California PUC chair says state won't let PG&E go bankrupt
California's head utility regulator said Thursday he does not want utility Pacific Gas and Electric (PG&E) to go bankrupt over escalating costs related to California's record wildfire season, sending shares soaring in after-hours trading.
California Public Utilities Commission (CPUC) Chairman Michael Picker reportedly told financial analysts his agency would begin implementing a new state law that allows utilities to pass fire costs onto customers, while also expanding a probe into PG&E's corporate governance.
Picker's announcement came after PG&E's power lines were linked to the ongoing Camp Fire in Northern California and PG&E withdrew all of its revolving credit lines, a move that can presage a bankruptcy filing. The utility's equipment was found responsible for 16 fires last year and this week its credit rating was downgraded by Moody's Investor Service and S&P.
Picker's surprise call with financial analysts Thursday illustrates PG&E's dire financial situation and the efforts California officials will take to avoid a second bankruptcy for the utility in less than two decades.
In a move he admitted was unusual, Picker reportedly told financial analysts Thursday he believed PG&E would not go bankrupt, prompting shares to rise more than 33% after they had fallen more than 60% over the course of this week. Bank of America and Citi upgraded PG&E's stock to a buy rating Friday morning on news of the chairman's comments.
"It's not good policy to have utilities unable to finance the services and infrastructure the state of California needs," Picker told Bloomberg after the call. "They have to have stability and economic support to get the dollars they need right now."
To pass wildfire costs onto customers, the utility must first go through a financial stress test to assess how much of the burden it can shoulder, and Picker said regulators would undertake that test after the Camp Fire is controlled, the San Francisco Chronicle reported.
The announcements followed reports this week that PG&E lines may have been involved in igniting the Camp Fire in Northern California, which has burned more than 140,000 acres and led to more than 630 people missing and over 60 dead.
The utility said in documents filed with the Securities and Exchange Commission on Tuesday that its costs for the wildfire season are likely to exceed its insurance coverage. The company also pulled down all of its revolving debt, a move that financial experts said often anticipates a bankruptcy filing or credit downgrade.
On Thursday, both Moody's and S&P downgraded PG&E's credit rating to near-junk status.
In June — before the Camp Fire outbreak — PG&E officials told state lawmakers that fire expenses could force the utility into bankruptcy or compel it to break the company into several pieces. Picker said state regulators would assess a company reorganization as part of its investigation into the utility.
"I will open a new phase examining the corporate governance, structure, and operation of PG&E, including in light of the recent wildfires, to determine the best path forward for Northern Californians to receive safe electrical and gas service in the future," he said in a statement.
In addition to action from the CPUC, California lawmakers could also take action to keep PG&E afloat. In a note to clients, Bank of America analyst Julien Dumoulin-Smith said an expansion of wildfire legislation could come as soon as next month.
"We think 'clean up' legislation could be introduced as soon as December 3rd by stakeholders ... where text could potentially expand S.B. 901 to offer both securitization levers and applicability of the customer threshold filing to the 2018 fires, based on our latest discussions with legislative stakeholders," he wrote. "As the utility is viewed as a key vehicle to California's clean energy goals, we still expect modest support from legislative constituents to keep the utility financially solvent."
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