UPDATE 1-U.S. judge encourages PG&E deal with California wildfire victims; stock jumps

Utility PG&E Corp's $13.5 billion settlement with victims of California wildfires got some encouraging words from a U.S. bankruptcy judge on Tuesday, and the company's stock rallied as it gained momentum to emerge from bankruptcy in June as planned. "Not really anyone is saying this is a bad economic resolution," U.S. Bankruptcy Judge Dennis Montali said at Tuesday's hearing in San Francisco, noting a dearth of strong objections.

Adding momentum to PG&E's plan, a lawyer for Governor Gavin Newsom told Montali the governor viewed the wildfire settlement as fair. "We don't want to stand in the way of that," said Nancy Mitchell. Only days earlier, on Friday, Newsom rejected the PG&E reorganization plan and said he expected a new board of directors and stronger finances so it could invest in safer equipment.

Mitchell said the necessary changes to the plan could be negotiated, although she called the governor's demands a "high bar." The settlement would give the company the support of every major group of creditors, making it much harder for opponents like PG&E bondholders to block its plan to exit bankruptcy.

Montali took a break in the proceedings and planned to address later in the day a request by PG&E to dismiss a competing plan that had been proposed by the company's bondholders. PG&E's stock jumped about 13% to $10.91 a share and regaining nearly all the ground lost after Newsom's rejection of the company's bankruptcy plan.

The company needs approval from Newsom and the bankruptcy court for its plan by June 30 to participate in a recently enacted wildfire fund, known as AB 1054, that reduces fire liability for investor-owned utilities. The settlement agreement with wildfire victims forms the cornerstone of PG&E's plan to exit bankruptcy. The company entered Chapter 11 protection from creditors in January facing thousands of legal claims from at least 22 fires, with victims seeking $36 billion.

Newsom has accused the company of putting profits ahead of maintenance of its power lines and of poorly managing the widespread blackouts PG&E used to avoid sparking wildfires during high winds. Bondholders have been pushing a reorganization plan that they say is more favorable to wildfire victims, but the plan would essentially wipe out the investment of current shareholders.