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PG&E Stock Continues to Soar, Bears Run for Cover


Nov. 13 2019, Updated 7:37 a.m. ET

The wild swings continued in PG&E (PCG) stock yesterday. The stock gained another 13%. The company has come up with a plan to offer $13.5 billion in compensation to wildfire victims. However, the company faces estimated liabilities of approximately $30 billion related to the wildfires. The company has spent several months coming up with a restructuring plan. PG&E faces a deadline of June 30, 2020, to emerge from Chapter 11 bankruptcy.

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Uncertainty continues about PG&E’s reorganization plan

The wildfire compensation amount proposed by PG&E matches what the group of creditors offered. The group includes Paul Singer’s Elliott Management and Pacific Investment Management. Last month, the bankruptcy court judge allowed the group to pitch their restructuring plan. The decision was a big setback for the company’s shareholders. The current management won’t have a say in the company’s reorganization. However, since PG&E’s proposed compensation amount matches the rival reorganization plan, it might put shareholders on a strong footing.

PG&E filed for Chapter 11 bankruptcy protection in January after wildfire liabilities peaked at $30 billion. While the company faces criticism for its role in the 2017 and 2018 wildfires, the new round of fires this year made the situation worse. PG&E said that it could realize another significant liability related to this year’s Kincade fires. However, the cause of the Kincade fires hasn’t been determined. The utility’s power line broke down shortly before the fires started. The additional obligations will likely thwart PG&E’s path to emerge out of bankruptcy.

The utility garnered much interest when several mayors supported the idea of transforming it into a customer-owned entity. Read Where PG&E Stock Might Go amid Interest from Mayors.

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PG&E could delay bankruptcy proceedings

PG&E posted a pre-tax charge of $2.5 billion related to the wildfire claims during the third quarter. The company had a net loss of $1.6 billion in the third quarter due to these claims. PG&E also said that the process to leave bankruptcy proceedings could take years and extend beyond the stated deadline of June 30, 2020.

Cal Fire, the state fire protection agency, held PG&E equipment responsible for igniting “Camp Fire” last November. Last year, California experienced the deadliest fires in its history. The fires killed 86 people and destroyed many structures in northern California.

Although state utilities are bearing the brunt of the wildfires, many S&P 500 companies are identifying wildfires as a potential risk, according to a CNBC report on November 10. In the last year, at least 14 companies, including Marriott (MAR) and Monster Beverage (MNST), consider wildfires to be a risk.

PG&E stock’s price action

PG&E stock has been trading immensely volatile this year. The company’s alleged role in recent fires pushed the stock to its all-time low of $3.55 late last month. However, speculators pulled it back beyond $8 levels early this month. There could be some reasons behind PG&E’s uptrend this year. The utility company also filed for bankruptcy in 2001 but never withdrew its common stock. The stock rose multifold in the following years and brought colossal returns to investors. Investors might have a similar view this time as well.

Although PG&E stock has fallen more than 70% this year, there was a significant uptrend after it filed for bankruptcy in January. Edison International (EIX), a peer utility operating in the state, has risen about 15% YTD. At the same time, Sempra Energy (SRE) stock has risen almost 35%.

Utilities (XLU) were some of the bright spots among the broader markets this year. Read Utilities Look Strong amid Growing Recession Fears.


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