SACRAMENTO — Shares of California electric company PG&E soared Friday on new hopes that the company won’t have to go bankrupt if it is found to be liable for the massive Camp Fire in Northern California.
The wildfire, which has now been blamed for the deaths of 63 people, started in the early morning of November 8. The cause of the fire has yet to be determined. But PG&E (PCG) disclosed in a regulatory filing earlier this week that it “experienced an outage” on a transmission line just 15 minutes before the Camp Fire broke out.
That news led to a more than 60 percent plunge in the stock in the past week as investors worried that the utility did not have the financial resources to cover legal liabilities tied to the fire.
Lawyers representing victims of the fire have already filed two class action lawsuits against PG&E.
But the stock was up 40 percent Friday morning after the president of the California Public Utilities Commission (CPUC) suggested that the state would work with PG&E to ensure that it would not be permanently crippled by lawsuits.
“An essential component of providing safe electrical service is the financial wherewithal to carry out safety measures,” said CPUC president Michael Picker in a statement.
Picker added that as a result of a new law signed by California governor Jerry Brown last year, the CPUC is now required to consider a utility’s finances when determining the maximum amount it can pay without harming customers when evaluating damages caused by wildfires.
As part of the bill that Brown signed a bill, PG&E will now be able to issue bonds backed by surcharges from its customers. Those bonds will help pay for damages tied to deadly California wildfires in October 2017 caused by faulty PG&E equipment.
The bill allows for the possibility that utilities could issue similar bonds for future fires, but that is not guaranteed.
In a separate interview with Bloomberg late Thursday, Picker said “it’s not good policy to have utilities unable to finance the services and infrastructure the state of California needs. They have to have stability and economic support to get the dollars they need right now.”
Even after Friday’s big rally, PG&E is still more than 45% below where it was trading the day before the fire started.
PG&E has previously indicated that it renewed its liability insurance coverage for wildfire events for an amount of approximately $1.4 billion that covers the period from August 1, 2018 through July 31, 2019.
But the estimated damages are rising rapidly. Moody’s said earlier this week that it could cost up to $6.8 billion, while Citigroup estimates the damages could be as high as $15 billion.
The utility’s total market value is now below $10 billion though, and PG&E said in its filing that it currently has just $3.46 billion in cash after borrowing from an existing revolving credit line.
That’s why it will be critical for the state of California to assist PG&E if it is found liable for the Camp Fire.
“We agree with CPUC President Picker’s statement that an essential component of providing safe electrical service is long-term financial stability,” PG&E said in a statement. “Access to affordable capital is critical to carrying out safety measures and meeting California’s bold clean energy goals.”