Can PG&E survive the Camp Fire?

Pacific Gas and Electric Co. is emerging from one of its most challenging weeks under a cloud of uncertainty. Investors, regulators, employees and even those opening their monthly bills are transfixed by the question of whether the embattled utility can withstand the aftermath of California’s deadliest and most destructive wildfire.

PG&E Corp., the utility’s parent, endured a volatile week on Wall Street. Its shares saw both their largest single-day percentage decline and, later, their largest single-day increase since the early 2000s, when the California energy crisis forced the utility into bankruptcy.

The stock price decline, which wiped out billions of dollars in shareholders’ wealth, came amid concerns from investors about PG&E’s potential liability in the horrific Camp Fire, which has far exceeded any other wildland inferno in state history as measured by lives lost and structures incinerated.

Shares subsequently recovered after Michael Picker, president of the California Public Utilities Commission, made it clear he does not want PG&E to file for bankruptcy because of the fire. But the stock’s Friday closing price of $24.40 was still about half its opening price Nov. 8, the day the Camp Fire began.

Investors needed reassurance about PG&E’s future from California public policymakers, and while they found that to some degree in Picker’s comments, his remarks fall “far short of alleviating any of the future shareholder losses,” said Travis Miller, a utilities analyst at Morningstar Research Services.

PG&E’s future

Until investigations into the Tubbs and Camp fires are completed, PG&E’s liability for California wildfires will remain unresolved. A few different paths lie ahead, depending on how events unfold and the Legislature responds.

Bonds: The Legislature passed SB901 last year, allowing PG&E to issue bonds paid off by ratepayers to cover the costs of 2017 wildfires over time. Applying the same fix to the Camp Fire and subsequent wildfires would require new legislation to extend SB901. The utility could also seek changes in the way California applies inverse condemnation to wildfires, but legislators have shown little interest in pursuing that to date.

Bankruptcy: Pacific Gas and Electric Co. filed for bankruptcy in 2001 amid disagreements with California over how to recoup costs from the state’s energy crisis. Without some protection from wildfire lawsuits, the utility could seek protection from creditors again.

Breakup: In the longer term, legislators and regulators may seek to restructure PG&E in more significant ways, including splitting it up into smaller entities.

“PG&E still faces a very rough road going forward,” Miller said. “The market is pricing in billions of dollars in liabilities, and we think that’s still a legitimate assumption, even after the comments from Picker.”

The Camp Fire’s cause remains under investigation, as PG&E has repeatedly noted, but state officials are looking at its equipment as a possible source. On Nov. 9, the utility reported to regulators a problem with a line near the location initially identified as an ignition point for the Camp Fire. On Friday, PG&E said in a filing with the utilities commission that it had also identified a problem with its equipment near a point now under suspicion as a second origin point of the blaze.

If the utility’s equipment is ultimately found responsible for sparking the conflagration, the cost to PG&E could match or exceed the estimated $15 billion it may already be liable for after the wildfires that ravaged Northern California in 2017. The cause of the worst of those blazes, the Tubbs Fire, is also still under investigation, and numerous related lawsuits against PG&E have yet to be resolved.

Under a legal concept known as inverse condemnation, PG&E can be held responsible for wildfires started by its equipment even if the utility did nothing wrong. On a Nov. 5 conference call to discuss PG&E’s latest earnings report, CEO Geisha Williams said the company would “continue our focus on reforming inverse condemnation” going forward.

PG&E could be aided by a new state law that lets it grapple with wildfire costs by selling bonds its customers would pay off over time. But the current law allows PG&E to take that step only for the 2017 fires — any attempt to do so for a fire that started this year would require further action from state lawmakers, who haven’t indicated whether they are willing to back such a move.

Picker said allowing wildfires to force PG&E or the state’s other investor-owned utilities into bankruptcy “has a very big cost” to ratepayers.

“It’s just not good policy,” Picker told The Chronicle. “It doesn’t work out.”

PG&E officials agree that utilities may need further changes to the new state law, SB901.

“While SB901 addresses many urgent needs, there is more work that remains to combat the devastating threat of extreme weather and climate change, and especially the threats those pose to our state’s energy future,” said PG&E spokesman Paul Doherty.

The company has already come under extreme financial pressure.

PG&E shares tanked about 22 percent Wednesday, the company’s deepest single-day plunge since the utility emerged from a bankruptcy caused by the energy crisis. The stock-market nosedive came after the San Francisco energy company disclosed that it had exhausted its revolving credit lines and said that if the utility’s equipment had caused the Camp Fire, liabilities could exceed its insurance coverage.

Moody’s Investors Service on Thursday downgraded the credit ratings of the parent company PG&E Corp. and its utility subsidiary, Pacific Gas and Electric Co. Moody’s cited in part PG&E’s decision to completely draw down its credit facilities, which the investors service described as a “prudent action by management,” but one that also “signals a concern regarding access to the capital markets” and was “unusual for an investment grade regulated utility.”

In a statement, Doherty said PG&E is committed to maintaining its credit ratings “as an important element in ensuring stable and cost-effective financing to make capital investments and run our business safely and affordably.”

Moody’s analyst Jeff Cassella said in an interview Friday that Picker’s comments — which appeared to help boost PG&E’s stock price 37.5 percent that day — were not enough to warrant another rating action.

“We think regulators will support the financial health of PG&E,” Cassella told The Chronicle. “His comments certainly point in that direction. Having said that, given the way that Senate Bill 901 was passed … it specifically didn’t address 2018 wildfires, so from our perspective, that is somewhat of a negative.”

State Sen. Bill Dodd, D-Napa, who sponsored SB901, has not said whether he will support additional changes to the law so PG&E could offset liabilities it may incur from the Camp Fire.

“The fires are still burning, bodies are still being recovered. As a state right now we are focused on supporting the victims and the recovery of these communities,” Dodd said in a statement Friday. “The facts aren’t in about the cause of these fires and it’s too soon to speculate about future legislation.”

If lawmakers do try to let PG&E pass Camp Fire-related costs along to ratepayers, The Utility Reform Network will “do everything in our power to fight that,” said Mark Toney, the consumer group’s executive director.

“It is not fair to make ratepayers pay for fires they had nothing to do with,” Toney said.

Meanwhile, state Sen. Jerry Hill, D-San Mateo, a PG&E critic, is questioning whether the utility should continue to exist in its current form. Hill said his office is researching alternatives, including whether to break up PG&E.

“At some point in time, you have to hold a corporation, an investor-owned utility, responsible for their actions,” Hill said. “Last year in the Legislature, from what I saw, the impression was they are too big to fail — just like the banks were in ’08. They were too big to fail, and I think, frankly, from what I’m observing over the last two years, they are too big to succeed.”

Some changes to PG&E may come from an ongoing investigation into the utility’s safety culture. In his public comments Thursday, Picker said he is broadening the scope of the investigation — which came out of the fallout from the 2010 San Bruno pipeline explosion — to include recent wildfires.