PG&E shouldn’t say the sky is falling
The Chronicle was right when it recently urged the Legislature to scrutinize PG&E’s plea that it be absolved from its responsibility under existing California law for the disastrous Wine Country fires. PG&E suggests that it may be forced into bankruptcy, with dire consequences to its customers and its ability to remain in business, unless the Legislature intervenes in the legal process and limits PG&E’s liability to the burnedout homeowners.
Recent history gives the lie to PG&E’s PR campaign.
Back in 2000-01, largely due to fraudulent gaming of the natural gas market by Enron Corp., PG&E was forced to pay exorbitant prices for natural gas — sometimes 20 times what the rate should have been. PG&E’s costs skyrocketed, and it was forced into Chapter 11 bankruptcy. Enron’s crimes were soon exposed, and order was restored to the natural gas market. Customer service was never interrupted. PG&E’s stock was at $28 a share before the crisis, dropped to $8 a share at the lowest, and three years later was at $28. In 2007, the stock hit $50, and it is at about $42 today.
Most PG&E stockholders rightfully rode out the storm, and for good reason: They knew that the Legislature would never let a major public utility go out of business. They knew that under California law, PG&E was entitled to a reasonable profit on its capital investment.
Today, nationally recognized investment advisers tell their clients that, despite PG&E’s legal problems, at its current price, PG&E stock is a longterm buy.
If PG&E is forced into Chapter 11 bankruptcy, then we’ll see a repeat of what happened after the Enron scandal. The dividend already has been suspended, the stock value may go down until PG&E is released from bankruptcy, and then the dividend will be restored and the stock will recover.
Management will probably suffer decreased compensation, and some heads will roll. Is that so bad, given PG&E’s track record?
PG&E claims that it’s unfair to subject it to “inverse condemnation” (no-fault) liability. The reason PG&E has that liability is because PG&E has the power of direct condemnation — and has used it hundreds of times to condemn private property for electric and gas lines, power stations, and to eliminate rival, privately owned utilities. PG&E’s power of condemnation enabled it to get to the dominant position it enjoys today. Great benefits, like the power of eminent domain, confer some responsibilities.
What’s really unfair is to change the existing system of liability law that has been established for decades, to the detriment of ordinary people who have lost their homes.