PG&E gets ‘junk’ rating as shares keep falling
Stock closes at $17.56 as utility continues to take a beating
PG&E shares tumbled on Tuesday after S&P Global Ratings downgraded the embattled utility’s credit rating to “junk” status due to a forbidding political and regulatory environment following a string of lethal Northern California infernos that have dramatically increased the company’s liability exposure and eroded its financial stability.
Separately, PG&E replaced the boss of its electricity unit, a management shuffle that removes the executive who was in charge of electric operations when fatal infernos scorched the North Bay Wine Country and nearby regions in 2017 and Butte County in 2018.
The latest difficulties for PG&E have erupted in the wake of the company’s disclosure on Jan. 4 that it had launched a wide-ranging review of the company’s finances, structure, management and governance. Analysts have said PG&E’s review likely has placed everything on the table for review by the board of directors, including a bankruptcy filing or sales of assets to help the company pay off its wildfire-related liabilities.
“We view this development as an indication of a significant deterioration in the political and regulatory environment for PG&E,” S&P Global
Ratings stated in comments regarding its lowering of PG&E’s rating to “B,” which is deemed “junk” status.
This sort of low rating could dramatically weaken PG&E’s ability to obtain credit. The company in November said it had used up its existing lines of credit.
PG&E also has been placed on credit watch with negative implications, another disquieting development for the company as it attempts to grapple with its liability exposure to the Northern California wildfires of recent years.
The company’s stock plummeted 7.3 percent, or $1.39, and closed at $17.56 on Tuesday..
State investigators have determined that PG&E’s equipment and facilities were the cause of 17 wildfires in 2017. Plus, the company has revealed it suffered an equipment malfunction in the origin area of the Camp Fire in Butte County that broke out in November 2018.
“The CreditWatch negative placement reflects what we see as the souring political and regulatory environment and our view of the limited options that the company has to effectively manage its operating, financial, and regulatory risks,” S&P Global stated.
The credit rating agency indicated that it appeared PG&E has lost the confidence of a number of key players in Sacramento, including the state Legislature and the state Public Utilities Commission. That’s primarily due to a string of company blunders on a wide range of fronts, including the deadly San Bruno gas explosion in 2010 as well as the fatal infernos of recent years.
“Previously, we assumed that given California’s robust renewable portfolio standards and the increasing risks of climate change, legislators and regulators would proactively work with the utility to preserve credit quality to achieve these goals,” S&P Global Ratings stated. “However, based on recent developments, we no longer believe this to be true given the utility’s own missteps.”
San Francisco-based PG&E didn’t comment directly about the credit downgrade.
“PG&E is open to a range of actions to help secure California’s shared energy future, while making our energy system even safer for the customers we serve,” PG&E spokeswoman Jennifer Robison said.
Michael Lewis, a current PG&E executive and former Duke Energy electricity executive, has been named senior vice president of Electric Operations for the Pacific Gas and Electric utility. Lewis will report directly to the utility company’s board of directors and will receive daily guidance from PG&E Chief Executive Officer Geisha Williams.
Lewis replaces Patrick Hogan, who had been with the company since 2013. Hogan was slated to retire by the end of this month. PG&E didn’t disclose if Hogan received a retirement package.
PG&E’s new electricity system leader says he will rely on the extensive know-how he’s gained in the power industry.
“I will take from those experiences and make it my mission to ensure we deliver safe, reliable electricity in an increasingly challenging and rapidly changing environment,” Lewis said Tuesday.
PG&E is a convicted felon for crimes it committed before and after the San Bruno explosion. Federal investigators in 2011 determined the San Bruno gas explosion was caused by a lethal mixture of PG&E’s flawed record keeping, shoddy maintenance and the PUC’s lazy oversight.
In December, the Public Utilities Commission disclosed it had launched a probe into reports the company had falsified pipeline safety records. The new violations raised questions about the company’s gas system at the same time fresh questions have emerged about the safety of the electricity operations.
“Political and regulatory officials have expressed distrust of the company,” S&P Global Ratings said. “These conditions may significantly limit the company’s options, including its ability to consistently finance or safely operate its businesses.”