One of the biggest losers on Monday’s markets was one of the largest power companies in the state of California. Pacific Gas & Electric (NYSE: PCG), otherwise known as PG&E, fell substantially on Monday after the state of California rejected the company’s proposal for a bankruptcy restructuring. Instead, Governor Gavin Newsom demanded the company submit a new restructuring plan to the state government following its role in thousands of fires that have broken out throughout the state.
For those not familiar with the story, PG&E has been blamed for over 1,500 California fires that have been caused between June 2014 and December 2017, including one of the deadliest fires in the state’s history. All of these incidents were blamed on PG&E’s power lines, with many claiming that the company had been trying to maximize profits over safety for decades. As a result of these allegations, the company ended up filing for bankruptcy in late January after getting hit by billions of dollars of claims related to the various fires.
PG&E ended up reaching a whopping $13.5 billion settlement in November but requires approval from state regulators. In comparison, the company’s current market cap is only $5.1 billion, but even before filing bankruptcy, PG&E’s market cap would have been around $12 billion. The new reorganization plan for the company also needs to comply with laws that forces PG&E to help with future fire costs.
“For too long, PG&E has been mismanaged, failed to make adequate investments in fire safety and fire prevention, and neglected critical infrastructure,” wrote Governor Gavin Newsom in a letter before the weekend. “PG&E has simply violated the public trust.”
The company has also been faced with criticism for the fact that it needed to cut power from a number of Californian cities in order to prevent its powerlines from causing fires. With residents forced to go without power for several days at a time in some cases, California’s governor threatened that it would consider a state takeover of the company due to the firm’s incompetence.
Shares of PG&E fell by 23% in light of the news, with the company having only days to come up with a different bankruptcy plan that better meets state demands. Specifically, this includes a new board of directors, an option for a state takeover, revamped safety measures, and other major changes.
Out of all the analysts covering the stock right now, none of them have a “buy” rating on PG&E, understandably so given its problems. Ten analysts out of the 11 covering PG&E have a “hold” rating on the stock, while just one has a “sell” rating. This was before today’s announcement, however, so it would be surprising if more analysts downgrade the stock soon.
Pacific Gas and Electric Company Profile
PG&E is a holding company whose main subsidiary is Pacific Gas and Electric, a regulated utility operating in Central and Northern California that serves 5.3 million electricity customers and 4.4 million gas customers in 47 of the state’s 58 counties. PG&E is operating under bankruptcy court supervision as of January 2019. In 2004, PG&E sold its unregulated assets as part of its postbankruptcy reorganization. – Warrior Trading News
