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Morningstar | PG&E's Bankruptcy Exit Plans Feature a Range of Impacts on Stakeholders

The 2017-18 Northern California wildfires have PG&E in bankruptcy for the second time in 20 years. But this is not a typical bankruptcy, and we expect PG&E to exit with substantial equity value, albeit much less than before the fires.With as much as $30 billion of wildfire liabilities looming, PG&E will work through regulatory, legal, and political processes to determine winners and losers. PG&E remains solvent, leaving creditors, shareholders, insurance companies, and fire victims to divvy up the equity.PG&E has always faced public and regulatory scrutiny as the largest utility in California. On the positive side, PG&E will play a key role in implementing the state's aggressive energy modernization and environmental policies, resulting in investment and growth opportunities that top its peers.However, liabilities arising from the 2017-18 wildfires are set to chop more than half the value of the company. Wildfire legislation passed in August 2018 and reform efforts led by California Gov. Gavin Newsom's office to make policy changes will help preserve some equity value. The state's inverse condemnation strict liability standard remains a postbankruptcy risk. PG&E suspended its dividend in late 2017, and the payout won't come back anytime soon.The dividend cut came just one year after shareholders received their first dividend increase in six years, since the 2010 San Bruno gas pipeline explosion. We estimate the San Bruno disaster and allegations of poor recordkeeping resulted in $3 billion of lost shareholder value from fines, rate refunds, and unrecovered investment.California has a mostly constructive core regulatory framework that supports industry-leading earnings growth. Aside from wildfire impacts, we expect 6% annual earnings growth based on $6 billion of planned annual investment, a constructive outcome in the 2020-22 general rate case, and system-hardening cost recovery.Beyond 2022, California's quest to modernize the grid, meet state energy policy goals, and address distributed generation offers a long runway of growth. Its 10.25% allowed return on equity, which is locked in through 2019, is among the highest in the country.