Shares of troubled California energy company PG&E saw a sweet bump to start the week when the company revealed that an investor group has offered $4 billion to help the company address its pending bankruptcy. According to Bloomberg, activist hedge fund Elliott Management is one member of this investor group posing the alternative strategy, a plan which includes something called convertible debt.
You may recall that PG&E announced Chapter 11 bankruptcy plans just a few weeks ago. The bankruptcy protection plan comes as an intervention to save the company after the devastating wildfires that ravaged many parts of California throughout 2017 and 2018. But California investigators cleared the utility of liability for in the Tubbs Fire of October 2017, saying now that a private electrical system was responsible. Of course, PG&E is still waiting to clear liability allegations for the devastating Camp Fire from this past November. This incident, alone, was responsible for destroying 14,000 homes and claiming 86 lives.
The good news is hopefully just the beginning for PG&E, who said it cannot afford to pay for new energy grid inspections and to clear trees from fallen power lines, as ordered by a federal judge. The utility estimates these efforts could cost somewhere between $75 and $150 billion.
In the filing, the California utility said, “PG&E would inevitably need to turn to California ratepayers for funding, resulting in a substantial increase—an estimated one-year increase of more than five times current rates in typical utility bills.”
Prior to announcing its plan to declare bankruptcy, PG&E had only about $1.5 billion in cash (and equivalent liquidity) with an insurance policy that can cover approximately $3 billion in fire-related liabilities. Of course, neither of these assets would be even close to covering the total costs if Cal Fire finds the utility liable.
And here is more good news for PG&E: By the middle of the day, on Monday, shares of PG&E had increased more than 6 percent, $12.53. This could be the start of new life for the utility, since this stock has lost more than 70 percent of its value in just the last year, alone. Recovering from this controversy and falter is crucial as PG&E is the largest investor-owned utility in California. They cover about 70,000 square miles of service area, with upwards of 16 million customers throughout Northern and Central California.