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PG&E CORPORATION

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Judge Clears PG&E Trial for Fire -- WSJ

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08/20/2019 | 02:47am EDT

Stock plunges 25%, as decision opens door to more lawsuits related to 2017 disaster

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 earlier had said PG&E's 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 on Monday closed down 25% at a seven-month low of $10.67 as investors grappled with the possibility that the company could face billions of dollars in additional liability costs as it restructures in bankruptcy court.

Citigroup 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.

Mike Danko, a trial lawyer representing victims of the 2017 and 2018 fires, said the state investigation into the Tubbs Fire failed to consider video evidence and other information indicating that the blaze may have been sparked by PG&E equipment. He said he expects a trial within five months and plans to join other lawyers in preparing additional evidence.

"We're going to lay it all out," he said. "All the cards related to Tubbs should be flipped up on the table."

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.

The trial complicates PG&E's effort to devise a restructuring plan with the goal of emerging from bankruptcy in less than a year. California lawmakers last month passed legislation creating a fund to help the state's largest utilities handle wildfire liability costs going forward. PG&E is required to exit from bankruptcy by June 30, 2020, to participate in it.

PG&E has said it intends to file a restructuring plan by Sept. 9. The judge overseeing the bankruptcy case last week affirmed the company's exclusive right to craft that framework as its bondholders and insurers pushed to file their own plans.

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.

Write to Katherine Blunt at Katherine.Blunt@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
CITIGROUP INC. -0.55% 69.35 Delayed Quote.33.21%
MARKETAXESS HOLDINGS INC. -1.33% 338.18 Delayed Quote.60.04%
PG&E CORPORATION -4.84% 11.61 Delayed Quote.-51.12%
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Financials (USD)
Sales 2019 17 781 M
EBIT 2019 3 437 M
Net income 2019 -598 M
Debt 2019 24 406 M
Yield 2019 -
P/E ratio 2019 -13,1x
P/E ratio 2020 7,82x
EV / Sales2019 1,72x
EV / Sales2020 2,07x
Capitalization 6 144 M
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Mean consensus HOLD
Number of Analysts 14
Average target price 15,96  $
Last Close Price 11,61  $
Spread / Highest target 98,1%
Spread / Average Target 37,5%
Spread / Lowest Target -5,25%
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Managers
NameTitle
John R. Simon Chief Executive Officer
Richard C. Kelly Independent Non-Executive Chairman
Jason P. Wells Chief Financial Officer & Senior Vice President
Richard A. Meserve Independent Director
Barbara L. Rambo Independent Director
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