FEMA seeking billions in PG&E settlement with wildfire victims

The federal government wants a nearly $4 billion cut of a multibillion-dollar deal PG&E has agreed to pay wildfire victims to settle their claims in the utility's bankruptcy case.

The Federal Emergency Management Agency is seeking payment from PG&E for its work clearing debris from burned-out properties and other services it provided to local governments and individuals after the 2017 wildfires in the North Bay and the 2018 Camp fire in Butte County.

FEMA's payout would come from the $13.5 billion pool of funds PG&E has put together to settle all remaining wildfire claims.

Lawyers representing wildfire survivors are objecting to FEMA's claims in U.S. Bankruptcy Court, arguing the federal agency's effort to seek compensation undermines FEMA's very mission to assist disaster victims.

“The government claims compete with and have the potential to diminish the funds available to pay individual fire victims and businesses,” according to the Dec. 2 objection.

They are also preparing a formal request for FEMA leadership to waive the agency's claim, said Santa Rosa attorney Roy Miller, whose law firm is representing thousands of wildfire victims with property losses.

FEMA's claims are a damper on what is otherwise a good deal for wildfire victims, especially because they are in a race against the clock to meet a state deadline, according to Miller, who lost his Wikiup home in the Tubbs fire.

“People are almost all under-insured by a huge amount and are suffering a huge amount and trying to regain as much as we can without destroying the company (PG&E),” Miller said. “FEMA piling a $4 billion claim on top of that is not fair.”

Cal Fire investigators concluded PG&E electrical equipment started all but one of the 2017 and 2018 fires: the Tubbs fire, which destroyed more than 5,300 homes in Sonoma County. Attorneys for Tubbs victims challenged the finding and, in settlement negotiations, persuaded PG&E to treat Sonoma County claims equally with those filed by victims of other fires, Miller said.

The $13.5 billion agreement is on the desk of Gov. Gavin Newsom, who is reviewing it to ensure the plan complies with a new state law to pay for wildfire damage caused by utilities in the future. It boosts PG&E's chance at emerging from bankruptcy in time to meet a crucial deadline to access a state wildfire insurance fund created to help utilities pay for victims' claims from future fires caused by their power equipment.

The settlement proposal covers claims from more than 72,500 individuals and businesses as well as three government agencies: FEMA, Cal Fire and the state Office of Emergency Services. The state agencies' claims total about $650 million.

In its claim, FEMA said the law authorizing federal disaster aid, called the Stafford Act, requires the agency to offset taxpayer costs from entities responsible for causing a major disaster.

Agency officials didn't respond to specific Press Democrat questions by press time. A FEMA spokesman sent a statement underscoring the agency's obligation “to pursue claims against responsible third parties who cause a condition creating the need for assistance.”

“Stewardship is one of FEMA's guiding principles, and it is important that responsible parties are held accountable for causing the expenditure of taxpayer dollars,” the statement read.

Former FEMA director James Lee Witt, who led the agency from 1993 to 2001, said he was shocked when told by a reporter about the $4 billion being sought by his former agency, calling the move “unusual” and “inappropriate.”

Witt said the agency didn't seek this kind of reimbursement during his tenure.

“You're taking money away from the rebuild and individuals when your job is to help individuals - not to take money away from them,” Witt said.

Witt came to Sonoma County in the aftermath of the 2017 October fires to help launch a nonprofit initially created to help in the recovery, but Witt said he has not been involved in the local recovery efforts since.

FEMA filed its claims Oct. 18 in U.S. Bankruptcy Court, after negotiations were well underway.

By that time, wildfire victims had already reached a tentative deal with a group of bondholders offering more money to victims in a bid to wrest control of the company away from its majority shareholders - a competing plan that helped wildfire victims negotiate a better deal with PG&E than the utility's initial offer of $8.4 billion.

As far back as June, local and state agencies, including Sonoma County and Santa Rosa governments, reached a $1 billion deal with PG&E.

The utility then in September settled with insurers for a sum of $11 billion. Both deals are separate from the $13.5 billion agreement proposed by PG&E to resolve all remaining wildfire claims.

FEMA's request for compensation came late in the process, according to Santa Rosa resident Patrick McCallum, who lost his home in the Tubbs fire and lobbies on behalf of wildfire victims with the group Up from the Ashes.

“It squeezes wildfire victims and there are efforts to get the feds to reduce their claim and have the wildfire victims get first draw on the fund,” McCallum said.

The negotiations in PG&E's bankruptcy have involved an unusually high number of creditors seeking to be made whole, said Jared Ellias, a UC Hastings law professor and bankruptcy expert who is a close observer of the case. The utility will leave with greater debt in the end but with a key success in settling claims from wildfire victims.

U.S. Bankruptcy Judge Dennis Montali and U.S. District Judge James Donato - both charged with overseeing aspects of the reorganization - have masterfully orchestrated the proceedings to lead to this deal, which will likely circumvent the need for a civil trial on the cause of the Tubbs fire, he said.

“Before FEMA showed up, this case was coalescing,” Ellias said. “A problem they have, I don't think PG&E can find another $5 billion. I think this company is tapped out.”

Montali has scheduled a Dec. 17 hearing to discuss the proposed deal.

The legal argument against FEMA's claim rests on federal law that states the disaster must have been caused by an intentional act for the agency to seek reimbursement, said Eric Goodman, an attorney with Baker & Hostetler who authored the objection.

In this case, PG&E may have been negligent but no state investigation has made claims about the utility's intent, he said.

Goodman urged individuals hit by wildfires to file a claim form by the Dec. 31 deadline.

“This FEMA issue is the difference between you getting 70 percent and 100 percent,” Goodman said. “If you miss the bar date, that will be zero.”

In Sonoma County, FEMA provided funding for clearing debris from the footprints of about 3,700 homes, according to Michael Gossman, deputy county administrator for Sonoma County. FEMA covers 90% of the costs of debris removal that is not covered by homeowner's insurance. It also provided about 120 trailers to shelter homeowners and renters in Sonoma County after the fires.

FEMA has committed to reimbursing the Santa Rosa for $25.4 million the city has spent on public assistance projects, such as debris removal and infrastructure repairs. So far, it has paid out $4.9 million.

FEMA's claim includes $1.23 billion the agency said it spent on the 2017 Northern California wildfires, including money paid out to local and state governments for programs like grants for debris removal and repairs for roads and bridges.

The claim also includes administrative costs, including wages and travel expenses, plus other items like $6.8 million for crisis counseling and $16.8 million in temporary housing assistance.

If billions go to FEMA, that will leave less for people who lost not only property but a sense of safety as a result of the fires, said Will Abrams, a Santa Rosa resident whose home was destroyed in the Tubbs fire.

Abrams wants more oversight of PG&E to prevent future fires and force the company to make safety improvements to its electrical grid. He believes the bankruptcy process has been flawed and hurried.

“It leaves a lot of folks scratching their heads without the ability to know - Is this good for wildfire survivors?” Abrams said.

You can reach Staff Writer Julie Johnson at 707-521-5220 or julie.johnson@pressdemocrat.com. On Twitter @jjpressdem.