Shares of the California Utility
took a beating last week, cratering 13% on Monday, after the utility admitted in a regulatory filing that a blown power fuse could have ignited the Dixie Fire that ravaged Northern California. Then PG&E announced on Wednesday it would spend billions to bury power lines, a move it had previously dismissed as too expensive. Shares fell another 1.8% to $9.32.
Analysts were not surprised by the announcement. It was “definitely an expected request from them,” said Guggenheim’s Shariar Pourreza.
Many consider “underground” – replacing overhead cables with underground pipes – a necessary step, given the state’s arid forests. “If California politicians and officials are serious about preventing future fires related to utility-owned equipment, this is the only realistic long-term solution,” said Mizuho analyst Paul Fremont. The project will cost about $1.5 million to $2 million per mile of cable, Pourreza says, or $15 billion to $20 billion over 10 years.
PG&E filed for bankruptcy in 2019 after its power lines caused the campfire that devastated the city of Paradise and killed 84 people. The utility came out of bankruptcy last year after settling $25.5 billion in liability claims.
Who will bear the new costs? Pourreza mainly thinks about customers. The hope: The initial outlay will eventually cut maintenance, not to mention lawsuits. Pourreza has a buy recommendation for PG&E, but admits there are “a lot of external factors that have weakened it”. What, he asks, “if wildfires lead to incremental liabilities that shareholders must absorb?” Good question.
A bad start, a good week
Shares plunged into their worst decline in 2021 to start the week as concerns about the Delta variant, global growth and record indices rose. Bond yields, oil prices and Bitcoin also fell. But gains were strong and indices recovered, reaching highs on Friday. On the week, the
Dow Jones Industrial Average
rose 1.1% to 35,061.55; the
got 2%, to 4411.79; and the
rose 2.8% to 14,836.99.
Delta on the March
Cases of the Delta variant increased as calls to put on masks began. The number of vaccinations in the US has fallen to about 550,000 per week from three million. The White House blamed social media for vaccine misinformation, saying that about 99.5% of hospitalizations and deaths from Covid are unvaccinated. When England dropped Covid rules on Monday, British Prime Minister Boris Johnson had to self-isolate after his health minister, who fired two shots from the
vaccine, developed symptoms.
An oil deal
After weeks of negotiations, OPEC+ increased production by 400,000 barrels per week. It was a victory for the United Arab Emirates, which had been trying to expand production. In other UAE news, real estate mogul Tom Barrack and two others were indicted, accused of serving as Emirates agents with the Trump administration.
Hack, counter attack
The US and close allies accused the Chinese of hiring criminal gangs to participate in a hacking, including an attack on
email last year that hit 30,000 organizations. Separately, the US Department of Justice unveiled charges against four Chinese citizens of the State Security Department for hacking operations in 2011 to 2018. A group of media organizations found that Israeli NSO surveillance software had hacked into smartphones, including some of them.
Bezos in the blue yonder
Former Amazon.com CEO Jeff Bezos shot off in Blue Origin’s New Shepard spacecraft with three other “guests,” which took off 66 miles before parachuting back to Earth. The automated craft had no crew and, like Richard Branson’s flight nine days earlier, experienced weightlessness for a few minutes.
Annals of deal making
Zoom video communication
agreed to buy cloud-based call center company
in an all-stock deal for $14.7 billion… Bill Ackman’s SPAC canceled a 10% investment in
Universal Music after regulators raised concerns and investors showed little interest. Ackman’s Pershing Square then agreed to buy the stake. Vivendi plans to list Universal in September… GlobalFoundries CEO rejected merger talks with
The Wall Street Journal had reported that Intel was in talks with Global owner Abu Dhabi’s Mubadala Investment about a $30 billion deal. The chipmaker said it would seek an IPO and talked about expanding in the US… Robinhood hopes to hit a $35 billion market cap at its IPO this week.