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Here's Why PG&E Shares Jumped 19.2% on Friday

By Lou Whiteman – Apr 12, 2019 at 5:11PM

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California leaders are willing to consider revamping wildfire liability rules.

What happened

Shares of PG&E (PCG 3.49%) soared 19.2% on Friday after California Governor Gavin Newsom reportedly proposed giving utilities more protection from liabilities in the event of future wildfires.

So what

PG&E was forced to seek bankruptcy protection earlier this year due to mounting liabilities stemming from the Camp Fire in California, which resulted in at least 86 deaths and the destruction of 14,000 homes and more than 500 businesses.

Electric transmission wires in front of a sunset.

Image source: Getty Images.

The fire is believed to have started after a power line came into contact with nearby trees, and PG&E faces more than $30 billion in claims against it. This has been a constant struggle for PG&E, which was also cited for wildfires in 2017 that caused $10 billion in damages.

According to reports, on Friday, Gov. Newsom proposed a new fund be created to help utilities pay for wildfire damage claims and spread the cost more widely among stakeholders. He would also like to base utility liability for wildfire damage on fault. The current system, which is called inverse condemnation, puts the blame on utilities regardless of negligence as long as their equipment is somehow involved.

Now what

Obviously, nothing can be done to erase the past and the damage done from the Camp Fire and others, but the governor's proposal would help ease a major ongoing concern surrounding California utilities when it comes to future fires. The stock's reaction was likely a response to Newsom's openness to changing the inverse condemnation rules.

Investors want clarity about future potential liabilities for PG&E and other utilities. The state and its citizens, meanwhile, need to balance stability and accountability when addressing the utilities. The governor's proposal appears to be a good step in the right direction for everyone involved.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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