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Pacific Gas & amp; Electric Co. Trucks (PG & E) sitting on a road in Paradise, California, American photographer: David Paul Morris / Bloomberg© 2019 Bloomberg Finance LP
The bankruptcy court is basically a negotiation. This week, California's largest utility
PG & E
After a 15-month investigation, the California Department of Forests and Fire Protection decided that the utility was not responsible for the deadly fires of 2017, Tubbs. This decision effectively reduces by about 60% the company's $ 17 billion estimate of its potential liability for fire damage in 2017. What is more important is a very big hole in what was a nascent narrative that the culture of public service security is broken and can only be corrected by the dissolution of a society.
The decision does not cover the 2018 campfire. Golden State Governor, Gavin Newsom, is now planning a decision regarding this much worse disaster in the first half of 2019. And PG & E still has the # 1 The intention is to table chapter 11 next week to protect against the worst case.
The Tubbs decision, however, greatly increases the chances that the company will end up out of bankruptcy. And that was enough to trigger a 75% rise in shares in a day.
This is not to say that PG & E is still not damaged for many customers, investors and politicians. And with other state utilities, it continues to face a perfect storm of overdevelopment, increased seasonal drought due to climate change and the "reverse conviction" rule, which holds companies accountable for damages resulting from natural disasters and their equipment, even if they followed security procedures to the letter.
But this decision makes it much easier for California regulators and politicians to find a solution that supports the financial health of public services. And it is absolutely essential if the state has any hope of achieving its goals of reducing carbonization, let alone strengthening the systems against future fires.
We expect much more stringent safety regulation in the sector, and perhaps even some state control for PG & E. But no matter who will be in charge of the campfire, investors will have to be comprehensive enough to attract the tens of billions of dollars in investment required for electric vehicle infrastructure, strengthening fire networks and adapting rooftop solar energy.
Equally important, any resolution targeting PG & E and other utilities will need to include support for companies that sell electricity to PG & E under long-term contracts. The strong dependence of the company by people like
NextEra Energy
PG & E has done little to dispel the rumor that it will use bankruptcy proceedings to try to reduce the rates on its more expensive renewable energy contracts. Jim Robo, CEO of NextEra, warned that if the wind and solar investments were "Somehow, mitigated by these credit problems, I think it will have a real impact on the market."
We continue to see such an action as a very low probability event, however. In fact, it is much more likely to be simply a case for a better failed transaction from the California Public Utilities Commission and state politicians.
First, PG & E is hardly poor in money after receiving $ 5.5 billion in investment "debtor in possession" financing by a syndicate of banks. He can certainly afford to pay his operating costs.
Secondly, the best way for PG & E to pay a lot more to replace the production of Diablo Canyon is to evade its likely subcontractors by breaking contracts. This is the case if someone would always be willing to sell to the company.
Thirdly, PG & E's leverage to redefine the terms of the contract is actually much less than it appears. On the one hand, its main suppliers are NextEra and its NextEra Energy Partners (NEP) unit.
Both confirmed this week that they would reach their cash flow and dividend growth targets for 2019, even if they would not receive any future payments from PG & E. Model energy (PEGI), whose only exposure is a wind farm representing only 3% of cash flows.
As stated in my article January 16th , Clearway Energy (NYSE: CWEN) is on paper the producer most exposed to a PG & E contract default, with 23% of EBITDA coming from projects selling energy to the utility. On Friday, however, Moody's confirmed its credit rating, in part based on the fact that the company can actually offset a cash flow disruption by cutting costs.
The appraiser also noted that in California, purchased electricity costs are pbaded directly to customers, dollar by dollar. This means that, in order for PG & E to benefit from the break-up of contracts, the CPUC should allow it to maintain savings rather than customers. This seems extremely unlikely for at least two reasons.
One is simply the deep unpopularity of PG & E in the state. And the sure explosion of popular outrage would undermine CPUC's ability to handle an already difficult situation. In addition, the CPUC remains committed to the state's climate change goals, which will be impossible to achieve without the continued investment of NextEra and others.
On Friday night, the Federal Energy Regulatory Commission affirmed "concurrent jurisdiction" for PG & E energy contracts. This means that the utility must obtain FERC approval as well as the court to "change the filed rate and reject the contract, respectively. " This is another important obstacle to the abandonment of contracts.
We are still very early in the game. But the end result is that the real risk for electricity producers seems more and more distant.
California's other major electric utilities
Edison International
It's always our expectation. Both companies are expected to report solid results and forecasts next month, as well as their fears of a fire, and expect their stocks to recover over the next 12 months. Edison is a purchase of up to $ 65 and Sempra is less than $ 115.
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Pacific Gas & Electric Co. trucks (PG & E) sitting on a road in Paradise, California, American photographer: David Paul Morris / Bloomberg© 2017 Bloomberg Finance LP
The bankruptcy court is basically a negotiation. This week, California's largest utility
PG & E
Corp (PCG) has gained considerable weight for its filing, which is still scheduled for Jan. 29.
