California fires: PG&E crisis deepens with $12bn market wipeout

Bloomberg

The implications are unsettling: 15 minutes before a fire was reported among the trees north of Sacramento — the spark that would explode into the deadliest blaze in California history — a PG&E power line in the area went offline.
A week later, at least 56 people have been found dead — and PG&E Corp is facing its gravest crisis yet over whether its equipment has ignited another devastating wildfire. The exact cause of the fast-moving Camp Fire may not be known for months or even years. But in Sacramento and on Wall Street, a reckoning for PG&E may finally be at hand.
After limping out of bankruptcy in 2004, California’s largest utility is once again under pressure. Underscoring its financial straits, PG&E said that it had exhausted its revolving credit line. It also said that if it’s held responsible for the fire that destroyed the town of Paradise, the liability would exceed its insurance coverage.
That comes as the company is already facing as much as $17 billion in liabilities, according to a JPMorgan Chase & Co estimate, from a swarm of wildfires that charred parts of Northern California last year. State investigators have blamed PG&E equipment for sparking 17 of last year’s blazes. A report on the most destructive of those is still outstanding.
With two sets of calamitous fires within 13 months, Wall Street is confronting the question of how PG&E can sustain billions of dollars of liabilities that could keep piling up. Shares of the San Francisco-based company plunged the most in 16 years and have tumbled 48 percent since the Camp Fire started, erasing about $12 billion in market value. Holders of $18 billion of bonds are bracing for the utility’s credit ratings to be cut. “Investors are understandably beginning to question the wisdom of continuing to commit capital to California’s investor-owned utilities absent a more comprehensive wildfire liabi-lity policy fix,” said Jonathan Arnold, a utility analyst for Deutsche Bank AG.
PG&E had lobbied state lawmakers to change how California applies “inverse condemna- tion,” a legal doctrine under which utilities can be held liable for any economic damages tied to their equipment, even if they follow all safety rules. PG&E CEO Geisha Williams called the doctrine bad policy that essentially makes utilities default wildfire insurer of the state.