California's New Boss Hints at Plan as PG&E Crisis Deepens
(Bloomberg) -- As concerns about PG&E Corp.’s financial health spiral, California Governor Gavin Newsom signaled that he’ll deal with the troubles plaguing the state’s largest utility as one of his first tasks in office.
In his only public comments on the company since his inauguration, Newsom said at a press conference that he’s working on PG&E matters “in real time” and is in talks with state energy regulators, members of the previous administration and incoming staff “to address the solvency” of the utility. He held meetings about the issue at 8 a.m. on Tuesday -- his first full day on the job.
PG&E investors are looking for any signs that state leaders are working to prevent a bankruptcy of the utility in the face of massive costs from deadly wildfires. The San Francisco-based company’s shares have plunged 28 percent in the past two days and its bonds dropped to all-time lows as concerns about its outlook deepen. The turmoil extended into Tuesday after S&P Global Ratings slashed the company’s credit grade to junk status, citing its limited options for managing its liabilities.
“A lot will depend on how hard Governor Newsom wants to push efforts to ensure the financial viability of utilities,” Praful Mehta, a utility analyst at Citigroup Inc., said in a research note Tuesday. “The problems at PG&E seem more urgent with S&P’s action confirming this view.”
PG&E was up 4.8 percent to $18:40 at 9:33 a.m. in New York.
While Newsom declined to offer specifics about what he may do for PG&E, he said California needs a “healthy” utility that’s able to invest in the future.
Read More on PG&E’s Wildfire Woes:
Meanwhile, turmoil ensued at PG&E, which said Tuesday that three top electric executives will be departing by the end of this month including Patrick Hogan, senior vice president of electric operations at the company’s utility unit. The moves marked the first major management shakeup at the company since November’s deadly Camp Fire, which killed 86 people. California investigators are looking into whether the utility’s equipment ignited the blaze.
“It’s pretty clear they’re cleaning house,” said Kit Konolige, an analyst with Bloomberg Intelligence. “It looks like the top people in charge of operations -- who might have been involved with the fires -- are being replaced.”
PG&E is considering filing for bankruptcy as soon as February, people familiar with the matter said Friday. The company’s liabilities from the Camp Fire, combined with those from 2017 wildfires in Northern California’s wine country, could top $30 billion if its equipment is found to be responsible, according to analyst estimates. The company had about $430 million of cash on its books at the end of September.
In an indication of spreading concerns about a bankruptcy filing, two small natural gas suppliers have restricted sales to PG&E out of concern that the utility giant won’t be able to pay them, according to people with direct knowledge of the situation.
After the Camp Fire, retail gas provider Commercial Energy of California began reaching out to customers and started billing them directly -- as opposed to going through PG&E. The Oakland-based company didn’t want to run the risk of PG&E hanging onto its cash if it ends up declaring bankruptcy, Chief Executive Officer Ron Perry said.
“More likely than not, they will declare bankruptcy within six months,” Perry said by telephone. “It would be imprudent for us to act as if they weren’t going to declare. We are going to prepare.”
Investors will be searching for more clarity on what may come of PG&E at Thursday’s California Public Utilities Commission meeting. The regulator is scheduled to open a proceeding to develop a method that will determine how much PG&E shareholders must pay for wildfire costs before passing them along to customers.
©2019 Bloomberg L.P.