PG&E to File Chapter 11

I notice the California utility PG&E has announced the intention to file under Chapter 11 on January 29th–obviously the preferred shares are off plenty today and are trading around $11-15/share.

Will there be opportunity here in the future?  We don’t plan to get involved in any way with this situation–purely speculative and not where we ever want to play at our age.

Further detail can be found here.

30 thoughts on “PG&E to File Chapter 11”

  1. Are there other well-known cases of public utilities going bankrupt? I am curious as to how they turned out.
    It seems like a situation like this is fraught with mischief. The state can simply assess whatever fines or lawsuits to equal the value of any assets. Both stockholders and bondholders are wiped out, based on unlimited liability. What defense do bondholders have, if the liability is, by definition, determined arbitrarily by the state.

    Jay

    1. Jay, the last regulated utility to go bankrupt was….drum roll please….Pacific Gas and Electric a little over 15 years ago… Yes they are going 2 for 2! They were in bankruptcy 3/4 years and if one just held they were fine equity, preferred, and bond holders. But it was a sham bankruptcy over deregulated power contracts. This current one is potential wipeout equity wise. I would worry about the real civil court liabilities than the government imposed fines. Sempra (another CA ute) had a very nasty underground gas situation they were neglegent on a couple years ago and just got slapped on the wrist by the govt. They have some civil cases against them though.

  2. A little practical analysis ……

    California is an energy-intensive state whose electricity consumption far outstrips in generating capacity. This is a direct result of public policy decisions made by the state over the course of decades. You want “green”, this is what you’re left with.

    Until the situation changes (and lots of luck with all that) the state has no alternative but to import electricity. And that means high voltage transmission lines, and distribution lines. Sorry, but even the Cal legislature can repeal the laws of physics.

    Long distance transmission lines, high winds, dry terrain all equals fires. Short of cutting power to the lines with distressing frequency there is no way to prevent fires. In truth, even with power cuts you are going to get fires.

    In economic truth, there is no way for the state of California to pass on the risk of fires to other parties. PGE shareholders? Fine, put the company out of business and guess who is left with the risk? The poor taxpayers of California. Insurance companies? They don’t take risk for free. Self-insurance would be infinitely cheaper. You can put PGE out of business, fine them to death, do anything you want, and it won’t, in the end, shift the liability away from the state. Which is exactly where it belongs. The risk is a product of the state’s public policies and its inherent climate and topography. They won’t change the former and can’t change the latter.

    The state of California already, de-facto, bears the liability for utility fires. If they also want to end up running the utility – that would be a pretty picture – let them go ahead and do it. The VA of the electric industry. After all, California does so many other things well.

    1. Jacob, I think there is some debate on whether everyone considers nuclear “green” with all the onsight storage issues of spent radioactive fuel. Some of Exelons nuke plants were going to be mothballed because they were money losers, until they got legisatures to deem them “green”.
      https://www.chicagobusiness.com/article/20161201/NEWS11/161209968/exelon-wins-its-nuke-bailout-in-biggest-energy-bill-in-20-years

      Nuclear energy isnt cheap either when they have to get subsidies to keep them from being mothballed. Im not anti Nuke, I grew up seeing Callaway Nuclear Reactor from my yard. I think the Georgia rate payers are mad as all get go, from nuclear plant Vogtle 25 billion dollar disaster construction. Yet an oldie reliable Nuke built 50 years ago can crank out the low KWH electricity. Just need a storage place!
      Interesting subject. I dont have the answers that is for sure….Personally, I don’t want my baseload backed by windmills and solar, lol. But that is just my opinion and nothing else. I am on no crusade either way.

  3. I live in CA but do not invest here.

    Maybe someone can explain to me why, even though there are solar panels on every other roof, there’s still not enough electricity and it’s still way too expensive. We’ll have a week of rain this week, no sun, so I’m prepping for the rolling outages.

    Someone will get rich on all this green energy nonsense alright, but it won’t be me, and I doubt it will be any of us “small fry.” Only the big fish get to feed in these types of boondoggles.

    1. Looks like all of the energy generated by solar has been offset by the closing of one of California’s two nuclear plants back in 2013. And they just approved closing the other one last year, so it’s gonna get worse.

  4. I won’t touch the CA Ute pfds. It somewhat feels like I would be investing in the 100% renewable by 2045 insanity if I did so

    1. Jacob, I was more negative than you a while back…And still dont recomend them at all for conservative income investors. But if you read company projections, this green stuff is going to make them some money. Heck all those millions of electric cars alone coming soon will be a windfall for them also. And this is coming from a guy who loves his coal plant fired electricity at 9 cents a KWH. 🙂

  5. We sold all of our short term bonds last Monday at market open. PG&E may not end up filing as this may be a move to get more favorable terms but there is a 15 day notice requirement to all employees so 1/29/19 is the supposed date.

  6. Thanks for the update Tim. There is no way I would get involved with this situation either, as it is impossible to determine what kind of value would be left for the preferreds and bonds. Consideration the rules and regulations in CA, all of their utility holdings (in any form) are off limits to me.

    1. Dont blame you Lou….That being said I bought 500 more SCE-L at 17.50. Nothing like a good sympathy sell out. I knew that was coming. Set my greedy initial bid too low at $17 and it never got there so I had to chase up a bit. These are trading preferreds though. SCE is facing nowhere the problems PCG is…That being said I will keep watching closely.

