DAVID GREENE, HOST:
The largest utility here in California, PG&E, has been blamed for deadly wildfires. It has faced intense criticism for widespread forced power outages during the wildfire season, and the utility is also dealing with financial woes, having been in bankruptcy now for months. They've come up with a plan to exit bankruptcy, but California's Governor Gavin Newsom is rejecting that proposal, and this comes as the bankruptcy is making some people very, very rich. Marisa Lagos from member station KQED has been reporting on this. Hi, Marisa.
MARISA LAGOS, BYLINE: Hey.
GREENE: OK, so PG&E files for bankruptcy after these several years of wildfires caused by their equipment. You have the governor saying now he's not happy with the way they're planning to reorganize and come out of bankruptcy. Why is that?
LAGOS: Well, importantly, Newsom has to sign off on this plan for them to exit Chapter 11, or they won't actually be able to access the state insurance fund to help sort of protect them against bankruptcy again if they cause future fires. The governor essentially says he's worried that their proposal depends too much on debt, and he wants more accountability. He doesn't think this company is going to be changed. He wants to see a new board of directors that's made up of majority Californians and a plan for, essentially, handing control of the company over to the state if they don't meet expectations.
GREENE: Well, and you've been looking into this, digging into this bankruptcy and seeing that there are some people who are really profiting from the bankruptcy. What exactly are you learning?
LAGOS: Yeah, there's, like, an entire industry built around restructuring big companies that are in trouble. So there's a couple of ways Wall Street investors and corporations are benefiting. One is the lawyers and consultants hired officially as part of this process - they've billed about $217 million dollars in fees and expenses through the fall. There are big New York banks like JP Morgan, Goldman Sachs that are loaning PG&E money right now. PG&E's paid them about $114 million this year to borrow that money, and some estimates think that that number could top a billion dollars by the end of this.
And then there's some other indirect ways that Wall Street investors are making a killing.
GREENE: Indirect, like, you mean, like, playing the stock market with someone's money?
LAGOS: Yeah, I mean, that's part of it. The stock has fluctuated wildly over the past year, and that means a lot of opportunity for day traders. But there's also a group of hedge funds that could make hundreds of millions because they're basically on both sides of the table in the bankruptcy. They own equity in the form of stock in the company, and they bought debt against PG&E over the past year in the form of insurance claims.
GREENE: What - how does that work exactly?
LAGOS: (Laughter) So basically, if your house burns down, David, and an insurance company pays your claim, they go after who caused the fire - in this case, PG&E.
GREENE: Sure.
LAGOS: But some of these big insurance companies didn't want to wait around for the bankruptcy case to be resolved so they actually sold the debt at a steep discount to these hedge funds, who now can essentially make money in two ways - through the $11 billion insurance settlement PG&E is proposing as a way to exit the bankruptcy and through the stock they continue to own, which could rebound significantly in the coming months, if they get, you know, everything together.
GREENE: OK. Well, you have - so you have people profiting from this whole thing. Who's footing the bill for all of this?
LAGOS: Well, some of it's going from Wall Street investor to investor, right? But when we talk about fees and insurance settlements, PG&E's sole source of revenue is ratepayers. Here's Mark Toney. He is a ratepayer advocate.
MARK TONEY: PG&E didn't have to go into bankruptcy; they did it for their financial advantage and to try to stick the shareholder costs to the ratepayers.
LAGOS: So the governor seems to have similar concerns. And now that he has rejected the bankruptcy plan, he's apparently trying to make sure the company ends up more financially viable and less likely to start fires.
GREENE: Wow. So it's a story about a company and, also, really learning a lot about how bankruptcy works.
(LAUGHTER)
LAGOS: Yeah.
GREENE: KQED reporter Marisa Lagos for us this morning. Thanks so much.
LAGOS: My pleasure.
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