Why PG&E Stock Keeps Going Down
Key Points
California won't prevent insurers from suing PG&E for wildfire damage.
PG&E just announced it will defer $2 billion worth of capital improvement.
These two things seem connected.
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California electric utility stock PG&E Corporation (NYSE: PCG) crashed more than 20% on Monday after a legislative effort in Sacramento to limit utilities' exposure to lawsuits from insurance companies fell apart.
PG&E stock bounced back a bit Tuesday (probably from short-sellers covering their shorts), but resumed falling this morning, and is now down 9.6% through 10:25 a.m. ET.
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California news at 11
As Sacramento NBC affiliate KCRA 3 reported over the weekend, Gov. Gavin Newsom had been working to secure legislation that would partially insulate PG&E and similar utilities from liability for wildfires caused by equipment malfunctions by limiting insurers' ability to sue for reimbursement of claims paid to their insured homeowners. Legislators rejected this legislation, however, sending PG&E stock into freefall amid worries that the company wouldn't be able to afford to compensate homeowners for wildfire damage.
Now it seems PG&E may not be able to afford not causing wildfires, either!
As the company announced this morning, "PG&E plans to defer approximately $2 billion of [capital improvement] work in 2027." Management didn't directly tie the $2 billion to additional litigation costs, but it obliquely referred to a "wildfire liability framework" that creates "financing risks that drive higher costs."
It's not hard to connect the dots here.
Catch-22 for PG&E
Reading between the lines, it sounds like PG&E is caught in a Catch-22. On the one hand, wildfires cause damage that cost it money. On the other hand, preventing wildfires by improving the safety of its electrical infrastructure equipment also costs money.
There's not enough money to go around, however. And the solution PG&E seems to have struck upon -- or is threatening to take -- is to skimp on safety and just hope another fire doesn't happen. I don't know about you, but that's not the kind of stock I want to own.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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