PG & E
(PCG) shares rose 3.9% on Wednesday after a federal judge in California granted the company lighter probabilities than investors previously feared, and when the company was reportedly approaching an agreement with a new chief executive.
The background story. This probationary period is only part of the complicated knot of legal issues that have included the California PG & E utility. The company filed for bankruptcy in January as there were significant fatal forest fires in California in 2017 and 2018. The company estimated it could reach $ 30 billion.
The recent ruling was not part of the utility's insolvency proceedings. It was a separate case: a probationary hearing in connection with a natural gas pipeline explosion in 2010, which killed eight people.
Last month, US District Judge William Alsup stated that the company had violated his criminal probation for this case and threatened that the company will begin a comprehensive plan to combat forest fires, including a review of the entire power grid. The company said the full plan would have cost as much as $ 150 billion.
What's new? Judge Alsup informed the company that it can not pay dividends to shareholders, and that the cash must be used to improve safety practices, in particular to cut down trees and manage other vegetation that could cause fire hazards around the power lines.
The company is currently paying no dividends as it faces the bankruptcy court. The suspension of the dividend is therefore no real change for the shareholders.
The decision "allows for a more thoughtful plan to ward off forest fires," Citigroup analysts said, adding that the judge's "thoughtful and balanced approach" is positive for the stock.
Looking to the future. It will take a while for PG & E to emerge from the criminal probation case in connection with the 2010 incident, which poses another political risk to the image. The company's five-year probationary began in 2017, and Judge Alsup is considering adding another year. The judge also said that he will continue to monitor the company while implementing its forest fire safety plan, analysts and news said.
There are also reports that PG & E is approaching an investor group through an agreement between the Board of Directors and the CEO. It would give the stock a boost if the company complied with its plan to overtake its board of directors and hire Bill Johnson, the former chief executive of the Tennessee Valley Authority, according to Citigroup.
Write to Alexandra Scaggs at Alexandra.Scaggs@barrons.com