Utilities 

Commission (the “CPUC”) to approve—and the state of California to accept—a sub-optimal plan. 

Allowing the Debtors to enter into the Exit Financing Commitments will only further embolden the 

Debtors’ strategy. 

4. While AB 1054 provides the Debtors a path to resolve the Chapter 11 Cases, the 

statute is explicit that the Debtors benefit from the Wildfire Fund only if they meet the obligations 

to the people of California as set forth in the statute. Given the Debtors continue to refuse to 

implement the changes to the Debtors’ Plan necessary to effect the required transformation and 

satisfy AB 1054, the Governor is pursuing strategies to protect California’s interests through further 

intervention, including a state takeover of the Utility. 

5. Against that backdrop, the Debtors seek the Court’s approval of Exit Financing 

Commitments that would obligate the Debtors, or any other plan proponent—including, arguably, 

under a plan that advances public ownership—to pay fees that could exceed $1 billion to support a 

capital structure that the Governor already stated does not comply with AB 1054. Indeed, the 

capital structure contemplated in the Exit Financing Commitments is exactly the same as the 

proposed capital structure the Governor rejected in the December 13 Letter. The Debtors’ Plan 

continues to rely on substantial debt at the holding company, secured debt, and expensive shortCase: 19-30088 Doc# 5445 Filed: 01/22/20 Entered: 01/22/20 14:00:06 Page 3 of

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term bridge financing—all issues the Governor specifically referenced in the December 13 Letter—

and that taken together, leave the reorganized entity with insufficient financial flexibility to make 

billions of dollars in critically needed safety investments.3

6. Despite the reality that the Debtors’ Plan requires substantial amendments to satisfy 

AB 1054, the Exit Financing Commitments Letters contain provisions that provide the Exit 

Commitment Parties with the right to terminate their commitments if the Debtors’ Plan is amended. 

The inclusion of these provisions render these very expensive commitments illusory as they provide 

the Exit Commitment Parties what is essentially a one-way option given that substantial 

amendments to the Debtors Plan are inevitable. 

7. Specifically, the Equity Financing Commitment Letters contain provisions that 

allow the Equity Backstop Parties to walk away from their commitments. See Equity Backstop 

Commitment Letters § 4(c) (conditioning the commitments on the Confirmation Order approving 

the December 12, 2019 plan with only amendments modifications, changes and consents approved 

by a majority of the Aggregate Backstop Commitments); Equity Backstop Commitment Letters §§ 

5(a), 5(d)(i) (providing termination rights for certain amendments, modifications of changes to the 

Debtors’ Plan); Equity Backstop Commitment Letters § 5(d)(ii) (providing termination rights if the 

Plan Supplement or any Plan Document is finalized or finalized without the consent of a majority 

of the Aggregate Backstop Commitments); Equity Backstop Commitment Letters §§ 5(k), 5(o) 

(providing for termination if the terms of the CPUC approval of the Debtors’ Plan are not acceptable 

to the majority of the Aggregate Backstop Commitments). 

8. The Debt Financing Commitment Letters similarly contain provisions that afford 

the Debt Backstop Parties a one-way option. See Debt Commitment Letters, Annex B § 1(a)(y) 

(conditioning the commitments on the Confirmation Order approving the December 12, 2019 plan 

in form and substance reasonably satisfactory to the Required Commitment Parties; Debt 

Commitment Letters, Annex B § 1(b) (conditioning the commitments on the requirement that none 

of the Plan, Confirmation or Approval Order have been amended or modified or any conditions 

 

3 It is noteworthy that the Debt Commitment Letters support the short-term bridge financing that the December 13 

Letter indicated is a source of concern. 

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contained therein waived without the consent of the Required Commitment Parties); Debt 

Commitment Letters, Annex B § 1(f) (conditioning the commitments on the requirement that all 

documents necessary to implement the Plan and the financings and distributions contemplated 

thereunder shall be in form and substance reasonably acceptable to the Required Commitment 

Parties and which shall not be adverse to the interests of the Commitment Parties); Debt 

Commitment Letters, Annex B § 14 (conditioning the commitments on the Utility satisfying the 

conditions to participate in the Wildfire Fund); Debt Commitment Letters, § 11(iv)(B) (providing 

for termination of the commitments if any Plan Supplement or Plan Document that is adverse to 

the interests of the Commitment Parties is filed or finalized without the consent of the Required 

Commitment Parties); Debt Commitment Letters, § 11(xv) (providing for termination of the 

commitments if the Debtors do not receive all necessary CPUC approvals, authorizations and final 

orders to implement the Plan and participate in the Wildfire Fund); and Debt Commitment Letters, 

§ 11 (xvii) (providing for termination of the commitments if the Plan, any Plan Supplement or any 

Plan Document is amended, modified or changed without the consent of the Required Commitment 

Parties to include a process for transferring the license and operating assets of the Utility to the 

state of California or a third party).4

9. In support of the Plan Funding Motion, the Debtors assert that the Exit Financing 

Commitment Letters “benefit the estates and all stakeholders by providing assurances of the 

Debtors’ ability to fund the distributions contemplated by the Debtors’ Plan and the Debtors’ timely 

emergence from chapter 11” and argue the Court should approve the commitments as an exercise 

of the Debtors’ sound business judgment. Plan Funding Motion at 8 (emphasis added). That cannot 

be the case where the Exit Financing Commitments obligate the Debtors’ estates to incur substantial 

fees and expenses to support a plan that does not satisfy AB 1054 and those commitments may not 

remain in effect if the Debtor’s Plan is amended to meet the requirements of the statute. 

