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How PG&E Stock Could Trade as Troubles Multiply

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Shares of the bankrupt utility PG&E Corporation (PCG) traded with extreme volatility last week. PG&E stock has surged more than 60% even after the utility’s troubles have multiplied in the last two weeks. PG&E reported its third-quarter earnings last week, which adds to the questions on how it could emerge from Chapter 11 bankruptcy.

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PG&E’s emergence from bankruptcy could be delayed

PG&E reported a net loss of $1.6 billion during the third quarter, mainly driven by $2.5 billion pretax charges for claims related to the 2017 and 2018 wildfires. The utility also announced that the process of emerging from bankruptcy could be delayed beyond June 30, 2020, and might take years.

PG&E has been implementing widespread preventive power shutdowns in California amid dry and windy weather when the risk of wildfire is high. However, these efforts were questioned when one of its power lines malfunctioned and ignited last month’s Kincade fires. The fire inspectors have not determined the cause of these fires yet. However, PG&E said that it could realize another significant liability related to these fires. The additional liabilities will likely further complicate PG&E’s path to coming out of bankruptcy.

While creditors and shareholders are fighting over control of the utility, some California mayors are becoming involved. Last week, San Jose Mayor Sam Liccardo’s idea of transforming PG&E to a customer-owned company gained extensive support. However, the utility company said this is not an optimal solution.

San Francisco–based PG&E Corporation filed for Chapter 11 bankruptcy in January this year. It has been facing more than $30 billion in wildfire-related liabilities, mainly associated with last year’s Camp Fire. The Camp Fire was California’s most devastating wildfire ever, resulting in 86 deaths.

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California blackouts could be a gain for some

PG&E CEO Bill Johnson stated last month that it could take a decade to reach a point where extensive safety outages aren’t essential when the fire risk is high. The utility’s precautionary blackouts could be gain for some, though. Generator companies and solar panel makers have stepped into the void left by the utility to reach the affected customers.

Generator maker Generac Holdings (GNRC) stock has been rallying and is currently trading at its all-time high. Tesla (TSLA) recently launched a solar roof tile, which CEO Elon Musk assertively touted in the wake of the California wildfires and power outages. For more, please read Can California’s Blackouts Boost Tesla’s V3 Solar Roof?

PG&E stock price action

PG&E stock has been notably volatile since last year, primarily driven by wildfire-related uncertainties. It fell from $40 levels last November to $4 before filing for bankruptcy in January. However, the uncertainties related to its bankruptcy proceedings recently drove the stock from $25 to $3.50.

Utility stocks are generally steady and slow-moving. However, the implied volatility of PG&E stock was close to 170% last week, against utilities’ average volatility around 11%. Implied volatility measures investors’ anxiety.

PG&E stock has fallen more than 80% so far this year. At the same time, shares of Sempra Energy (SRE) are up 33%, while Edison International (EIX) stock is up 16% YTD. Defensive utilities have remained in focus throughout this year and are up about 20% in the same period. You can read more in Top Dividend Stocks from Utilities to Combat Recession.

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