Shares for the Golden State’s biggest utility provider plummeted nearly 12 percent early, on Tuesday, after credit-rating agency Standard & Poor’s downgraded the utility company to no more than junk. Yes, S&P Global Ratings lowered PG&E to a credit rating of “B”, which is actually two below the investment grade threshold, anchoring the decision in light of the utility’s potential liabilities from the massive wildfires in California last year.
In a statement, the S&P said, “We expect that negative public sentiment and the increased political pressure will challenge the regulators’ willingness and ability to implement measures to protect credit quality over the near term.”
Indeed, the slip on Tuesday follows a downshift of more than 22 percent on Monday on the heels of reports they could be facing at least $30 billion in liability from the fires and, more importantly, they could be looking at filing for bankruptcy protection. Another option PG&E is considering might be unloading its natural gas operations.
Of course, the major consequence of bankruptcy or an asset sale—which, again, are both options PG&E could consider right now—is that the damage is exponential. Whatever choice they make is not only going to affect shareholders and workers but, more importantly, all of the utility customers the company serves. And to be clear, there are approximately 16 million residents of California who rely on PG&E for energy.
But getting back on top is not going to be easy. The utility has long faced scrutiny over nearly the last decade; and it all started with a big gas explosion in San Bruno, in 2010, that resulted in 8 deaths. The controversy continued, unfortunately, through some of the most devastating wildfires in state history, some of which bear the blame of PG&E’s infrastructure. And, as such, the California Public Utilities Commission has already started considering a breakup of the company as part of an investigation regarding the safety culture at PG&E.
As a matter of fact, issues have reached such heights that some PG&E critics have actually insisted the government intervene or for the conglomerate to be replaced by a handful of smaller, municipal utility companies. Unfortunately, it is not yet clear that local Northern and Central California government have the ability—let alone the desire—to manage such an undertaking. Furthermore, state officials are probably not too keen on supporting this move because it would simply shift the existing infrastructure problem to the responsibility of the city of Sacramento.