PG&E shares tumbled another 20% on Monday as the embattled utility, which is potentially facing billions of dollars in fines stemming from the deadliest wildfires in the state's history (while simultaneously struggling to settle claims related to a round of fires that decimated California's wine country in 2017), is facing pushback and skepticism from lawmakers following reports last week that it could file for bankruptcy as soon as next month.
According to Bloomberg, California lawmakers, who had been expected to bail out the utility, are questioning the political prudence of caving to the utilities bankruptcy threats.
It's widely suspected that the threat of a bankruptcy filing would force the California legislature to pass a law allowing PG&E to pass costs related to the fires on to its customers - an outcome that would risk enraging Californians who suspect that the utility's equipment contributed to starting the deadly Camp and Woolsey Fires.
As investigators press ahead with their probe into what caused the deadly fires, the issue of what should be done to hold PG&E accountable for any role in the fires could be one of the first major issues facing California's newly inaugurated governor, Gavin Newsom, who was sworn into office on Monday.
As BBG reported, even if PG&E does follow through with its bankruptcy threats, they might not be enough to pressure lawmakersinto action - which could lead to serious risks for PG&E shareholders.
A potential bankruptcy may be enough to force the hand of state legislators who are mulling a potential bailout for the embattled utility. They’ll have to decide whether to allow the company to pass some of the costs of the fire through to taxpayers, Katie Bays and Clayton Allen, analysts at Height Securities LLC, said in a note on Monday.
Bankruptcy "should be considered a credible risk by shareholders," they said. "While we think that sufficient support for such a bill could eventually be rallied, exploitive tactics and a reticence toward change will not improve" the company’s profile.
PG&E doesn’t "comment on market rumor or speculation," spokeswoman Lynsey Paulo said in an email Monday.
Since the fires, PG&E's shares have shed fully half of their value, while yields on its bonds have skyrocketed.
But for what it's worth, the utility claims it's "working diligently" to figure out what it might owe due to the wildfires. There has also been speculation that it could sell its oil and gas unit to pay off fines in excess of its insurance coverage, as well as dozens of lawsuits that are currently pending.
In a statement late Friday, PG&E said it’s "working diligently to assess the company’s potential liabilities as a result of the wildfires and the options for addressing those liabilities. We recognize the need to balance the interests of many stakeholders while maintaining safe, reliable, and affordable services for our customers, which is always our top priority."
And with the California legislature reconvening on Monday, some lawmakers are warning that they won't allow PG&E to use the bankruptcy threat as leverage like it has done in the past.
The California legislature is scheduled to reconvene today after its holiday break. State Senator Jerry Hill, an outspoken PG&E critic, said the utility previously raised bankruptcy as leverage when seeking state assistance in paying its liabilities from wildfires in 2017. The company could be engaged in similar brinkmanship now, he said.
"You can’t trust what they say," said Hill, who represents San Bruno, where a PG&E gas pipeline exploded in 2010, killing eight. "Last year, they were able to fool the legislature with the narrative of bankruptcy or bailout, and the legislature gave them a bailout."
Still, the fact that PG&E is the largest utility in California and the country gives it a fair amount of leverage. Analysts warned that the company could run out of money before the end of the year...which could create serious problems not just for PG&E, but for California consumers
PG&E "could face a liquidity crisis by mid-to-late ’19," Greg Gordon, an analyst at Evercore ISI, said in a research note Monday.
But in one potential workaround, the state's utility commissioner is evaluating a possible breakup of the utility, as well as a state takeover.
California Public Utilities Commission chief Michael Picker said that same month that he couldn’t imagine allowing the state’s largest utility to go into bankruptcy. His agency later began a formal process to evaluate whether to break up or take over PG&E’s Pacific Gas and Electric utility.
Earlier on Friday, PG&E said in a statement that it’s already weighing changes to both its board and how its businesses are structured. One option under consideration: Selling its natural gas business after a bankruptcy filing, the people familiar with the matter said. Bloomberg Intelligence analyst Kit Konolige said.
But even a state takeover wouldn't necessarily prevent a rerun of the catastrophic fires, or other serious lapses in oversight.
"Breaking it up or the state running the company, those are all incredibly complicated proposals that just have no indication that they would be successful, certainly not anytime soon," he said. "The assumption that whatever you put in place of PG&E would be better -- that’s really unproven."
But as legislators debate exactly what should be done regarding PG&E, one thing is for sure: Expect every new detail that emerges to have an impact on PG&E's battered shares.