California Governor Gavin Newsom has rejected a $13.5 billion settlement that Pacific Gas & Electric struck just last week with thousands of people who lost homes, businesses and family members in a series of devastating fires that drove the nation's largest utility into bankruptcy. The decision announced Friday in a five-page letter to PG&E CEO William D. Johnson marks a major setback in the utility's race to meet a June 30 deadline to emerge from bankruptcy protection.

The San Francisco-based company needs to pull a deal off to be able to draw from a special fund created by the Democratic governor and state lawmakers to help insulate utilities if their equipment sparks other catastrophic fires. The risks have escalated during the past few years amid dry, windy conditions that have become more severe in a changing climate.

In his letter, Newsom said the proposed settlement announced last week does not achieve the goal of addressing what he considers its most important elements, providing safe and reliable power to PG&E customers.

"In my judgment, the amended plan and the restructuring transactions do not result in a reorganized company positioned to provide safe, reliable, and affordable service," he said.

He went on to say that PG&E's problems are the result of decades of mismanagement that must be addressed before he will sign off on any proposed settlement.

"PG&E's board of directors and management have a responsibility to immediately develop a feasible plan," the governor said. "Anything else is irresponsible, a breach of fiduciary duties, and a clear violation of the public trust."

State Senator Bill Dodd, who represents much of the fire-ravaged area, praised Newsom's action.

"We all know that we can't trust PG&E to do the right thing or even follow the law," the Napa Democrat said. "Governor Newsom has been standing up for the interests of ratepayers, victims and communities from day one."

Newsom played a pivotal role in prodding PG&E to work out a settlement with the fire victims instead of sticking to its original plan to earmark about $7.5 billion for them.

That $7.5 billion became particularly galling to the governor and other critics after the company agreed to pay $11 billion to resolve a potential $20 billion liability with insurers. Those insurers had already paid their policyholder claims in the fires that killed more than 120 people and destroyed nearly 28,000 homes and other buildings during 2017 and 2018.

The proposed settlement agreed to last week by the utility and attorneys representing fire victims would have paid $6.75 billion to the victims in installments ending in early 2022, and $6.75 billion in company stock that would give them close to a 21% stake in the reorganized PG&E.

The settlement also required significant concessions from the victims. Their lawyers had been contending victims were owed at least $36 billion and were likely to seek even larger amounts had they pursued their claims in a state trial and federal court hearing that had been scheduled for early next year.

U.S. Bankruptcy Judge Dennis Montali would have to approve a settlement by December 20 for the deal to become part of the utility's official plan to regain its financial footing. If that happens, bankruptcy experts believe the utility's preferred reorganization plan will have a clear-cut advantage over a competing proposal from a group of bondholders and a potential bid from a group of cities and counties who have been mulling an attempt to turn the company into a customer-owned cooperative.

One of the attorneys representing thousands of fire victims said Friday night he hopes PG&E can still pull together a revised proposal that will satisfy the governor before that deadline.

"I'm hopeful that adjustments can be made so that all the parties can move forward to obtain compensation for the victims who have suffered so much over two years," said Rich Bridgford of Bridgford, Gleason & Artinian.

Although he praised the proposed settlement just last week, Bridgford said he understands Newsom's concerns.

"The governor's heart is in the right place in seeking to ensure that PG&E emerges from bankruptcy in such a way as to guarantee it can adopt the safety measures necessary to avoid catastrophic wildfires in the future," Bridgford said. "It's a delicate balancing act."