Rarely do businesses get so severely rattled by accidents as Pacific Gas and Electric Company (PCG) did after the California wildfire disaster. The electric company that serves the local community lost significant market value this week, continuing the free fall that began last week. An SEC filing by the firm indicates that the fire outbreak coincided with a power disruption in the affected area, which was later traced to a damaged transmission tower.

The stock plunged about 32% Wednesday, marking the biggest intraday fall in more than a decade, before recouping a part of the loss towards the end of the session. There could be some relief if the company manages to convince the authorities, as it did in the past, that dry weather conditions might have aggravated the situation.

If its involvement in causing the wildfire is proven, PG&E will be shelling out a huge amount as damages, which will weigh down on its stock further. The present setback is a cause for investor concern as the San Francisco-based company is already facing several wildfire-related lawsuits and more than $2.5 billion in liabilities. It will add to the several millions of dollars the company has already paid in similar cases in recent years, starting with natural gas pipeline blast in San Bruno about eight years ago.

The stock plunged 32% Wednesday, marking the biggest intraday fall in more than a decade, before recouping a part of the loss later

The fire, a large part of which is yet to be contained, is estimated to have consumed 125,000 acres and caused 56 deaths. In the report submitted before the SEC, the company confirmed to have detected a snag in one of its transmission towers on November 8 in the afternoon, with reference to the power outage experienced in Butte County in the morning.

PG&E had recently renewed its liability insurance coverage for forest fire-related events at $1.4 billion, for the next twelve months. If the investigators’ findings are not in the company’s favor, it will have to pay a penalty that is well above the insurance coverage, considering the scale of devastation caused by the latest wildfire.

General Electric is literally going down the drain, sinks up to 10% today

However, the company’s strong fundamentals indicate it has the capacity to sail through the present crisis, particularly the option to enhance cash flow by utilizing its borrowing power, despite the high debt levels.  This week, analysts at Edward Jones Investments downgraded PG&E to sell from hold after several investors sold the stock while some others reduced their holdings in the company.

Already in a downward spiral after the wildfire broke out last week, PG&E shares suffered a huge intraday loss Wednesday. The stock lost about 46% since November 8 and continued to drop in early trading Thursday.

 

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