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California Utilities Are Upbeat, Wildfire Bill Moves Forward


Jul. 10 2019, Updated 7:40 a.m. ET

Stocks rise

On Tuesday, PG&E (PCG) stock rose more than 6% during the early trading hours. The stock lost most of its gains and closed 0.7% higher. California Governor Gavin Newsom proposed the wildfire bill. The state’s Senate passed the bill late on Monday. The legislation is pending in the state’s Assembly. Edison International (EIX) and Sempra Energy (SRE) stock rose 0.6% and 0.4%, respectively, on Tuesday.

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Wildfire fund

The wildfire fund will help state utilities cover wildfire-related liabilities if their equipment is involved in the blaze. The fund will be financed through bonds seeded by at least $10 billion in bonds from the Department of Water Resources. Utilities might be asked to bring in $7.5 billion in equities.

The wildfire fund will only help PG&E a little. The wildfire fund doesn’t address inverse condemnation. If the bill comes into existence, inverse condemnation will likely remain. “Inverse condemnation” is a law that holds utilities responsible for wildfire-related damages even if they followed the safety norms. The wildfire fund isn’t expected to help existing liabilities associated with wildfires. The fund might benefit PG&E after existing liabilities are covered and it exits bankruptcy protection by June 30, 2020.

Upbeat stock

PG&E filed for Chapter 11 bankruptcy protection on January 29. The company faces ~$30 billion in potential liabilities associated with wildfires. Camp Fire, the deadliest wildfire in California’s history, killed 85 people and burned more than 18,800 structures last November. PG&E stock has more than doubled since it filed for bankruptcy.

Recently, PG&E stock has been volatile. Edison International was upbeat after California’s governor pushed for the wildfire bill. PG&E and Edison International rose almost 20% in the past month. Sempra Energy, the biggest utility stock by market cap in the state, rose 4% during the same period.

UBS raised PG&E’s target price from $22.0 to $24.0 on Tuesday. As of today, 12 analysts recommend a “hold” for PG&E stock, while one recommends as a “strong buy.”

To learn more, read Utilities in Focus on Unstable Bond Yields and Rate Cut Hopes.


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