When forest fires devastated much of California for a second year, one of the state's largest utilities states that it faces billions of dollars in potential liability – far more than its insurance covers.
The potential losses could leave the country The company's customers are on the hook to pay the bill, putting companies and consumers at higher cost. The energy provider Pacific Gas and Electric Company could even go bankrupt and put the state under pressure.
With increasing financial liabilities, the company's shares fell more than 20 percent on Wednesday. More than half of its market value has been destroyed since the end of last week by the spread of the fires.
Many fires in recent years have been caused by downed power lines supplying the California utilities. State officials have found that PG & E electrical equipment, including power lines and masts, was responsible for at least 17 out of 21 major fires in Northern California last autumn. In eight of these cases, they referred the findings to prosecutors for possible violations of state law.
Citigroup estimates that PG & E's exposure to these fires amounts to $ 15 billion – and that $ 15 billion in additional damage could be responsible for the campfire, a figure that could rise because the fire is only one-third contained.
"The damage, if you add 2017 and 2018, will of course be very significant," said Praful Mehta, analyst of Citigroup
The cost of forest fires from year to year make it increasingly difficult for any party to pay Mark Cooper, Senior Researcher, Vermont Law School's Institute of Energy and Environment
If utilities are forced to raise prices, costs can take an economic toll. Manufacturing companies may choose to outsource their business from the services sector or even from the state. Private customers in the coverage area could then pay the costs.
"This is going to be a huge challenge," Cooper said. "If they try to raise prices, they may not get them. Should they even be allowed to reclaim the entire costs if they were guilty of careless behavior? "
PG & E said its liability insurance for the year beginning August 1, was $ 1.4 billion.
Lynsey Paulo, spokeswoman for PG & E said the aid program has focused on fighting the current forest fires rather than the company's economy. The company has set up a base camp with 800 employees around the campfire, a number that will grow to 1,000 by the end of the week and reach 3,000.
"We are not" I will speculate on what may or may not affect stock markets, "said Ms Paulo.
Utilities critics say the inadequate maintenance of electricity pylons and the failure to cut vegetation around power lines is one of the main causes of fires. During a tour in San Jose last spring, a former state regulator pointed out that protruding bars were bent under the weight of wires and cables and power lines running through tree leaves.
The "safety culture" of PG & E was the subject of a three-year investigation by the State Public Utilities Commission. The agency is expected to respond to the investigation results this month.
In addition to forest fires, PG & E was found guilty of one of California's biggest calamities this decade – a natural gas explosion in 2010 that devastated the San Francisco suburb of San Bruno and killed eight people. PG & E was penalized by the state for a record $ 1.6 billion for not properly servicing the pipeline system, and paid $ 900 million to settle claims related to the explosion.
"We have denied that systems PG & E are responsible for destroying the devastation that was caused," said Frank Pitre, a lawyer who represented PG & E's clients in the gas explosion and forest fires, including 35 Persons who lost their possessions in the fire of paradise. "And it's all the time How many lives have to be lost? How many communities still need to be destroyed? It has to stop.
PG & E shut down tens of thousands of customers last month as a precautionary measure to prevent forest fires, as in many areas, including parts of Napa and Sonoma Counties, high-wind fire alarm was triggered. That was a year ago been hit hard by fires.
Also the shares of other state-owned utilities' parent companies – Edison International, which operates Edison, southern California, and Sempra Energy, which owns San Diego Gas and Electric – fell earlier This week, forest fires spread across both northern and southern California ,
The state's power supply is unlikely to be at risk, but PG & E could go bankrupt if it can not cover its liabilities, wipe out shareholders' equity and feed the bondholders investment. It had gone bankrupt once before in 2001, during an energy crisis following a botched deregulation effort.
Legislators intervened this year to protect PG & E and the state's other state-owned utilities from overwhelming legal claims, which allowed the costs to be borne by the payer. But the bill, Senate Bill 901, applies to fires that start in 2019, and to some of the incidents of last year – not to this year's fires.
Paul Payne, a spokesman for Senator Bill Dodd, who sponsored the measure, said the bill was an answer to the potential costs that PG & E and its clients were already facing. "We focused on 2017 and protected the payers from this fire," he said.
Some analysts say Californian regulators and legislators might take steps to extend similar protection this year.
"We expect regulators will use the tools or framework described in SB 901 to address potential costs for the run of 2018," wrote Jeffrey Cassella, an analyst at Moody's Investors Service, in e-mail.
Under the bill, utilities could sell bonds to cover their liability costs and pay off higher rates over time PG & E estimates that the average consumer costs per purchased bond of one However, Mr. Mehta of Citigroup said there were questions about a second intervention. "It's unclear whether the political will exists because it can be considered a bailout."
He said, "That's why the stock reacts the way it is."
Investors have struggled to mitigate the magnitude of the financial woes under which PG & E are suffering could estimate and if the company had enough money to get through the turbulence. The company claimed to have exhausted its revolving credit and to raise concerns about liquidity and cash flow.
Some prominent investors may be affected. The Baupost group, led by Seth A. Klarman, an investor known for recognizing undervalued stocks, added more than 14 million PG & E shares to its stock holdings in the third quarter, while O.H. Andreas Halvorsen bought 5.7 million shares. Baupost and Viking declined to comment.
Although it is staggering, the company is leveraging a pool of funds to pay down and repay its debt. Citigroup, Bank of America and JPMorgan Chase were among the credit lines that issued the loans, according to a 2015 filing of PG & E securities.
The company said it had cash of 3 after the credit line was taken To have $ 5 billion.
In anticipation of possible claims for damages from the forest fires last year, PG & E suspended its dividend payments last December. Its shares have fallen sharply, but the company still has a value of $ 13 billion.
"Insolvency is not the worst thing PG & E's customers have to worry about," said Mindy Spatt, a spokeswoman for the Utility Reform Network, which represents consumers before the US Public Utility Commission. "The worst thing customers have to worry about is the forest fires. Legislators can not set policies based on the fear of PG & E's bankruptcy. "