What happened

Shares of PG&E (PCG -0.54%) fell 29% on Thursday morning after a report that the judge overseeing its bankruptcy case will allow alternative restructuring plans to be considered. Those alternatives are likely to be less favorable to equity holders, sending investors running for the exits.

So what

PG&E filed for bankruptcy protection in January as part of its attempt to manage $30 billion in wildfire liabilities resulting from the Camp Fire in northern California, which caused 85 deaths and massive property damage. Equity holders often get wiped out in bankruptcy cases, but there has been an assumption from the start that PG&E would be able to reorganize in such a way that would preserve some amount of equity value.

Utility lines across an open landscape.

Image source: Getty Images.

The best hope for investors is for the company to be allowed to control the creation of its reorganization plan. But The Wall Street Journal reported late Wednesday that the judge overseeing the case will allow a rival Chapter 11 plan, including one from bondholders led by Elliott Management, to be considered.

Elliott is allied with bondholders and wildfire victims and will likely seek to push higher levels of compensation for those impacted by the fires. That, in turn, could leave less for equity holders, which is why the stock is falling.

Now what

A ruling stripping away a company's sole right to propose a reorganization plan is a significant step but not the final one. Investors, bondholders, and other creditors now face an uncertain future, with at least two reorganization plans with two different outcomes for different groups competing to guide PG&E out of bankruptcy.

There is real value in these assets but buying in on the expectations that equity holders will get a windfall from that value is speculation, not investing. For long-term-minded investors, there are other utility stocks that provide better options.