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PG&E’s Bankruptcy Will Be Costlier Than You Realize

Tens of millions of people will lose money or face added costs.
Sean Williams

Jan 18, 2019 at 9:21AM
Nothing in the business world can be taken for granted.

Sears Holdings, once the greatest retailer in the U.S., filed for bankruptcy protection in 2018 and is just a stone’s throw away from possible liquidation. Washington Mutual, a savings and loan powerhouse, succumbed to the pressures of the financial crisis and sought bankruptcy protection in 2008. And WorldCom, once one of the largest telecommunications providers in the U.S., sought bankruptcy protection in 2002.

The list of brand-name companies who aren’t or weren’t assured of tomorrow is a mile long — and it may soon have another addition: California gas and electric utility PG&E (NYSE:PCG).

PG&Eek! Facing massive claims, a bankruptcy filing is imminent
PG&E, which had a market cap of around $35 billion as recently as August 2017 but has lost around 90% of its value, announced in a filing on Monday, Jan. 14, that it plans to file for bankruptcy protection on Jan. 29. What could bring such a presumably steady and cash flow-positive business model that relies on electricity and natural gas sales to its knees? The answer lies in culpability.

The recent Camp Fire in California, which resulted in the tragic deaths of 86 people and destroyed approximately 14,000 homes and more than 500 businesses, has led to $7 billion in claims filed against the company…so far.

According to various reports, it’s believed that a power line came into contact with nearby trees, sparking the deadly California blaze. California’s largest utility submitted a letter to regulators noting that it did, indeed, find a downed line in the area where the fire was believed to have begun with tree branches on it. Since maintaining the safe operating condition of transmission lines falls on PG&E, it’s expected to be liable for these claims.

But that’s not all. PG&E was also cited for wildfires in 2017 that caused $10 billion in damages and 44 deaths. Per the New York Times, state regulators found the company responsible for 17 of 21 fires in Northern California in 2017.

Combined, and when taking into account exacerbating factors, PG&E’s liability for 2017’s and 2018’s California wildfires could reach $30 billion. In its Monday filing with regulators, it listed only $1.5 billion in cash and cash equivalents, and it has an insurance policy that would cover only a fraction of the proposed $30 billion in liabilities. Seeking bankruptcy protection will, presumably, give PG&E more flexibility as it contends with its existing debt obligations, as well as restitution to individual and business victims of these wildfires.

Read full article at the Motley Fool