When is the last time that you heard of a publicly owned utility with a good balance sheet suspending dividends?
Well, Pacific Gas & Electric just did to build up cash reserve, and despite the claims to the contrary, it appears that PG&E expects to see some significant liability for causing the Northern California fires earlier this year:
Wednesday evening, two sleepy trading days before the long Christmas weekend, when no one was supposed to pay attention, Pacific Gas and Electric, the Northern California utility that is being investigated and sued for allegedly having triggered the wildfires in the Bay Area, “the most destructive and deadliest in our state’s history,” as the Department of Insurance had put it, announced that it would suspend its dividend.
PG&E shares [PCG] plunged 10% in after-hours trading. Thursday morning, shares plummeted 16.5% to $42.75. They’re now down 38% in total since the beginning of the wildfires that killed 43 people and caused still untold property and environmental damage, including $9 billion in insurance claims so far, with the tally likely to rise further. About three dozen lawsuits have been filed against PG&E.
PG&E’s announcement was terse:
On December 20, 2017, the Boards of Directors of PG&E Corporation (the “Corporation”) and its subsidiary, Pacific Gas and Electric Company (the “Utility”), determined to suspend quarterly cash dividends on both the Corporation’s common stock, beginning with the fourth quarter of 2017, and the Utility’s preferred stock, beginning with the three-month period ending January 31, 2018, due to uncertainty related to causes and potential liabilities associated with the extraordinary October 2017 Northern California wildfires.
The primary suspect is PG&E’s infrastructure and its maintenance. On October 8, when the wildfires started, heavy winds toppled power poles, transformers, and power lines. And there it gets complicated. On October 23, The Mercury News reported:
For the better part of a decade, California’s utilities have helped to stall the state’s effort to map where their power lines present the highest risk for wildfires, an initiative that critics say could have forced PG&E to strengthen power poles and bolster maintenance efforts before this month’s deadly North Bay fires.
A review of the mapping project by the Bay Area News Group shows that utilities have repeatedly asked to slow down the effort and argued as recently as July that, as PG&E put it, certain proposed regulations would “add unnecessary costs to construction and maintenance projects in rural areas.”
There is some strong circumstantial evidence that the fires were triggered from poorly maintained lines and transformers.
PG&E has been fighting regulators to avoid spending money on things like trimming trees back from the lines for years, and now it looks like it has come back to bite them in the butt.