Berkshire's Energy Bet: Pge In Focus

In 2019, rumours circulated that Berkshire Hathaway was looking to acquire California utility company PG&E. PG&E shares jumped over 25% after Bloomberg News reported that the Warren-Buffett-led conglomerate was in talks to buy the utility. However, Warren Buffett denied the reports, telling CNBC's Becky Quick that the rumours were 100% not true. PG&E, California's largest investor-owned utility, has faced billions in liabilities from wildfires in 2017 and 2018, including the deadliest fire in the state's history, which killed 86 people.

Warren Buffett says PG&E is too tough for Berkshire Hathaway

In April 2019, Warren Buffett denied reports that Berkshire Hathaway was in talks to acquire California utility company PG&E. PG&E shares jumped by 25% after Bloomberg News circulated a report from publication SparkSpread, which claimed that the Buffett-led conglomerate was looking to buy the utility. However, Buffett, chairman and CEO of Berkshire Hathaway, told CNBC's Becky Quick that the report was "100% not true" and that he "would know" if Berkshire was in talks to acquire the company.

Buffett also stated that PG&E "doesn't fit Berkshire" and is too tough, with many constituencies to satisfy. He further added that he "doesn't know how to solve all that". PG&E, California's largest investor-owned utility, has faced significant challenges due to its potential liabilities from wildfires in 2017 and 2018, which resulted in a plunge in its share price. The company filed for Chapter 11 bankruptcy in January 2019 due to these liabilities.

PG&E's share price fell after California's deadliest fire

PG&E, California's largest investor-owned utility, has been linked to several wildfires in California since 2017. The company's share price fell after the 2018 Camp Fire, which was the deadliest in California's history at the time, killing 85 people and destroying about 14,000 homes. The fire was thought to have been caused by PG&E equipment, and the company was accused of negligence. As a result, PG&E's shares plummeted, dropping nearly 50% in one day, and the company filed for Chapter 11 bankruptcy in January 2019.

The Camp Fire was not an isolated incident, and PG&E has faced scrutiny for its role in multiple wildfires. In 2021, California investigators determined that the utility's power line sparked the Dixie Fire, the second-largest wildfire in state history. This announcement caused PG&E shares to decline by 3.7% on the following Wednesday, the biggest drop since November 30.

The impact of these wildfires on PG&E's share price and financial stability is significant. The company's market value has dropped drastically, and it has faced billions of dollars in liabilities and potential claims. The company's credit ratings have also been downgraded, reflecting the rising risks associated with the wildfires.

Despite these challenges, some Wall Street hedge funds have maintained their stakes in PG&E, even after the wildfires. However, there has been criticism of these funds for profiting from the company's struggles while fire survivors wait for compensation. The complex dynamics between hedge funds, fire survivors, and PG&E's financial situation have created a challenging environment for all involved.

Overall, the impact of California's deadliest wildfires on PG&E's share price has been significant, leading to volatility, decreased market value, and increased financial risks for the company.

PG&E filed for Chapter 11 bankruptcy

On January 29, 2019, Pacific Gas & Electric (PG&E) filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Northern District of California. PG&E, the largest utility in the U.S., was facing billions of dollars in potential damages from California wildfires, including the 2018 Camp Fire, the deadliest and most destructive wildfire in state history. The company cited hundreds of lawsuits from victims of the Camp Fire and other blazes in 2017 and 2018 as the reason for its bankruptcy filing.

PG&E's Chapter 11 bankruptcy filing was a voluntary reorganization that allowed the company to continue operating while the courts determined how to handle its debt. The company emerged from bankruptcy on July 1, 2020, after the CPUC approved its reorganization plan with certain conditions and modifications.

The bankruptcy process had a range of potential impacts on PG&E's customers, employees, shareholders, vendors, and retirees. Customers' power and gas service was expected to remain uninterrupted, but their bills could increase significantly, as had been the case following PG&E's previous bankruptcy in 2001. Wildfire victim compensation payments were put on hold during the bankruptcy proceedings, and shareholder value was at risk of being significantly reduced.

PG&E's employees were expected to continue receiving their salaries and healthcare benefits during the bankruptcy process, but their pensions and benefits could be at risk in the long run as the company could seek to modify labor agreements. The company stated that it intended to pay vendors and suppliers under normal terms and that its operations would continue as usual. Retirees' tax-qualified pension plans and health and life insurance benefits were not expected to change.

PG&E shares soared 25% on acquisition rumours

PG&E shares soared by as much as 25% in pre-market trading on Wednesday, 24 April 2019, after a report claimed that Berkshire Hathaway was in talks to acquire the California utility company. PG&E had filed for Chapter 11 bankruptcy protection in January 2019, citing liabilities related to California wildfires.

The report, by SparkSpread, stated that Berkshire Hathaway—led by Warren Buffett—was holding talks to acquire PG&E. This caused PG&E's stock to surge, recovering some of the losses from a plunge in January 2019 when the company announced its bankruptcy plans.

However, Buffett denied the rumours, stating that the report was "100% not true" and that he "would know" if Berkshire Hathaway was in acquisition talks. Following Buffett's statement, PG&E's shares gave up most of their gains, trading up about 2% ahead of the opening bell.

Despite the denial, PG&E remained an attractive investment target for some of Wall Street's top hedge funds, including D.E. Shaw, Baupost Group, and David Tepper's Appaloosa Management. These hedge funds likely saw value in the company, given the potential for favourable outcomes in bankruptcy proceedings and the possibility of state intervention.

While PG&E faced significant challenges due to its liabilities related to the wildfires, the surge in its share price highlighted the speculative nature of the market and the potential for unexpected developments to impact investment decisions.

PG&E could face $30 billion in liabilities

PG&E, short for Pacific Gas and Electric, is California's largest utility company. In January 2019, the company filed for Chapter 11 bankruptcy protection, citing potential liabilities of $30 billion from the deadly California wildfires. The company's equipment has been blamed for several wildfires in recent years, including the 2018 Camp Fire, which became California's deadliest and most destructive wildfire in history, killing over 80 people.

PG&E's potential liabilities stem from allegations that its power lines and other equipment contributed to the fires, and that the company failed to adequately maintain and repair its distribution and transmission lines to prevent or curb the disasters. The company's critics attribute this to a broken safety culture, with PG&E prioritizing profits over safety.

The $30 billion in liabilities includes potential claims from victims of the wildfires, as well as government agencies and attorneys pressing charges. To cover these costs, PG&E considered selling the company or seeking financial assistance from the state of California. The company's bankruptcy filing prompted the formation of a task force by Governor Gavin Newsom to evaluate the state's response and ensure the safety, reliability, and affordability of utility services for Californians.

The potential liabilities have had a significant impact on PG&E's finances and stock price, with the company's shares plummeting and its market value taking a hit. The bankruptcy filing is intended to allow PG&E to work out a plan to compensate its creditors and reorganize its financial situation. PG&E's bondholders have proposed a bankruptcy exit plan worth up to $30 billion to help the company emerge from Chapter 11 and pay off its liabilities.

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