PG&E Cash Sweep Sends Distress Sign to California Lawmakers




 

(Bloomberg) -- PG&E Corp.'s decision to shore up cash is a clear signal to California legislators that it may need help to stave off the fiscal threat posed by wildfires.

The state enacted a law earlier this year to help utilities cover costs of last year's wildfires, including by selling bonds backed by customer bills. But the measure didn't specifically address how to handle the costs of any fires in 2018. So PG&E may need to turn to lawmakers for another fix.

"We think Sacramento will likely step in to protect the utility and its customers," Citigroup Inc. analyst Praful Mehta wrote in a research note Wednesday. PG&E, owner of California's largest utility, has lost more than $12 billion in market value, about half, since the deadliest wildfire in state history broke out Nov. 8.

Read More: PG&E Plunges Into Crisis as It Faces Reckoning Over Fires

Lawmakers, however, have yet to indicate that they will help. Governor Jerry Brown didn't address the issue during a news conference Wednesday to discuss the state's wildfires. Kevin Liao, a spokesman for Democrats in the state Assembly, said legislators were not currently working on any plan to help the utility.

"The focus now is on putting out the fires and on recovery for victims," he said.

Power Crisis

PG&E put its utility subsidiary through bankruptcy after the California power crisis of 2000-2001. That process, while the utility was hemorrhaging $300 million a month in power costs it couldn't recover from ratepayers, allowed PG&E to continue serving customers without interruption.

The law passed this year, known as SB901, allowed PG&E to use state-authorized bonds to pay off lawsuits from the 2017 fires and gave utilities a mechanism for recovering some wildfire costs starting next year, so long as the fires weren't caused by company negligence. But it didn't specifically address how to handle the costs of any fires their equipment might trigger in 2018.

The legislation also didn't change how California applies "inverse condemnation," a legal doctrine under which the state's utilities can be held liable for any economic damages tied to their equipment, even if they follow all of the state's safety rules. That's left the utilities exposed to open-ended liabilities.

"They will almost certainly need help from the state," Bloomberg Intelligence analyst Jaimin Patel said in an interview.

Jeffrey Cassella, an analyst at Moody's Investors Service, said it may not happen any time soon. "It could take some time," he said.

(Updates with news conference details in fourth paragraph.)

--With assistance from Romy Varghese.

To contact the reporters on this story: Allison McNeely in New York at amcneely@bloomberg.net;Mark Chediak in San Francisco at mchediak@bloomberg.net;Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net

To contact the editors responsible for this story: Joe Ryan at jryan173@bloomberg.net, Will Wade

For more articles like this, please visit us at bloomberg.com

©2018 Bloomberg L.P.

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