What happened
Shares of PG&E (PCG 0.24%) traded down more than 23% on Friday morning on fears that the bankrupt California utility's transmission poles are responsible for one of the fires currently blazing in the state. If so, it would be a fresh complication for the utility as it attempts to reorganize and get out from under the liability burden of previous fires.
So what
PG&E filed for bankruptcy in January as part of a plan to deal with $30 billion in wildfire liabilities resulting from the 2018 Camp Fire in northern California, which caused 85 deaths and massive property damage. The company has been the target of criticism from state lawmakers and creditors, including fire victims who worry PG&E's bankruptcy reorganization plan will not give them full recovery. The judge overseeing the bankruptcy has allowed alternative plans filed by creditors to be considered.
Image source: Getty Images.
The Kincade Fire currently burning in Sonoma County has the potential to further complicate PG&E's reorganization. The utility has reportedly told state regulators that one of its transmission towers near where the fire ignited had malfunctioned, raising concerns that PG&E equipment had sparked the fire.
The utility had cut power to residents in the area prior to the fire as a precaution, but it did not de-energize the high-voltage transmission lines that were part of the potentially hazardous malfunction.
Now what
It's rare for equity holders to see any recovery from a bankruptcy, but since the company's filing, PG&E shares have been trading on the assumption that the utility's assets hold enough value that even after creditors are paid, there would be some value to the shares. That thesis is getting more and more tenuous with each passing day.
Utility stocks can be strong and reliable income generators and an important part of a long-term portfolio, but right now, buying into PG&E is speculating and not investing. The stock will continue to move based on changes in sentiment on how the bankruptcy court will proceed and based on fire news out of California. The best advice for long-term investors is to stay clear.
