In 2018, Pacific Gas & Electric's poorly-maintained equipment caused a wildfire that killed 84 people. That catastrophe led to extensive litigation, as well as attention from California Governor Gavin Newsom. Normally the governor relies on the state's internal attorneys for legal advice. But for some reason Gov. Newsom declined their help and decided to use O'Melveny & Myers. That didn't end well; last week, he had to run away from a reporter's questions.
Apparently, there were two problems with the work that O'Melveny and the governor's office did together.
First, they allowed half of the $13.5 billion payment to past wildfire victims to be paid in PG&E stock. They were given 477 million shares of stock. At $14.15 per share, those shares would be worth $6.75 billion, or half of the settlement amount. Indeed, PG&E's stock was worth more than $14.15 in 2020. And it was supposed to go up from there. In February of 2020, when the stock price was about $16, PG&E's CEO Bill Johnson said he was going to "make sure that stock price is up so that when they sell it, they’re going to get a good price and distribute to the victims.” This gamble was supposed to pay off.
The problem is that by the time the administrative process pays the victims, the stock will probably be worth much less. Its price has been hovering at around $10 for over a year, and that's during a booming stock market. If it can't climb back to the break-even price of $14.15 in this market, it may never do so.
In his Sep. 1, 2021 letter, the Fire Victim Trustee said this poor stock price created a $2.4 billion shortfall. He said this "seems unfair" and asked for "a working group to address what, if anything, can be done to ameliorate" the problem.
If O'Melveny was going to collect $3 million of taxpayer money to advise Gov. Newsom, the least they could have done was to structure the settlement in a way that avoids this foreseeable risk. (Incidentally, Nancy Mitchell won one of American Lawyer's "Dealmakers of the Year" award for leading the O'Melveny team that advised Gov. Newsom. She left O'Melveny this past April.)
The second problem has to do with their drafting of AB 1054. That law addresses future wildfires caused by PG&E. It has been criticized for being too friendly to PG&E. One California state official said it's designed to reduce the amount PG&E will have to pay in the event of a fire.
If this had been in place during the 2017, 2018 and 2019 fires, PG&E shareholders would have been on the hook for about $4 billion dollars, not for the tens of billions that they've ultimately ended up paying out[.]
quoting Nathaniel Skinner, Ph.D., Safety Branch Program Manager at the California Public Advocates Office. This article explains how O'Melveny allegedly "watered down" the bill to harm consumers. It's based on the reporter's review of confidential emails between the governor's office and O'Melveny.
In summary, if the reports linked above are right, then O'Melveny and Gov. Newsom's work hurt existing victims to the tune of $2.4 billion, and it could hurt future victims by untold amounts.
[Addendum: A follow-up article argues that O'Melveny was conflicted, because they represented PG&E prior to being hired by the governor's office to protect the state's and victims' interests.]
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Virtually all of the above comes from the efforts of reporter Brandon Rittiman of ABC10 in Sacramento. You can find his full coverage here, and a video of his most recent piece is below.
As noted in my last post, Afghanistan showed how people can lose faith in a government that's perceived to be corrupt. This seems to have happened to one of the fire victims, Steve Bradley. He said Governor Newsom's response to the wildfires was "really insidious . . . like next-level movie, you know, the bad guy in the background smoking the cigar manipulating all these things." Faith in Gov. Newsom has fallen so much as a result of the above and other issues, that the voters tried to recall him.
In that post, I also listed three things the United States has to maintain integrity in government: (a) the FBI's anti-corruption unit, (b) a vigilant press, and (c) the right to vote out our leaders. Mr. Rittiman is an example of that vigilant press, a low-paid reporter who works tirelessly to keep the ambitious and perhaps temptable Gov. Newsom accountable to the people he was meant to serve. He's doing more to keep Gov. Newsom on the right path than O'Melveny did.
Pacific Gas & Electric