PCG PG&E Corporation

By Katherine Blunt and Russell Gold 

Shares of PG&E Corp. rallied Friday on hopes that California officials would move to rescue the utility from potential wildfire liability costs that threaten to drive it into bankruptcy.

But state legislators gave little indication of whether they would propose a way to let PG&E pass costs from liability lawsuits stemming from this year's fires to customers, a likely necessity to ensure the company's solvency.

The stock's rebound came after California's top energy regulator late Thursday indicated an openness to letting the utility bill customers for some of those costs, a signal that boosted PG&E by nearly 38% on Friday, to close at $24.40.

The share price had fallen for six consecutive days on concerns that PG&E, already facing billions of dollars in potential liability costs from 2017 wildfires, could face even higher costs related to this year's Camp Fire in Northern California, which has killed more than 60 people, making it the deadliest wildfire in state history.

Michael Picker, president of the California Public Utilities Commission, said in an interview Thursday that he preferred that PG&E not enter into bankruptcy because it could raise its cost of borrowing, which could end up raising energy costs for its customers. "It is generally not good policy for utilities to go into bankruptcy," he said.

The utility, which is based in San Francisco, disclosed late last week that a problem occurred on one of its high-voltage power lines in Northern California 15 minutes before the start of the Camp Fire was reported in the area on Nov. 8. No definitive connection between the line outage and the fire has been made, and California fire investigators will likely take months to make a final determination.

PG&E, which has stressed that the cause of the fire hasn't been determined, welcomed the state's efforts to help it stabilize. Spokeswoman Lynsey Paulo said, "We agree with CPUC President Picker's statement that an essential component of providing safe electrical service is long-term financial stability. Access to affordable capital is critical to carrying out safety measures and meeting California's bold clean-energy goals."

The state earlier this year passed legislation allowing utilities to seek approval from the Public Utilities Commission to securitize a portion of wildfire-related liability by issuing bonds that would be paid off by their customers.

But as written, the measure applies only to liabilities arising from wildfires that occurred in 2017. It also offers utilities expanded protections for liabilities for events in 2019 and beyond, under certain circumstances. But that leaves a gap for fires this year.

Mr. Picker said Thursday that attorneys with the commission believe the measure could be applied to 2018 fires. In a private conference call hosted by Bank of America on Thursday, he indicated such an extension could occur without help from the state legislature -- which helped kick-start the rebound in PG&E shares.

However, analysts said an extension would almost certainly require California lawmakers to revise their earlier legislation.

"The utilities are looking to the legislature to resolve the 2018 hole, not the CPUC," said Timothy Fox, vice president at Clearview Energy Partners. "You can't interpret a date differently."

Thus far, California's top lawmakers have remained mostly silent on what steps the legislature might take to mitigate the liability costs PG&E could face in the wake of the Camp Fire.

Fire liability has become a major problem for utilities in the state due to a provision of the California constitution known as "inverse condemnation." Among other things, the rule puts utilities on the hook to pay damages resulting from fires sparked by their equipment, even if they aren't found negligent.

Mr. Picker on Thursday also pledged a review of PG&E's corporate governance and operations, expanding an existing probe into its safety practices. He said his agency would consider breaking up the utility if warranted.

California state Sen. Jerry Hill, the only Democrat in the legislature's upper house who voted against the measure to help utilities earlier this year, said he believed the breakup question should be explored in light of the potential for new liabilities arising from the Camp Fire.

"The legislature thought PG&E was too big to fail, but I think they're too big to succeed," Mr. Hill said Friday. "Their motive for business is profits for shareholders, not safety for ratepayers."

Mr. Hill added, however, that he thinks the legislature will likely move to enact a new bill extending the 2017 protection measures to include damages incurred this year.

Despite Friday's rally, shares in PG&E are trading well below levels prior to the outbreak of the Camp Fire. The stock is off more than 45% this year, putting it on track for its worst year on record.

--Jim Carlton and Kimberly Chin contributed to this article.

Write to Russell Gold at russell.gold@wsj.com

(END) Dow Jones Newswires

November 16, 2018 18:15 ET (23:15 GMT)

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