PG&E stock soars most since 2001 after regulator eases fears related to California fires

PG&E Corp. stock soared the most in 17 years after the head of California’s Public Utilities Commission said he can’t imagine allowing the utility to go bankrupt as it faces billions of dollars in potential liability from deadly wildfires.

PG&E was up about 35% at $23.92 a share around 9:15 a.m. Pacific time, after a roller-coaster ride Thursday in which the utility’s shares plunged the most since 2001. The shares were still down more than 45% for the year. Speculation on the utility’s future comes as state authorities investigate PG&E equipment as a possible cause of the deadliest blaze in state history.

The Camp fire in Butte County has consumed over 140,000 acres, destroyed thousands of homes and killed at least 63 people, with hundreds of people still missing or unaccounted for.

“It’s not good policy to have utilities unable to finance the services and infrastructure the state of California needs,” PUC President Michael Picker said in an interview. “They have to have stability and economic support to get the dollars they need right now.”

Still, Picker said in a statement that his agency will examine “the corporate governance, structure, and operation of PG&E, including in light of the recent wildfires, to determine the best path forward,” an effort that could raise the prospect of a possible breakup.

State Sen. Jerry Hill (D-San Mateo), who previously has pushed to break up PG&E, said this year’s devastating fires could make legislators more receptive to the breakup idea. The obstacle is that lawmakers don’t want to risk pushing the company into bankruptcy, Hill said, adding that he views PG&E’s talk of insolvency as a scare tactic.

“We can’t continue to bail them out if they’re negligent,” Hill said of the San Francisco company. “People talk about them being too big to fail, but I think they’re too big to succeed.”

Citigroup Inc. raised its ratings Friday on both PG&E and Edison International to “buy” from “neutral,” citing Picker’s comments. The state regulator stepped up “bigtime,” analyst Praful Mehta wrote in the notes. Shares of Edison — owner of the Southern California Edison utility that supplies power where the Woolsey fire is raging in swaths of Los Angeles and Ventura counties — also rose Friday, gaining as much as 17%.

PG&E shares plummeted 64% between Nov. 7 — the day before the Camp fire began — and Thursday amid fears that the company would be held liable for the catastrophic wildfire about 150 miles northeast of San Francisco. Officials are examining a possible second origin of the fire, state officials said late Thursday.

PG&E’s credit rating was cut late Thursday to the brink of junk by Moody’s Investors Service and S&P Global Ratings. Moody’s lowered the rating to Baa3 (its lowest level of investment grade) from Baa2, saying it might downgrade further. S&P lowered the rating to BBB- from BBB on the rising risks that PG&E may face from the Camp fire and warned of the possibility of additional downgrades.

PG&E’s grade reflects an exposure of about $10 billion to 2017 wildfires and uncertainty around 2018 liabilities, said Moody’s, which also reduced the utility’s Pacific Gas & Electric subsidiary to Baa2.

President Trump is scheduled to travel to California on Saturday to survey damage from the wildfires in the wake of a backlash to his repeated threats to cut off federal firefighting money even as the inferno and its death toll grew. The number of people missing in the Camp fire more than doubled to 631 on Thursday.

Meanwhile, California policymakers are informally weighing legislation that would let PG&E sell bonds to cover any possible liabilities arising from the Camp fire, though no formal proposals have been made. Investors are keenly awaiting any action from Sacramento to help the beleaguered utility.

Because the Legislature isn’t in session, the earliest any proposal could be introduced would be Dec. 3, when new members are sworn in. Lawmakers may opt to introduce amendments to a wildfire liability law signed in September, according to a research note Thursday from Bank of America. Provisions of the law designed to help PG&E pay for last year’s wildfires could be extended to 2018 fires.

As bodies continue to be recovered, lawmakers say they’re focused on responding to the needs of the victims.

“Any Assembly member or senator would be able to introduce legislation on Dec. 3, but I have not heard of anyone expressing their intent to do so,” said Kevin Liao, a spokesman for state Assembly Speaker Anthony Rendon (D-Paramount). Evan Westrup, a spokesman for Gov. Jerry Brown, wouldn’t comment on possible state actions to help PG&E.

Regulators have some tools to address wildfire costs from 2018, including establishing a stress test for PG&E and other utilities, PUC President Picker said. The PUC will examine the operations of PG&E following the Camp fire and develop methods for determining how big a financial hit it can withstand if held responsible for fire damage.

The Legislature would have to pass a new measure to allow PG&E to sell bonds to help cover 2018 fire liability, much as it did for 2017, Picker said.

“Frankly, I think the Legislature has some work to do around wildfires,” he said. “They may have to clarify what to do in 2018.”

There’s a growing consensus that any path for PG&E’s recovery will have to run through Sacramento. There’s an “urgent need for new legislation to better protect utilities from the risk of financial distress and utility shareholders from potentially unlimited fire liabilities. However, there is no clear path to new legislation in the near-term,” Stephen Byrd and a group of Morgan Stanley analysts wrote in a note Thursday.

While wildfire legislation passed in the fall addresses “many urgent needs, more work remains to combat the devastating threat that extreme weather and climate change pose to our state’s shared energy future,” PG&E spokeswoman Melissa Subbotin said in a statement.

State action will be complicated by changes from this month’s election, including a new governor, Gavin Newsom. But any action perceived as helping utilities over wildfire survivors would be sure to draw controversy, as it did earlier this year over legislation that provided the companies some relief from their liabilities.

Newsom hasn’t said what he would do to address the concerns sparked by PG&E and other utilities facing billion-dollar liabilities.

“We’re going to assess all those facts — the governor is in the process of doing the same — and we’ll see where we are when the baton is handed,” the governor-elect said Tuesday.

“We do not see a clear person to spearhead this issue,” the Morgan Stanley note said.

Chediak, Baker and Varghese write for Bloomberg.