PG&E Gets No Respite from Inverse Condemnation



Yesterday, a bankruptcy court ruled to hold PG&E (PCG) liable for wildfire-related damages. The fire’s victims must have been relieved by the verdict. Judge Dennis Montali denied PG&E’s plea to reduce its current wildfire liability by dodging inverse condemnation, according to an article in the San Francisco Chronicle.

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No breather for PG&E

Inverse condemnation is a law in California in which a utility is held liable for damages even though it followed all safety norms. PG&E is facing wildfire-related liabilities of around $30 billion for fires in 2017 and 2018. It filed for Chapter 11 bankruptcy in January this year.

PG&E tried to defend its case by claiming that inverse condemnation should not apply, as the company is owned by investors and not by the government.

While the efficacy of inverse condemnation is debatable, the fire victims would have received much lower compensation for the damages if the judge had ruled in favor of the utility. On the bankruptcy court’s decision, PG&E said, “Imposing strict liability without regard to fault under inverse condemnation is a flawed legal doctrine and bad for our customers, our economy and our state.”

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The way out of bankruptcy

PG&E’s liabilities could further increase significantly with its alleged involvement in the Kincade fires last month. If PG&E’s equipment is found to be involved in the recent fires, the liabilities could have a material impact. Fire investigators haven’t yet determined the cause of the Kincade fires.

Amid the wildfires and preemptive blackouts, PG&E is grappling with several other challenges. It has a deadline of June 30, 2020, to emerge from bankruptcy. However, a potentially higher liability from the recent fires and differences over its restructuring plan might hinder its path out of bankruptcy.

The state fire agency, the California Department of Forestry and Fire Protection, held PG&E’s equipment responsible for igniting the Camp Fires last year. They were the most devastating wildfires in the history of California. They killed 85 people and burned down many structures last November.

PCG stock price action

Despite its mounting troubles, PG&E stock has seen continued strength recently. It rose for the fourth straight day yesterday. The stock has lost almost 70% so far this year, underperforming its peers. The Utilities Select Sector SPDR ETF (XLU) has soared almost 20% YTD. PG&E hit an all-time low of $3.55 late last month, but it’s currently trading at $7.55.

Edison International (EIX) and Sempra Energy (SRE), other utilities operating in the state, are up 25% and 37% YTD, respectively. Sempra is one of the top gainers among utilities this year. Read more in Utility Stocks: Analyzing the Top Gainers in 2019.

Utility stocks have remained in the spotlight throughout 2019. Apart from PG&E’s fiasco, almost all utility stocks have rallied so far this year. They continue to look attractive even after their steep rally, mainly due to their stable dividends. To learn more, read Top Dividend Stocks from Utilities to Combat Recession.


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