Among the victims of late last year’s devastating Camp Fire in California, which killed some 86 people, could be the state’s largest investor-owned utility, Pacific Gas & Electric. The San Francisco-based company is facing charges that its power lines may have caused the horrific Northern California wildfire, potential criminal charges, possibly billions of dollars for damage claims, a lawsuit by its insurers, and a precipitous decline in its publicly-traded stock.
The utility appears almost certain to take a major financial charge when its parent PG&E Corp. reports 2018 4th quarter and yearly financial results. The company’s $17 billion in 2017 annual revenue included $4 billion from its natural gas business. The company’s debt ratings are nearly below investment grade, in an industry where high bond ratings are most common.
As a result, rumors (fed by company insiders) are swirling that the company might sell off its major gas distribution business to raise money for claims, and that it may seek bankruptcy protection.
The Camp Fire, the most damaging wildfire in state history, swept through tinder dry country and the cause isn’t known. According to the San Francisco Curbed website, “PG&E admits that it’s possible that its own equipment might have started the fire, and state investigators put the blame on the utility for many past wildfires, including the devastating 2017 Tubbs Fire in Sonoma County.” California Attorney General Xavier Becerra, as part of a federal court brief earlier this month in PG&E’s felony probation resulting from the 2010 San Bruno gas pipeline explosion which killed eight people, raised hypothetical criminal charges that could be brought against PG&E in the Camp Fire.
The Associated Press reported last week, “Several insurance companies have filed lawsuits” in Sacramento County Superior Court, blaming PG&E for the fire that destroyed some 14,000 homes and “triggered billions of dollars in insurance claims.” The reported identified suits filed by Allstate, State Farm, and USAA. The AP said, “Under California law, PG&E is held entirely liable if lawyers can prove the fire is linked to the utility’s power lines or other equipment – a fact that sent shares of the company tumbling following the start of the fire.”
PG&E Corp. stock was trading on the New York Stock Exchange Jan. 4 at $24.20 per share. Its 52-week high was $49.42.
NPR reported Jan. 4 that PG&E Corp. is pondering selling off its considerable natural gas interests. It has a group that it calls “Project Falcon,” (named for a family of peregrines nesting on the headquarters roof) examining that option with the proceeds to be used to pay claims, citing “current and former” company sources. The account also said the company is considering selling off real estate, including its downtown San Francisco headquarters. That is very valuable property. PG&E responded that it is “reviewing structural options” to deal with the fallout from the fire, hardly a surprise.
NPR quoted an unnamed Citigroup analyst that PG&E could be facing as much as $15 billion in damages, so it is not clear whether selling its gas division and its real estate could cover the charges.
Federal Chapter 11 bankruptcy protection is also an option. CEO Geisha Williams raised the bankruptcy possibility last summer, according to the Bee, when the state legislature was considering a bailout plan for the utility in the wake of the 2017 wine country wildfires. The solons ultimately approved some protections for the company in September, just months before the Camp Fire struck.
PG&E is no stranger to Chapter 11. In 2001, facing some $9 billion in losses in electricity trading markets, due in part to the illegal operations of Enron Corp., PG&E filed for Chapter 11 protection. The company emerged from bankruptcy two years later, having paid off all its creditors in full. The Motley Fool investment web site commented in 2009, “There are some instances in which companies that file for bankruptcy don’t leave current shareholders penniless. PG&E (NYSE:PCG), for instance, filed for bankruptcy in early 2001. But after three years of restructuring, shareholders who held on throughout the process saw their investment triple in value.”
— Kennedy Maize