What happened

Shares of PG&E (NYSE:PCG), which on Monday plummeted on word that Gov. Gavin Newsom of California was not on board with the bankrupt company's restructuring plan, rallied 12.8% on Tuesday. The utility believes it has a work-around that will allow it to proceed without the governor's backing, but PG&E's recovery is still far from certain.

So what

It has been a turbulent few weeks for shares of PG&E, which filed for bankruptcy back in January to help manage an estimated $30 billion in liabilities stemming from 2017 and 2018 wildfires. From the start, the company has stated its preference to reorganize in such a way that its equity would retain some value. And the stock has rallied in December after PG&E reached a deal on compensation for victims that makes it more likely its reorganization plan will ultimately be approved.

A utility transmission pole in front of a setting sun.

Image source: Getty Images.

But over the weekend, the governor said that the company's proposal "falls woefully short" of the requirements the state has set for PG&E to receive government assistance. Newsom said that the utility needs to completely overhaul its board, with candidates subject to state approval, and put provisions in place that would allow PG&E's operating license to be transferred to the state or a third party if warranted.

Shareholders fled on Monday believing those conditions would be unacceptable to creditors. But the utility late Monday announced it had amended its restructuring support agreement to strip away the provision requiring Newsom to sign off on the compensation package.

Now what

The PG&E drama is far from over. The utility still needs to work out a deal with the State of California and Newsom if it is to be a long-term success and avoid future potentially ruinous wildfires. The amended agreement buys PG&E some time, and allows it to proceed with the restructuring, but the utility and the state remain in talks about setting up a statewide wildfire insurance fund.

PG&E's reorganization plan also needs to be approved by members of the California Public Utilities Commission, whom Newsom appointed. And a competing plan put together by creditors that could potentially wipe out equity holders remains on the table if the utility's effort stumbles.

The utility has tough negotiations ahead, and equity holders should be at least somewhat concerned that their interests could be sacrificed as PG&E attempts to work out a compromise and move toward a bankruptcy exit. Expect more price volatility in the weeks and months to come.

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