PG&E’s stock soars on New York Stock Exchange as its financial outlook brightens
With Cal Fire absolving PG&E for causing the fatal 2017 Tubbs fire, the company’s stock rebounded sharply Thursday even though investors and attorneys remain uncertain over the utility’s financial outlook and whether its expected bankruptcy filing is warranted.
California’s largest utility said last week it would seek Chapter 11 bankruptcy protection from creditors on Jan. 29, citing $30 billion in potential damages related to active and potential lawsuits resulting from the 2017 and 2018 California wildfires.
On Wednesday, PG&E increased its estimated liabilities to between $75 billion and $150 billion, anticipating a federal judge soon will order the company to take the expensive steps of inspecting its entire electrical grid and starting a broad vegetation management effort before the 2019 fire season in Northern California.
Despite the California Department of Forestry and Fire Protection report clearing the utility of an estimated $17 billion of liabilities in Sonoma County from the historic Tubbs fire, a PG&E spokeswoman said the dire financial “situation has not changed.”
“Regardless of today’s announcement, PG&E still faces extensive litigation, significant potential liabilities and a deteriorating financial situation, which was further impaired by the recent credit agency downgrades to below investment grade,” the San Francisco-based utility said in a statement that gave no indication it now was going to shift away from a bankruptcy filing.
“Resolving the legal liabilities and financial challenges stemming from the 2017 and 2018 wildfires will be enormously complex and will require us to address multiple stakeholder interests, including thousands of wildfire victims and others who have already made claims and likely thousands of others we expect to make claims.”
State Sen. Mike McGuire, D-Healdsburg, said there was no appetite in the state Legislature to intervene with financial help for PG&E to prevent its bankruptcy filing.
“They need to show the state how they are going to dig themselves out of the financial mess they’re in,” McGuire said. “The ball is in PG&E’s court.”
For the lawyers representing Sonoma County fire survivors, the greater concern remains a possible bankruptcy filing that would immediately halt action on the more than ?3,000 liability lawsuits accusing the utility of causing the 2017 Northern California fires.
Noreen Evans, a Santa Rosa attorney with Watts Guerra, said her firm will push forward with claims for the 2,000 fire victims she represents, including several hundred who lost property in the Tubbs fire. That fire, the most destructive in California history at the time, killed 22 people and destroyed more than 5,600 homes and other buildings.
A PG&E bankruptcy likely would alter proceedings in her cases, however.
“Nobody really knows what to expect,” Evans said. “The whole purpose of bankruptcy is to put all debts on the table and figure out how PG&E can pay. We potentially could see a delay, or potentially some reduction in compensation. It could also be the reverse - it could go faster, because the bankruptcy court will be interested in getting PG&E’s debts restructured.”
Evans also questioned the timing of Cal Fire’s report, citing the positive investor reaction that drove up the company’s stock price Thursday. PG&E’s stock soared nearly ?75 percent to close up $5.96, at $13.95 per share on the New York Stock Exchange.
If PG&E is eventually provided the pathway to restructuring its debts, especially as financial liabilities mount after November’s deadly Camp fire in Butte County, that would transition the bevy of pending lawsuits from state superior court to bankruptcy court where a judge would oversee the settlements or a trial. In a bankruptcy court proceeding, California’s fire victims would be considered part of a massive class of unsecured creditors whose claims are not guaranteed by PG&E assets.
Under that scenario, plaintiffs likely would end up with a fraction of the money they are seeking. Bill Brandt, a national bankruptcy expert and founder of a Chicago firm specializing in corporate restructuring, told The Press Democrat previously he expected fire victims would receive “pennies on the dollar, or maybe nickels on the dollar.”
PG&E’s shareholders also would be wiped out by a bankruptcy filing. New York-based hedge fund BlueMountain Capital, a major PG&E shareholder, wrote to other company investors on Thursday morning saying it would attempt to nominate an entire new slate of PG&E board of directors because “bankruptcy is entirely avoidable.” The hedge fund’s managers think the utility’s stock could be worth as much as $50 a share.
“Unfortunately, we expect that the current board will continue their indifferent approach to governance and file for bankruptcy,” according to the BlueMountain letter to shareholders.
In the aftermath of Thursday’s Cal Fire announcement, a BlueMountain Capital spokesman said in a statement that the state agency report “is yet another example of why the company shouldn’t be rushing to file for bankruptcy, which would be totally unnecessary and bad for all shareholders.”
No matter, attorney Roy Miller, of Santa Rosa’s Hansen & Miller law firm, said his cases against PG&E on behalf of ?1,200 North Bay fire victims, including himself, would proceed.
“It doesn’t change anything,” said Miller, who also lost his home in the 2017 fires. “That’s why lawyers go to trial.”
Evans, the attorney and former state senator, shared the sentiment that bankruptcy was not the best approach, for fire victims or the utility.
“Nobody wants a bankrupt electrical provider,” she said. “A bankrupt PG&E is not in charge of its own fate. The bankruptcy judge will be, and from shareholders to executives, nobody’s going to enjoy being in bankruptcy.”
You can reach Staff Writer Kevin Fixler at 707-521-5336 or firstname.lastname@example.org. On Twitter @kfixler. You can reach Staff Writer Bill Swindell at 707-521-5223 or email@example.com.