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PG&E: Uncertainty Grows amid Interest from Mayors

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The prospect of making bankrupt utility PG&E Corporation (PCG) a customer-owned company is quickly gaining ground. The idea, which was floated by San Jose Mayor Sam Liccardo early this month, has garnered huge support recently. According to a Bloomberg article on December 5, more than 110 county officials in Northern California are proposing to turn PG&E into a customer-owned cooperative. Interestingly, the supporting officials represent the majority of the utility’s customer base. Meanwhile, PG&E stock continued its uptrend on December 5.

PCG continued its upward march

The stock has risen in eight of the last nine trading sessions, collectively gaining 35%. However, so far this year, it’s lost more than 60%.

Liccardo proposed making PG&E a customer-owned company early this month. Since then, support for the idea among county officials has grown substantially. On its part, PG&E said it disagreed with the idea and that it wasn’t the optimal solution for tackling its challenges.

PG&E’s bankruptcy

San Francisco–based PG&E Corporation filed for Chapter 11 bankruptcy protection early this year. It’s facing estimated liabilities of around $30 billion for its involvement in the 2017 and 2018 wildfires. The utility was held responsible for igniting the most devastating fires in the state’s history. Last November, Camp Fire destroyed several structures and killed 85 people. The utility faces a deadline of June 30, 2020, to emerge from bankruptcy.

PG&E stock has been on an upward march recently amid its efforts to reach a resolution. Bloomberg reported on December 4 that PG&E was close to finalizing terms for a $13.5 billion payout structure to wildfire victims. The company would pay half the amount in cash, and the rest would be paid in the reorganized utility’s stock. The step is considered to be a big one in terms of resolving its bankruptcy. PCG rose as much as 25% on December 4 on the news.

PG&E stock has been volatile throughout 2019

PG&E has been struggling to devise a reorganization plan for months. Creditors and shareholders have been fighting for control of the utility. Amid all the chaos, the Kincade fires in October made things worse. These fires also had alleged involvement with PG&E’s equipment. Fire investigators haven’t yet determined the cause of the fires.

However, the utility mentioned that financial liabilities related to these fires could have a material impact. Thus, the recent fires and uncertainties associated with a reorganization plan complicate PG&E’s path out of bankruptcy. However, its finalizing a payout structure to compensate wildfire victims could be a big positive when it comes to settling the matter.

This settlement could be a big deal for PG&E’s investors. Generally, equity value becomes zero in the case of a company’s bankruptcy. However, PG&E is currently trading at close to $10. The utility went bankrupt in 2001 as well, but it never withdrew its common stock. PCG surged multifold in the next few years, bringing immense returns to investors.

PG&E stock has been volatile this year. The recent strength in the stock has pushed it into the overbought zone. It’s trading at an RSI (relative strength index) of 84, its highest level since April 2019. The stock could see a trend reversal given its current RSI.

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