What happened
Shares in utility PG&E (PCG -0.23%) slumped 43.6% in November, according to data provided by S & P Global Market Intelligence. The stock price crash is down to the potential losses the company faces due to wildfires in northern California.
Moreover, management was unable to give earnings guidance as a consequence of the uncertainty. According to the company's third-quarter earnings release, "PG&E Corporation is not providing at this time guidance for 2018 GAAP [generally accepted accounting principles] earnings and non-GAAP earnings from operations due to the uncertainty related to the Northern California wildfires."
Image source: Getty Images.
The situation is even more complicated given that a California Department of Forestry and Fire Protection report found that PG&E equipment was responsible for starting some of the fires.
So what
These sad events will create a sense of déjà vu for investors because the company also took a major hit in 2017 due to wildfire liabilities. Moreover, there appear to be underlying issues at the company, because California Public Utilities Commission President Michael Picker has made comments scathingly critical of the company's safety programs and has launched a review of PG&E corporate structure and operations.
Picker has sought to reassure the public that the state will act to ensure PG&E has access to funding in order to keep its grid functioning safely, but that's no guarantee that the company won't be broken up or subject to significant liabilities.
Now what
From a shareholder perspective, the fear is that the company will be found liable for billions of damages from California wildfires. Of course, this is the last thing a typical utility investor wants to hear about -- not least because the sector is favored by income-seeking investors looking for a reliable dividend stream.
No doubt the stock will attract some aggressive opportunistic investors who feel confident in assessing the risks, but for ordinary retail investors, it's probably a situation worth avoiding.
