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SAN FRANCISCO — Pacific Gas & Electric told a federal bankruptcy judge Tuesday that it has settled a dispute with disaster-relief agencies that threatened to siphon money away from a $13.5 billion fund earmarked for victims of catastrophic wildfires in California caused by the nation’s largest utility.

In a statement, FEMA said it will consider its claims with PG&E to be “fully satisfied,” even if it ends up receiving nothing after the victims get their money. A lawyer for California’s Office of Emergency Services also told the judge that agency is pleased with the outcome.

The breakthrough disclosed by a PG&E lawyer during a court hearing in San Francisco could remove a major stumbling block as the company scrambles to meet a June 30 deadline to emerge from bankruptcy proceedings that began early last year. The truce is designed to ensure people who lost family members and homes during a series of fires ignited by PG&E equipment during 2017 and 2018 get paid before two different taxpayer-backed agencies.

It appears the deal worked out between the Federal Emergency Management Agency, California’s Office of Emergency Services and lawyers for wildfire victims will resolve one of the most contentious issues that had been looming in the case. PG&E attorney Stephen Karotkin said some final details were still being resolved with the help of a federal mediator.

The two disaster relief agencies had been attempting to recover as much as $4 billion from the fund as reimbursement for financial assistance provided during and after fires that raged in Northern California in 2015, 2017 and 2018.

Karotkin doesn’t expect the full settlement to be revealed for a few more days, but he told U.S. Bankruptcy Judge Dennis Montali that the disaster-relief agencies’ claims will be pared to $1 billion and that amount won’t be paid unless there is money left after the victims’ claims are paid.

In a statement, FEMA said it will consider its claims with PG&E to be “fully satisfied,” even if it ends up receiving nothing after the victims get their money. A lawyer for California’s Office of Emergency Services also told the judge that agency is pleased with the outcome.

Photo of a firefighter monitoring a house burning in Santa Rosa, Calif.

FILE – In this Oct. 9, 2017, file photo, a firefighter monitors a house burning in Santa Rosa, Calif. California power regulators slapped Pacific Gas and Electric with a $2.1 billion fine for igniting a series of deadly wildfires that landed the beleaguered utility in bankruptcy. The record penalty imposed Thursday, Feb. 27, 2020, in a an administrative law judge’s decision boosts the punishment that had been agreed upon in a $1.7 billion settlement announced in December. The increased punishment includes a $200 million payment earmarked for the people who lost family and property in catastrophic wildfires caused by PG&E’s outdated electrical grid and negligence during 2017 and 2018. (AP Photo/Jeff Chiu, File)

PG&E Faced More Than $50 Billion in Claimed Losses From the Fires

Investors cheered the news too, as PG&E’s stock surged 10% Tuesday to close at $13.90.

The concessions made by the disaster-relief agencies mean U.S. and California state taxpayers could be forced to absorb the costs for cleaning up the mess that might not have happened had PG&E properly maintained power lines that provide electricity to 16 million people.

PG&E faced more than $50 billion in claimed losses from the fires, prompting the utility to file for bankruptcy for the second time in less than two decades.

The San Francisco company has settled the claims of wildfire victims, insurers and a few other government agencies for a total of $25.5 billion as part of its plan to get out of bankruptcy.

Those deals include the $13.5 billion fund earmarked for victims, many of whom have protested the prospect of the disaster-relief agencies taking nearly one-third of the money that is supposed to help people rebuild their lives.

Even though the disaster-relief agencies are no longer vying for a huge chunk of the victims fund, significant questions remain for PG&E if it hopes to wrap up one of the most complex bankruptcy cases in U.S. history within the next few months. PG&E must resolve the case by June 30 in order to qualify for coverage from a wildfire insurance fund that California created to help insulate the company against future losses if its outdated electrical grid ignites more fires.

One of the biggest issues is whether the $13.5 billion fund involved in the bankruptcy case would fully compensate victims for emotional damages and property, even with the government agencies now at the back of the line seeking a much lower amount.

PG&E Also Still Must Win Over Gov. Gavin Newsom

Karotkin told Montali that PG&E believes the roughly 82,000 people who are expected to seek money from the victims’ fund would be paid in full, although he wouldn’t guarantee it. About 77,000 people who have filed claims so far have yet to state a specific amount, according to the victims’ lawyers.

PG&E also still must win over Gov. Gavin Newsom and its chief regulator, the California’s Public Utilities Commission, to get out of bankruptcy.

Before PG&E struck the deal setting up the $13.5 billion fund in December, the victims’ lawyers had estimated there were about $36 billion in claims.

Montali is now trying to decide whether the victims should be told in a disclosure statement that they might only receive a portion of what they are owed. PG&E is scheduled to send out the statement next month to more than 400,000 parties who will be able to vote on its reorganization plan. Many of the wildfire victims have threatened to vote against the plan in an attempt to pressure PG&E to increase the pool of money, something the company said it can’t afford to do.

PG&E also still must win over Gov. Gavin Newsom and its chief regulator, the California’s Public Utilities Commission, to get out of bankruptcy. California holds veto power because PG&E needs its approval of its bankruptcy plan to be covered by the state’s wildfire insurance fund.

Newsom and state regulators so far have rejected the plan as carrying too much debt for PG&E to be able to make an estimated $40 billion in improvements to its electrical grid. They also are demanding PG&E replace its entire 14-member board of directors.

Newsom said he would have more to say about PG&E’s bankruptcy plan on Thursday. PG&E and Newsom’s representatives have been meeting for months in an effort to resolve their differences.

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