PG&E stock plunges as $18 billion in Tubbs fire claims return to haunt it
Seven months after a California agency absolved PG&E Corp. of blame for a deadly 2017 wildfire, the utility giant faces the potential of billions in new legal liabilities — and how it would pay for them is unclear.
Even though investigators said PG&E wasn’t responsible for the Tubbs fire in Northern California’s wine country that killed 22 people, a bankruptcy judge has ruled that jurors should decide whether the company is to blame. The decision could expose PG&E to $18 billion or more in claims. It sent the stock plunging 25% on Monday, the most since the utility signaled in January that it would file for Chapter 11 bankruptcy protection.
The ruling has implications for PG&E’s bankruptcy. The company, which has a market value of about $5.6 billion, has already taken roughly $18 billion in charges for wildfires blamed on its equipment. But while it has been lobbying for state legislation that would allow it to raise billions of dollars by issuing tax-free municipal bonds, the utility’s reorganization plan will now almost certainly need to include even more money for fire victims.
“No matter how you slice it, there isn’t enough financial engineering in the world for the estate to eat another $18 billion in Tubbs claims without it coming out of someone’s pocket,” said Katie Bays, a utility analyst and co-founder of Sandhill Strategy LLC.
In a statement, PG&E said it would cooperate with state court proceedings as it pushes to meet a June 30, 2020, deadline to exit bankruptcy and qualify for a state wildfire fund to help pay for future fires sparked by its equipment.
In addition to floating bonds, two of the company’s shareholders, Knighthead Capital Management and Abrams Capital Management, have said they plan to raise $15 billion through a rights offering as a pool of capital the company could tap. PG&E said last week that it had commitments for $12 billion.
The ruling by U.S. Bankruptcy Judge Dennis Montali is the latest bad news for the utility, which already faces separate liabilities from the deadly 2018 Camp fire, which investigators did blame on the company’s equipment. Last week, a court-appointed monitor said PG&E failed to properly trim trees in blaze-prone zones. And a judge forced the company to respond to a media report that PG&E deferred maintenance on equipment near the ignition point of the Camp fire, which killed 86 people — the deadliest in state history.
The Tubbs fire, California’s second-most deadly blaze, ripped through nearly 37,000 acres in Sonoma and Napa counties in October 2017, destroying 5,600 structures. After a 15-month investigation, the California Department of Forestry and Fire Protection determined it was started by a private electrical system, not PG&E wires.
Attorneys for the victims and insurers, however, have pushed for claims to go before jurors, saying they have evidence that PG&E sparked the blaze. The lawyers also say PG&E failed to cut power to the area despite high winds. In his decision, the judge said a limited number of fire victims and a group of insurers can pursue cases. Those claims could become test cases that offer an estimate of what PG&E’s total liability will be for the Tubbs fire.
A Cal Fire spokesman said his agency stands by its finding.
The ruling potentially puts PG&E’s fate into the hands of a citizen jury at a time when the utility has been struggling to regain the public trust in the wake of the deadly blazes.
“It was a little out of left field that the judge allowed the Tubbs fire litigation to go to an outside jury,” Kit Konolige, a Bloomberg Intelligence analyst, said in an interview. “That’s a big negative surprise.”
Citigroup Inc. downgraded PG&E’s stock to “sell” and slashed its price target to $4 from $33. PG&E shares fell to $10.67, the lowest since January. The utility’s bonds also fell.
In a rare bit of good news for PG&E, the bankruptcy judge sided with the utility in a separate ruling Friday that rejected requests from two groups of creditors who wanted to propose their own ways to restructure the company. Montali said opening up the bankruptcy to competing plans at this point would have led to “expensive, lengthy and uncertain disputes” that wouldn’t benefit fire victims.
PG&E has outlined its plan to exit the biggest utility bankruptcy in U.S. history, promising to largely protect the value of its shares. The company says it plans to file the proposal by Sept. 9.
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