California probe clears PG&E for deadliest 2017 wildfire
Investigators have determined that a 'private electrical system' caused the 2017 Tubbs Fire in wine country.
Updated 4:55 p.m. ET
PG&E Corp. was cleared of blame for a deadly 2017 blaze just days before it has said it will file for bankruptcy to deal with crippling wildfire liabilities.
The findings by the California Department of Forestry and Fire Protection on Thursday could reduce PG&E’s projected $30 billion in liabilities from 2017 and 2018 wildfires by as much as $8 billion, according to an estimate from CreditSights Inc. PG&E shares skyrocketed as much as 81% on the news, its biggest intraday gain ever.
The report on the Tubbs fire — the second-most-destructive blaze in California history — had analysts questioning whether PG&E should still file for bankruptcy as planned on Jan. 29. Tubbs, which swept through Northern California in October 2017, eventually destroyed thousands of homes and killed 22 people.
The state is still investigating the cause of the deadliest wildfire in California’s history, the Camp Fire that broke out in November.
‘A real game changer’
Andy DeVries, an analyst at CreditSights, described the finding as “a real game changer” that begs the question of whether the company still need to file for bankruptcy. But Travis Miller, an analyst at Morningstar, said the 2018 Camp Fire, the deadliest in California history, “remains a major financial concern for PG&E.”
Without directly addressing whether its bankruptcy plans would go forward, PG&E said in a statement that “resolving the legal liabilities and financial challenges stemming from the 2017 and 2018 wildfires will be enormously complex and will require us to address multiple stakeholder interests, including thousands of wildfire victims and others who have already made claims and likely thousands of others we expect to make claims.”
Related: Top California regulator: We may never know if PG&E caused fires
Shares of San Francisco-based PG&E ended the session up 75% at $13.95. It’s still down more than 70% since November, when the deadly Camp Fire broke out.
The company’s 6.05% bonds due March 2034, jumped 5 cents on the dollar to 87 cents and its 6.35% notes due February 2038 gained 5 cents to 88 cents, according to data compiled by Bloomberg.
Ignition sources
California investigators had already named PG&E equipment as the ignition source of 17 of the 2017 fires while alleging violations of state law in 11 of those incidents. The blazes include the Redwood, Atlas and Nuns fires, some of the largest and deadliest of the so-called Wine Country blazes.
“After an extensive and thorough investigation, Cal Fire has determined the Tubbs Fire, which occurred during the October 2017 Fire Siege, was caused by a private electrical system adjacent to a residential structure,” according to a statement Thursday. “Cal Fire investigators did not identify any violations of state law, Public Resources Code, related to the cause of this fire.”
PG&E said in a federal court filing in December that its equipment might not be responsible for the Tubbs fire. It elaborated on a theory that the 2017 blaze was started by “customer-owned equipment” at a residential property in Napa County owned by Ann Zink.
Using a regulator’s classification of Zink’s residence as an “incident location,” PG&E pointed to a “service riser” on her house “after the point at which PG&E had legal responsibility for operation, inspection and maintenance” of the suspected electrical equipment. Zink couldn’t immediately be reached for comment.
Tubbs accounted for about 60% of the total structural damage from the 2017 wildfires, according to a report by J.P. Morgan Securities.
Safety standards
PG&E has said its fire-safety programs have met the state’s high standards and that it has taken a number of steps to reduce fire risk, including pruning or removing about 1.4 million trees a year. Under California law, utilities including PG&E and Edison International may be held liable for costs if their equipment is found to have caused a fire, even if they followed safety rules.
BlueMountain Capital Management, a New York-based investment firm and PG&E shareholder fighting to keep the company out of bankruptcy, said the Tubbs news “is yet another example of why the company shouldn’t be rushing to file for bankruptcy, which would be totally unnecessary and bad for all stakeholders,” according to a spokesperson.
BlueMountain said earlier Thursday that it was seeking to replace all of PG&E’s board members at the company’s annual shareholder meeting.
“Looking at the Tubbs report, the question is, ‘Why would PG&E file bankruptcy?’” said Michael Danko, a lawyer suing the company on behalf of victims of wildfires in Northern California. “PG&E just basically found $11 billion. It’s hard to argue that they are in any fashion insolvent.”
May diminish impact of lawsuits
The Tubbs report may also diminish the impact of lawsuits, Danko said. While Cal Fire’s conclusion can’t be used in court, the evidence it gathered can. The agency’s report finding PG&E not responsible “is an indication that our case with regard to the Tubbs fire will be very difficult for the Tubbs fire victims,” Danko said.
“I don’t think this removes the bankruptcy scenario,” Miller said. “PG&E still faces financial distress simply given that the capital markets are not open for business for them. This is a positive development, but the fact remains that PG&E faces tens of billions in liabilities.”
Related: PG&E offers new details on transmission tower at heart of Camp Fire probe
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