 

4

 The Exit Financing Commitment Letters attempt to mitigate the impact of these provisions by providing throughout 

that any consent shall not be unreasonably withheld, conditioned, or delayed by the consenting parties. This qualifying 

language does nothing to address the fundamental issue underlying this Objection because the question is not whether 

a consent is appropriate, but whether the inevitable but necessary material amendments to the Debtors’ Plan make the 

commitments effectively illusory or provide a one-way option for the Backstop Commitment Parties. 

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10. While the Debtors’ business judgment is ordinarily entitled to substantial deference, 

“in the face of opposition by creditors, the requirement of court approval means the responsibility 

ultimately is the court’s.” Simantob v. Claims Prosecutor, LLC (In re Lahijani), 325 B.R. 282, 288-

89 (9th Cir. BAP 2005). Additionally, while the decision of a debtor-in-possession to obtain 

financing commitments is entitled to deference under the business judgment rule, “bankruptcy 

courts do not allow terms in financing arrangements that convert the bankruptcy process from one 

designed to benefit all creditors to one designed for the unwarranted benefit of the postpetition 

lender . . . . Courts look to whether the proposed terms would prejudice the powers and rights the 

Code confers for the benefit of all creditors and leverage the Chapter 11 process by granting the 

lender excessive control over the debtor or its assets as to unduly prejudice the rights of other parties 

in interest.” Resolution Trust Corp. v. Official Unsecured Creditors Comm. (In re Defender Drug 

Stores, Inc.), 145 B.R. 312, 317 (9th Cir. BAP 1992). In this instance, the Court should not afford 

Debtors the deference afforded by the business judgment rule as the Exit Financing Commitments 

allow the Exit Commitment Parties to walk away from their commitments given extensive 

amendments to the Debtors’ Plan are inevitable to satisfy the requirements of AB 1054. 

11. In addition, the Debtors should not be afforded the deference of the business 

judgment rule because the Exit Financing Commitments grant the Exit Commitment Parties 

excessive control over the Debtors, hinder the development of other plans (including increasing the 

cost of a potential public takeover), and contain provisions that conflict with the December 13 

Letter and the requirements of AB 1054. The Court should consider approval of these Exit 

Financing Commitments in the overall context of these Chapter 11 Cases. Cases in which the 

Debtors, with the support of the shareholder proponents, reconstituted their board of directors with 

significant representation from the fund community. Following the reconstitution of the board of 

directors, the Debtors and the shareholder proponents entered into restructuring support agreements 

that were limited only to plans supported by the shareholder proponents. Now, the Debtors seek the 

approval of Exit Financing Commitments that enrich the shareholder proponents who are 

participating in the Equity Backstop Commitments while expressly permitting the Equity Backstop 

Parties to terminate their commitments if the Debtors’ Plan is not acceptable to the shareholder 

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proponents or does not include the shareholder proponents as plan proponents. Therefore, given the 

significant influence, involvement and control afforded the shareholder proponents in these Chapter 

11 Cases, the Court should carefully scrutinize and evaluate the fairness and appropriateness of the 

transactions proposed by the Plan Funding Motion. 

12. The Governor does not believe that as drafted the Debtors’ Plan meets the 

requirements of AB 1054, and thus it will not afford the reorganized entity access to the Wildfire 

Fund. Without the Wildfire Fund, the Debtors’ Plan does not appear to be feasible. As the Governor 

has repeatedly made clear, it is essential that upon exit of these Chapter 11 Cases the reorganized 

entity be positioned for transformation to provide safe, reliable and affordable power for 

Californians. 

13. For the foregoing reasons, the Plan Funding Motion should either be adjourned until 

the Debtors’ Plan is amended to be consistent with AB 1054 and it is clear that the relief requested 

therein is necessary or appropriate, or the Plan Funding Motion should be denied. 

Dated: January 22, 2020 

 

O’MELVENY & MYERS LLP 

By: /s/ Jacob T. Beiswenger

 

JACOB T. BEISWENGER 

By: /s/ Nancy A. Mitchell

 

NANCY A. MITCHELL (pro hac vice) 

PETER FRIEDMAN (pro hac vice) 

MATTHEW HINKER (pro hac vice) 

Attorneys for Governor Gavin Newsom 

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