ARTICLE CONTINUES AFTER ADVERTISING
After a 15-month investigation, the California Department of Forests and Fire Protection decided that the utility was not responsible for the deadly fires of 2017, Tubbs. This decision effectively reduces by about 60% the company's $ 17 billion estimate of its potential liability for fire damage in 2017. What is more important is a very big hole in what was a nascent narrative that the culture of public service security is broken and can only be corrected by the dissolution of a society.
The decision does not cover the 2018 campfire. Golden State's Governor, Gavin Newsom, is now planning a decision regarding this much worse disaster in the first half of 2019. And PG & E still intends to file Chapter 11 next week to protect against the worst case.
The Tubbs decision, however, greatly increases the chances that the company will end up out of bankruptcy. And that was enough to trigger a 75% rise in shares in a day.
This is not to say that PG & E is still not damaged for many customers, investors and politicians. And with other state utilities, it continues to face a perfect storm of overbuilding, increased seasonal drought due to climate change and the "reverse conviction" rule, which holds companies accountable Damage resulting from natural disasters where their equipment is involved, even if they followed safety procedures to the letter.
But this decision makes it much easier for California regulators and politicians to find a solution that supports the financial health of public services. And it is absolutely essential if the state has any hope of achieving its goals of reducing carbonization, let alone strengthening the systems against future fires.
We expect a much stricter regulation of the security of the sector, and perhaps even a state property for PG & E. But no matter who will be responsible for the campfire, investors will have to be sufficiently comprehensive to attract tens of billions of dollars in investment needed for electric vehicle infrastructure, strengthening fire networks and adapting solar energy to rooftops.
Equally important, any resolution targeting PG & E and other utilities will need to include support for companies that sell electricity to PG & E under long-term contracts. The strong dependence of the company by people like
NextEra Energy
(NEE) will only develop after the closure of the Diablo Canyon nuclear power plant at the beginning of the next decade.
ARTICLE CONTINUES AFTER ADVERTISING
PG & E has done little to dispel the rumor that it will use bankruptcy procedures to try to lower the rates on its more expensive renewable energy contracts. This prompted NextEra's CEO, Jim Robo, to warn that if credit problems reduced wind and solar investments, I think that would have a real impact on the market. "
We continue to see such an action as a very low probability event, however. In fact, it is much more likely that it is simply PG & E calling for a better failed transaction from the California Public Utility Commission and state politicians.
First, PG & E is not short of money after receiving $ 5.5 billion in "debtor-in-possession" financing from a consortium of banks. He can certainly afford to pay his operating costs.
Secondly, the most secure way for PG & E to pay a lot more to replace the production of Diablo Canyon is to get rid of potential suppliers by breaking contracts. This is the case if someone would always be willing to sell to the company.
ARTICLE CONTINUES AFTER ADVERTISING
Thirdly, PG & E's leverage to redefine the terms of the contract is actually much less than it appears. On the one hand, its main suppliers are NextEra and its NextEra Energy Partners (NEP) unit.
Both confirmed this week that they would reach their cash flow and dividend growth targets for 2019, even if they would not receive any future payments from PG & E. Model energy (PEGI), whose only exposure is a wind farm representing only 3% of cash flows.
As stated in my article January 16th , Clearway Energy (NYSE: CWEN) is on paper the most exposed producer to a PG & E contract default, with 23% of EBITDA coming from projects selling energy to the utility. On Friday, however, Moody's confirmed its credit rating, in part based on the fact that the company can actually offset a cash flow disruption by cutting costs.
The appraiser also noted that in California, purchased electricity costs are pbaded directly to customers, dollar by dollar. This means that in order for PG & E to derive any benefit from breaking contracts, the CPUC should allow it to keep the savings realized rather than its customers. This seems extremely unlikely for at least two reasons.
ARTICLE CONTINUES AFTER ADVERTISING
One is simply the deep unpopularity of PG & E in this state. And the sure explosion of popular outrage would undermine CPUC's ability to handle an already difficult situation. In addition, the CPUC remains committed to the state's climate change goals, which will be impossible to achieve without the continued investment of NextEra and others.
On Friday night, the Federal Energy Regulatory Commission affirmed its "competing jurisdiction" for PG & E's energy contracts. This means that the utility must obtain approval. FERC and the court to "amend the tariff filed and reject the contract, respectively". This is another important obstacle to the abandonment of contracts.
We are still very early in the game. But the end result is that the real risk for electricity producers seems more and more distant.
California's other major electric utilities
Edison International
(EIX) and SEmpra Energy (SRE), the threat of credit scorers to reduce them to nothing can be a blessing in disguise. Primarily, it is lobbying regulators and politicians to eliminate or mitigate the reverse conviction rule as soon as possible.
It's always our expectation. Both companies are expected to report solid results and forecasts next month, as well as their fears of a fire, and expect their stocks to recover over the next 12 months. Edison is a purchase of up to $ 65 and Sempra is less than $ 115.
