PG&E Stock Tumbles Amid Potential BANKRUPTCY
Shares of California utility PG&E tumbled Monday, because investors are worried it may go bankrupt.
PG&E could be on the hook for tens of billions of dollars for its potential role in California’s devastating Camp Fire last year — the deadliest and most destructive wildfire in the state’s history. The company has indicated it does not have the cash or assets to pay anything close to that amount.
The utility, which provides electricity to about 16 million Californians, is contemplating filing for bankruptcy protection, Reuters reports. The stock fell 21% by midday Monday.
The cause of the Camp Fire is still under investigation, according to state fire officials. But PG&E has suggested it may be responsible. In a PG&E report last month, the company outlined employee reports of damaged power towers minutes before the Camp Fire broke out. One employee called 911 the day the wildfire started after spotting flames close to a high-voltage tower in Butte County — 15 minutes after a transmission line went out near that location.
A class action lawsuit filed last month accuses the utility of negligence and poor maintenance of its electrical infrastructure. Another suit calls the Camp Fire an “inevitable byproduct of PG&E’s willful and conscious disregard of public safety.”
The company could face murder or manslaughter charges if it were found responsible for causing the state’s recent deadly wildfires, according to court documents filed by California’s attorney general.
The company is considering whether to file for bankruptcy as soon as February to protect itself over billions of dollars of potential wildfire liabilities, people familiar with the situation said late Friday, asking not to be identified because the information isn’t public. Two analysts called the idea an “exploitive” tactic that won’t help PG&E’s profile.
PG&E declined to comment, saying it doesn’t speak about “market rumor or speculation.”
The San Francisco-based company has lost more than half its market value since the deadliest wildfire in California history broke out in early November. The California Department of Forestry and Fire Protection, called Cal Fire, is investigating PG&E wires as a possible source of the blaze. And that’s compounding financial woes the company was already facing after other fires destroyed parts of wine country a year earlier.
Some analysts said the stock reaction may be overblown.
“The market is overreacting to bankruptcy concerns given the public statements we’ve heard from regulators and politicians,” Travis Miller, a Chicago-based analyst at Morningstar Inc., said in an interview Monday. “Bankruptcy has been on the table for many months, if not years.”
And Daniel Ford of UBS Group AG on Monday raised his 12-month price target for PG&E to $29 from $26, based on recent disclosures by the company asserting it is not responsible for the 2017 Tubbs fire, the second-most destructive in state history. The state has yet to issue a report determining the cause of that blaze.
“Our $29 target does not assume anything for Tubbs” liabilities, he said in a research note Monday. The shares were down 22 percent to $19.04 at 2:28 p.m. New York.
The issue is coming to a head as incoming Governor Gavin Newsom takes office and the state legislature reconvenes Monday. There have been some signs that PG&E would get relief in one form or another.
California Public Utilities Commission chief Michael Picker said that same month that he couldn’t imagine allowing the state’s largest utility to go into bankruptcy. His agency later began a formal process to evaluate whether to break up or take over PG&E’s Pacific Gas and Electric utility.
Still, a potential bankruptcy may be enough to force the hand of state legislators. They’ll have to decide whether to allow the company to pass some of the costs of the fire through to taxpayers, Katie Bays and Clayton Allen, analysts at Height Securities LLC, said in a note on Monday.
Bankruptcy “should be considered a credible risk by shareholders,” they said. But they added that “exploitive tactics and a reticence toward change will not improve” the company’s profile.
In a statement late Friday, PG&E said it’s “working diligently to assess the company’s potential liabilities as a result of the wildfires and the options for addressing those liabilities. We recognize the need to balance the interests of many stakeholders while maintaining safe, reliable, and affordable services for our customers, which is always our top priority.”
Check out out our sources: