Analyst: Wildfires Raise Chance Of PG&E Shares Falling To Zero

PG&E Corporation PCG is once again in the spotlight after the Kincade Fire in Sonoma County, California ignited Wednesday.

It is estimated to have burned through 16,000 acres. 

What Happened 

A PG&E power transmission tower broke near the origin point of the fire, the San Francisco Chronicle reported. 

Mike McGuire, a state senator, said more than 1,300 firefighters are fighting the flames, the BBC said. 

California is still recovering from wildfires last year that destroyed thousands of structures and killed dozens of people. 

While PG&E had shut down the power to the area, the geothermal Geysers power plants owned by Calpine may have been operational at the time the fire started, and the role PG&E equipment played is unclear, according to Citi. 

Why It's Important 

Citi labeled PG&E a “High Risk” stock given the potential for future wildfires.

The failure to obtain fair recovery for capital expenditures or increases in operating costs could negatively affect PG&E’s earnings and equity value, analyst Praful Mehta said in a Friday note. 

The Kincade fire increases the probability of a zero share price for the company, the analyst said. 

"While the bondholder plan wipes out existing shareholders, a large 2019 wildfire liability will also result in a similar outcome purely from the liabilities and the associated need for additional financing." 

The utility announced its bankruptcy filing Jan. 29. 

Damages from a 2019 wildifre could be treated as post-petition claims that may recover 100 cents on the dollar, Mehta said. 

Significant liabilities also make it more likely for the bondholders to step in rather than the shareholders given the high basis of existing equity holders, the analyst said. 

"Overall, the probability of a zero equity value continues to increase." 

Citi maintained a Sell rating on PG&E with a $5 target price.

What's Next 

PG&E shares were trading down 20.69% at $5.71 at the time of publication. The stock has a 52-week high of $49.42 and a 52-week low of $5.07.

The planned power outages in California this weekend could be the largest yet as utilities initiate blackouts to prevent more wildfires, the Los Angeles Times reported. 

PG&E could shut off nearly all of its Northern California customers due to high winds, the newspaper said. 

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