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PG&E Corp. stock slides as embattled utility faces jury trial over Tubbs Fire

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PG&E Corp. stock slides as embattled utility faces jury trial over Tubbs Fire

Reflecting investor angst over the extent of wildfire liabilities linked to electric infrastructure of Pacific Gas and Electric Co., the share price of parent company PG&E Corp. fell sharply on Aug. 19 to its lowest level since the companies first disclosed they would file for Chapter 11 bankruptcy protection eight months ago.

The renewed pressure on PG&E Corp. stock came after a federal bankruptcy judge on Aug. 16 said he would lift a stay on a California Superior Court case brought by victims of the 2017 Tubbs Fire in Napa and Sonoma counties, opening the door for a jury trial that could potentially determine whether the companies are responsible for more than $18 billion in total losses associated with the blaze, according to an estimate by plaintiffs' attorneys.

In clarifying the debtors' liability for the Tubbs Fire, the state court case will "provide an important data point" in order to achieve "a just resolution of the claims of victims of the wildfires that have ravaged Northern California in recent years," Judge Dennis Montali said.

Attorneys for Tubbs Fire victims contradict the findings of state fire investigators, who cited private electrical equipment as the likely cause of the deadliest and most destructive of a series of wildfires that scorched California wine country in October 2017. The Tubbs Fire claims total roughly $6.2 billion in uninsured losses. The estimated total $18.6 billion of insured and uninsured losses represents about one-third of a wildfire claim pool of $54 billion, the attorneys said when filing their request for Montali to allow the state court case to proceed to jury trial in July.

'Big negative'

Montali denied that the state court trial will interfere with the bankruptcy case, rebuffing concerns voiced by attorneys for Pacific Gas and Electric, or PG&E, and its corporate parent. The state court case "advances the goals of this bankruptcy far better than stayed, stagnant proceedings," he said.

PG&E must resolve its liabilities and emerge from bankruptcy by the end of June 2020 in order to participate in a $21 billion wildfire insurance fund to cover future claims, as stipulated in a new state law.

When the companies filed for Chapter 11, they cited wildfire liabilities that could surpass $30 billion, a figure that company representatives have reiterated despite the California Department of Forestry and Fire Protection's assessment that third-party equipment likely ignited the Tubbs Fire.

Montali's decision was "a big negative" for PG&E Corp. stockholders, analysts at CreditSights said in an Aug. 19 note to clients, estimating total claims for both companies, including the Tubbs Fire, at $27 billion.

In a separate Aug. 16 decision, Judge Montali denied two external bids to take control of PG&E's plan of reorganization. Groups of the utility's bondholders and insurers had asked Montali to end PG&E's exclusive period to file its own restructuring plan.

Before Montali's decision to allow a jury trial in the Tubbs Fire case, PG&E said it planned to file its reorganization proposal by Sept. 9. In April, however, PG&E CFO Jason Wells testified that the utility would not be able to file a restructuring plan "until we have a better handle on the total claims exposure."

But a Tubbs Fire trial "does not interfere with our goal of filing our plan of reorganization by Sept. 9," a PG&E spokesman said in an email late on Aug. 19. "We intend to take the steps necessary to emerge from bankruptcy by the June 2020 deadline set by [Assembly Bill 1054] with a plan that will compensate victims fairly and support California's energy future."

At market close on Aug. 19, PG&E Corp stock was down roughly 25%, closing at $10.67 per share.