Barrons -- After Years of Fires, PG&E Relents: It Will Bury Its Power Lines ..........................................
Utilities
Review
July 23, 2021
After Years of Fires, PG&E Relents: It Will Bury Its Power Lines.
By Lydia You
Shares of California utility PG&E took a beating this past week, cratering 13% on Monday, after the utility admitted in a regulatory filing that a blown power fuse might have ignited the Dixie Fire ravaging Northern California. Then on Wednesday, PG&E announced that it would spend billions to bury power lines, a step it previously had rejected as too expensive. The shares fell another 1.8%, to $9.32.
Analysts weren’t surprised by the announcement. It was “definitely an expected filing from them,” says Guggenheim’s Shariar Pourreza.
Many consider “undergrounding”replacing overhead cables with underground linesa necessary step, given the state’s dry-as-tinder forests. “If California politicians and officials are serious about preventing future fires linked to utility-owned equipment, this represents the only realistic long-term solution,” says Mizuho analyst Paul Fremont. The project will cost around $1.5 million to $2 million per mile of cable, says Pourreza, or $15 billion to $20 billion over 10 years.
PG&E filed for bankruptcy in 2019 after its power lines sparked the Camp Fire that destroyed the town of Paradise and killed 84. The utility emerged from bankruptcy last year after settling $25.5 billion in liability claims.
Who will shoulder the new costs? Pourreza thinks mostly customers. The hope: The upfront outlays will eventually reduce maintenance, not to mention litigation. Pourreza has a Buy rating on PG&E, but admits there’s “lots of externalities that have caused it to weaken.” What, he asks, “if wildfires cause incremental liabilities shareholders have to absorb?” Good question.
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