PCG PG&E Corporation

By Katherine Blunt 

PG&E Corp. shares plunged after a judge allowed a trial on whether its equipment caused the second-worst wildfire in California history, a case that could add billions of dollars to the liabilities the bankrupt company faces.

California fire investigators concluded in January that PG&E equipment didn't cause the Tubbs fire, the deadliest in a series of wildfires that burned California's wine country in 2017. But attorneys representing fire victims strongly dispute that finding and persuaded the judge overseeing PG&E's chapter 11 proceeding on Friday to permit a state civil trial on the issue.

PG&E shares hit a seven-month low Monday, sliding as much as 28% in midmorning trading as investors grappled with the possibility that the company could face billions of dollars in additional liability costs as it restructures in bankruptcy court.

Citi analyst Praful Mehta on Monday cut his "buy" rating on PG&E, estimating that the fire could add $15 billion to PG&E's liability costs. He said there is "significant risk" of a jury deciding that PG&E should be held responsible for the fire given the company's continuing problems with operating its electric grid safely.

"We think that a jury trial brings a lot of other dynamics in play, especially given PG&E's history of poor safety and operational culture," he said.

PG&E filed for chapter 11 protection in January, citing more than $30 billion in potential liabilities tied to a series of fires in 2017 and 2018 that collectively killed more than 100 people. That calculation included the Tubbs fire, which killed 22 people and burned nearly 37,000 acres mainly in Napa and Sonoma counties.

As the company prepared its bankruptcy filing, California fire investigators determined that a private electrical system ignited the Tubbs fire and said it found no evidence that PG&E had violated state law.

Now, lawyers representing fire victims and insurance companies say they have evidence that could prove that PG&E's equipment was involved in the blaze.

"We are pleased with the judge's decision today," the official committee of torts claimants said in a statement. "We look forward to Tubbs Fire victims getting their day in court."

PG&E in a statement Friday said that it stands by the state investigators' findings.

"Regardless of the next legal steps, Cal Fire has already determined that the cause of the 2017 Tubbs Fire was not related to PG&E equipment, " the company said.

Dov Gertzulin, founder of PG&E bondholder DG Capital Management, said, "This is a disappointment to investors. Two Cal Fire teams determined PG&E has no responsibility for the Tubbs fire....This adds more uncertainty to the process. There's a chance the jury might award tort claimants a high number."

PG&E's 6.05% senior notes due in 2034 are down more than 2 cents to 109 cents on the dollar from Friday, according to MarketAxess.

--Soma Biswas contributed to this article.

(END) Dow Jones Newswires

August 19, 2019 12:44 ET (16:44 GMT)

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