(Bloomberg) -- Bill Johnson had just walked up to a room full of lawmakers in Sacramento to explain why he was the right person to lead PG&E Corp. out of bankruptcy. The new chief executive officer’s message: I’m the fix-it guy, sent here to seek redemption for California’s largest utility.
And then legislators started whispering. Someone handed assembly member Eloise Gomez Reyes a piece of paper. She was the one to publicly break the news to Johnson, who had started his job two weeks ago: State investigators had just found the company’s power lines at fault for the Camp Fire that killed 85 people and destroyed an entire town in November.
Johnson looked at her and nodded. “I made the assumption, when I got here, that PG&E equipment caused the fire -- that’s the best place to start,” he said later in the hearing. “It’s a disappointment that this happened. Let’s not do it again.”
The tense meeting underscored just how much work Johnson has ahead of him in guiding PG&E out of the biggest utility bankruptcy in U.S. history and repairing its relationship with state lawmakers and customers. Shares cratered 70% in the three months leading up to the company’s Chapter 11 filing in January. Its credit ratings were downgraded to junk, and dozens of lawsuits have been filed. Now that the utility is restructuring, some of the biggest names in distressed debt, including Elliott Management Corp., are piling into its case. California Governor Gavin Newsom is pressing for a quick exit.
What Bloomberg Intelligence Says
Being blamed for the Camp Fire “sets the stage for two key goals for the bankrupt company: Paying off existing liabilities and restructuring California’s regulatory structure that puts utilities on the hook for natural disaster liabilities.”
--Kit Konolige, utilities analyst
Click here to view the research
The California Department of Forestry and Fire Protection found probable violations of state laws and forwarded its investigation to the district attorney of Butte County, where the Camp Fire occurred, Cal Fire deputy director Michael Mohler said Thursday. PG&E shares fell as much as 1.4%.
Exactly how Johnson will rescue PG&E from the damages incurred by wildfires that tore through Northern California in 2017 and 2018 remains to be seen. The company has already warned that its liabilities may exceed $30 billion, and the report by Cal Fire could open the door to more.
Wearing a blue suit with a matching blue paisley tie on Wednesday, Johnson assured lawmakers in a southern drawl that he would turn the company around. “I’d like to fix it,” he said. “If you actually talk to people in the industry, they would say, ‘Oh yeah, he’s the fix it guy.’ This is a big fix.”
Cal Fire said power lines owned by PG&E ignited the Camp Fire, the deadliest in California history, while dry brush and strong winds helped it spread quickly. The finding “certainly was telegraphed -- it’s hard to believe that anyone is surprised,” Bloomberg Intelligence utilities analyst Kit Konolige said in an interview. “But it is certainly a negative.”
Under a legal doctrine known as inverse condemnation, California utilities including PG&E and Edison International (NYSE:EIX) may be held responsible for damages from wildfires their equipment causes -- even if they aren’t found negligent. The power companies have been fighting to kill this doctrine since a series of wildfires devastated parts of wine country in 2017.
At Fault
Paul Patterson, a utilities analyst with Glenrock Associates, said Cal Fire’s brief statement on Wednesday failed to answer the most important question: Did PG&E act negligently in maintaining the power line that sparked the fire?
“What’s really key is whether or not the company’s operation or maintenance of the system was in fact at fault,” he said.
The news came just as activist shareholder Appaloosa Management disclosed it had more than doubled its stake in PG&E in the first quarter. The fund now holds about 4.4% of the company’s outstanding shares. Baupost Group boosted its holdings by 58% to 24.5 million shares valued at $436.1 million, regulatory filings show.
PG&E had meanwhile already disclosed that a criminal grand jury in Butte County is investigating the Camp Fire and has requested documents related to its operations and maintenance. The company said it’s cooperating with prosecutors in collecting physical evidence at the fire site.
Read More: PG&E Names TVA’s Johnson as CEO to Steer It From Bankruptcy
Sitting before lawmakers on Wednesday -- with only a prepared statement, a notepad and a pen accompanying him -- Johnson said his goal as CEO is to leave PG&E in better shape than when he arrived. Before joining the company this month, he led the federally owned utility Tennessee Valley Authority for more than six years.
“I believe in redemption,” he said. “I want some redemption for PG&E in the hearts and minds of the customers, and the people in this building and elsewhere. Earned redemption.”
(Updates with comment from Cal Fire in fifth paragraph.)