      1. Hi Grid–considering a little SCE preferred/trust preferred as they move lower in sympathy with PG&E

        1. Tim, I am about as smart as the Snowman in my neighbors yard. But I know this from others…EIX just raised common divi last payout, Moodys shows they have all sorts of liquidity including the undrawn revolver in the billions. They are under negative watch, but they should be but are still solid investment grade. The SCE trust preferreds actually sit higher in capital stack than the parent EIX near $2 billion in unsecured. The 2017 Thomas fire is a nice liability, but nothing of the magnitude PCG faces in Camp Fire alone. SCE also has over $1 billion in insurance so this will mitigate some of that damage.
          EIX common down 5.92% past 12 months, while S&P is down 7.34%. So the common is not unduly stressed recently. SCE-L is down 25% past year. At 7% QDI, I had to go in one more time. :)…But this is no sock drawer issue in my book. I do have a strong distaste for CA utes and for better part of 5 years I wouldnt touch them. But they have been good to me past year flipping and this represents a measured risk reward trade, for me and one I am comfortable doing currently.

      2. HI Grid:
        Thank you for your insightful cogent and astute remarks on SCE-L earlier.
        Congratulations on your purchase. The PCG sympathy move was short lived. Did you flip your SCE-L already?
        I did not blink fast enough. Waited too long. So my bid is left in the dust.

        1. Dave, I am not that bad, lol….But maybe I am.. I bought 500 shares of SCE-L in my Roth last week a little over 18. I cant stand losing money in my Roth so I sold those shares at 18.12 today and bought them back a few minutes later for 18.02 in taxable account. And I still got the 500 I bought today, lol…I also have 500 (I think or something close) of SCE-G I bought them at 18.80 last week. I dont want to get overexposed because as other posters have commented…Its a CA utility and that makes me a bit nervous. The yield is very good on a relative basis QDI, so I will hold. If they go back above $20, I may look to toss them. Right now, I dont have anything that compelling to buy so that minimizes my desire to sell unless another fire pops up.

          1. I am holding some SCE-G and a little under on it – almost sold last week at breakeven but looks like I missed the window. Just gritting my teeth for the time being. Glad these seem to be holding up despite bad press for PCG

            1. tgjokie, this may be a good time to reevalute why you bought it and what expectations you have for the issue. If it causes you angst, maybe consider exiting position as you cant be too far underwater here. I bought as a spec hold and possible trade, not a sock drawer issue, so for me, I will give it a longer leash to play itself out. The price movement today was totally unrelated to SCE finances, but PCG’s. The SCE preferreds have been volatile and beat up. This may be some bumpy ride, but I am strapped in. Albeit with it totally out of my Roth so I can take a cap loss if need be, lol.

          2. @Gridbird
            How can u move in and out from this illiquid securities? I find it almost impossible.

            1. Gabriele, its mostly just catching the moment they are liquid. It doesnt happen as frequently as it appears. I usually am just mentioning them, but that didnt mean I actually traded them. The last one I guess was CBKPP. It had a 100 shares sitting at 101.25 for at least 2 days. Somebody had a 100.75 standing bid but it had been there a while. I tried to get them down, but it didnt happen so I paid ask. Nobody was interested in it at the time. I generally have a list of about 50 and pay more attention to ones that havent traded at all in a week or so and play around with them. Especially if no serious bid is out. My experience is people will leave bids out then they expire and then no one is looking because no one is trading it.

            2. Another thought, sometimes there are sellers or buyers that arent showing.. I can sometimes see numbers moving around so I know something is fishy. I can say for example have a sell order out at 25.50 and no takers with a bid of say 25.30. I will back the order out hit market sell order and they will sell at 25.60. More than my unmolested ask price was to begin with…The market can be rigged. I dont know the ins and outs though…As a general rule now I dont really see any values in illiquids. Many are overpriced now.

      3. Grid, I am probably being too conservative now, but CA does not seem to be very friendly to the utility business – so I will just avoid the whole sector there. Too many other decent preferreds at the present time to take any risk there.

        1. Kaptain, SCE preferreds are my equivalent to your penny stock purchases and are designated as a high risk purchase. I know I am not as expansive in my search for preferreds (we discuss often for others reading), but in my QDI universe I dont know of many around 7% QDI and well under par that could have a cap gain. And I know I cant, but am certainly not trying to convince you to either, lol.

          1. Grid, I can’t disagree with you on this. Most of my stuff is completely boring, so generally I like to put about 5% of my portfolio in some “fun issues” that have potential for capital gains without risking the rest of my nest egg.

            Overall, I will win some and lose some, but it’s fun for me!

            1. Kaptain, I have to have a little fun too. Speaking of boring I threw out 500 sharesof CNIGO at 26.80 (got the recent divi though waiting for it) and somebody paid up for them. I just had to take the money and work on some more cap gains to pay. But returned to my boring manner and bought some more MTB- with proceeds. I have a decent slug of them already but its a comfort food purchase since AILLL wont ever come down again.

          2. SCE-L approaching interesting levels, maybe tomorrow it’s time to pull the trigger.

            1. Gabriele, I made my bed a little bit higher and now I have to lay in it. I kept my purchase modest enough that I will buy 500 more if it cracks $17. But otherwise, if not, I am playing the hand I dealt myself and let it play out. It may take a bit for this to settle down due to the fact they are jumpy with the PCG action going on. This is higher risk segregated money, not from my widows and orphans account.
              Unlike PCG which does not have the financial means to access cash to pay off claims and then issue a bond to cover it (this is partly why PCG went into bankruptcy, as they claim they cannot take advantage of the legislature bond relief law recently signed). SCE has a basically untapped $4 billion plus revolver that currently is projected to have more than enough to cover their fire liabilities. Provided of course more do not occur.

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