PG&E stock has surged more than 70% Thursday after the California Department of Forestry and Fire Protection said that the Tubbs Fire was caused by a private electrical system and not one of the utilities’ cables.
The back story.
PG&E
stock (PCG) had been in free fall after it was blamed for fires in California that could have left it liable for billions of dollars in damages. The company said that it was preparing to file for bankruptcy at the end of the month, though hedge fund BlueMountain Capital argued that bankruptcy was the wrong move and today said the company should replace its board.
The plot twist. The California Department of Forestry and Fire Protection issued a press release stating that the Tubbs Fire in October 2017 wasn’t caused by PG&E but by a private electrical system. That’s one less fire that PG&E is being held responsible for, and it should reduce its liabilities.
But will it reduce them enough to avoid bankruptcy? Here is PG&E’s statement: “Regardless of today’s announcement, PG&E still faces extensive litigation, significant potential liabilities and a deteriorating financial situation, which was further impaired by the recent credit agency downgrades to below investment grade. Resolving the legal liabilities and financial challenges stemming from the 2017 and 2018 wildfires will be enormously complex and will require us to address multiple stakeholder interests, including thousands of wildfire victims and others who have already made claims and likely thousands of others we expect to make claims.”
BlueMountain, however, sees it as a reason that bankruptcy is the wrong move. “The news from Cal Fire that PG&E did not cause the devastating 2017 Tubbs fire is yet another example of why the company shouldn’t be rushing to file for bankruptcy, which would be totally unnecessary and bad for all stakeholders,” said a spokesperson for BlueMountain Capital Management.
Moving forward. Shares of PG&E gained 75% to $13.95 Thursday following the press release, but whether or not it declares bankruptcy is still an open question—and it was even before this decision. Most stocks heading for bankruptcy trade below $1, but PG&E has consistently traded in the mid- to high-single digits, suggesting a more uncertain outcome. For most investors, however, the stock is simply too volatile to own. As if to prove the point, its stock has dropped 8.4% to $12.78 in after-hours trading.
Write to Ben Levisohn at Ben.Levisohn@barrons.com
