Addendum: CA Fires/PG&E settlement

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Addendum: CA Fires/PG&E settlement

Post by MPMalloy » Wed Dec 18, 2019 10:24 am

From NPR: Judge Approves PG&E $24.5 Billion Plan For Wildfire Victims And Insurance Companies
In a related development, the utility also agreed to a proposed $1.675 billion settlement with state energy regulators for PG&E's role in igniting deadly fires in 2017 and 2018.

"This includes wildfires that occurred in 2017 in Butte, Calaveras, Lake, Mendocino, Napa, Nevada, Sonoma, and Yuba Counties, and the deadly 2018 Camp Fire," according to a statement released by the California Public Utilities Commission.

The statement added:

"The proposed settlement ... prevents the utility from recovering $1.625 billion in wildfire-related costs from ratepayers and would fund an additional $50 million by PG&E shareholders in system enhancements and community engagement initiatives to strengthen its electric operations and maintenance in an effort to mitigate the risk of wildfires. This amounts to a total financial obligation by PG&E shareholders of $1.675 billion."

That proposed settlement is subject to public review, the Commission's review and court approval.
This may be Justice, but I'm not seeing it. :roll:

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Re: Addendum: CA Fires/PG&E settlement

Post by raptor » Wed Dec 18, 2019 12:46 pm

When you throw these into the mix the numbers make more sense.
A settlement of $13.5 billion, announced last week, is designated to compensate wildfire victims. Another $11 billion will go to the insurers.
Courts deal in law which is not necessarily justice or equity.
A bankruptcy court is even more unusual in that it has unusual authority and latitude to void, amend and otherwise re-write contracts and understandings to protect the rights of creditors. In this case the legal claims were unsecured creditors and thus stood at the end of the line as far debts go; though still in front of shareholders.

The best way to ensure everyone gets paid in this case at least in the judge's opinion is to not liquidate the corporation but rather keep it running.

BTW PG&E today has a market cap of only $7 billion so this settlement is ~ 3X its market capitalization. (market cap = total shares issued x market price of shares).

PCG's share price today is ~ $3 to $4 per share, down from a high of ~ $70 a share in 2017. So the shareholders have already seen a reduction in value already of about 17x.
So the shareholders who are at the end of the line, are getting doubled hosed in that they have taken the loss in value and will continue to pay for the damages.

BTW using pre-fire market cap the ~$25 billion makes more sense since that puts it in the range of ~25% of the then average market cap. Still my initial reaction is how the hell are they going to pay these claims and stay in business. To make these payments they will a bunch of debt due to timing issues and they already have a lot of debt on the books (even ignoring the recognized claims recorded in 2018).
https://finance.yahoo.com/quote/PCG/balance-sheet?p=PCG

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Re: Addendum: CA Fires/PG&E settlement

Post by Stercutus » Wed Dec 18, 2019 1:16 pm

So the shareholders who are at the end of the line, are getting doubled hosed in that they have taken the loss in value and will continue to pay for the damages.
You know it comes that way, At least that's what they say when you play the game. Probably a lesson in there on investing.
You go 'round and around it
You go over and under
I go through

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Re: Addendum: CA Fires/PG&E settlement

Post by MPMalloy » Wed Dec 18, 2019 1:24 pm

I agree with you both; but 51%/Stercutus. The stockholders are getting "double-hosed", but it is the nature of the 'game'.

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Re: Addendum: CA Fires/PG&E settlement

Post by raptor » Wed Dec 18, 2019 7:23 pm

Stercutus wrote:
Wed Dec 18, 2019 1:16 pm
So the shareholders who are at the end of the line, are getting doubled hosed in that they have taken the loss in value and will continue to pay for the damages.
You know it comes that way, At least that's what they say when you play the game. Probably a lesson in there on investing.
This is true, it is the nature of the beast.

The lesson is and has been taught many times; "diversification is important" when in investing in the stock market.

This lesson was taught to investors who bought Enron, Worldcomm. Lehman Brothers and many more.

BTW they are likely getting triple hosed in that every $ of LT capital loss only offsets about $.15 of tax dollars for every $1.00 lost. If they purchased the investment in an IRA or 401(k) the write off is zero. (note there are the usual tax law exceptions and YMMV).

The other key lesson is to cut and run early anytime your investment starts going sideways. Bad news rarely ages well.

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Re: Addendum: CA Fires/PG&E settlement

Post by MPMalloy » Wed Dec 18, 2019 8:36 pm

I heard a rule called "The 20% Rule". When your investment has moved 20%, up or down, sell...and move on.

Just something I heard.

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Re: Addendum: CA Fires/PG&E settlement

Post by RoneKiln » Wed Dec 25, 2019 9:54 am

I remember reading this and thinking "this is probably a good time to buy their stock." As I write this, their stock has near tripled again to just short of $11 a share.

Any individual stock is a highly volatile gamble, but buying while everyone is mad at a specific company often pays off if you have the capacity to watch the news closely.

I stopped dealing with individual stocks cause newsworthy events kept happening while I was swamped at work and I kept missing the moments I wanted to act on. It just took more time and effort to monitor things than I could invest.
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