PG&E shares plunged $4.03 on Friday, falling from $48.24 to $44.21 one day after the blast. Investors continued taking profits on Monday, sending shares down another 2% from $44.21 to $43.17 in afternoon trading. Some investors headed for the exits over fears that legal and operating costs PG&E may have to pay because of the disaster could hurt the stock long term. Credit Suisse downgraded the stock on Monday from outperform to neutral on that possibility.
However, PG&E shares recovered Monday afternoon, finishing the day up 5 cents, to $44.26. Helping the stock was a Moody's report saying the agency's Baa1 senior unsecured debt rating on PG&E would remain unchanged. Still, more investors may bolt, depending on where the formal investigation into the disaster leads.
Customers May Wind Up Paying
A preliminary Morningstar assessment of the affect on shareholders wasn't too dire either. In an analyst note issued Friday, Morningstar said: "The company's $992 million fire insurance policy could cover the bulk of its liabilities after the $10 million deductible if the policy is honored and valid. The deductible, if expensed, would have a $0.03 per share impact on pretax earnings."
Morningstar analysts also figure the public will get stuck footing most of the bill to rebuild the gas pipeline destroyed in the blast. The California Public Utilities Commission "historically has allowed utilities to book costs from natural disasters in a holding account to recover later through customer rates," the analysts wrote -- which means customer rate hikes, not shareholder equity, could wind up paying for the damage. The utility is currently negotiating for a $1.67 billion rate increase over three years, and Morningstar projects PG&E will receive at least 80% of that request.
A BP-Like Affect?
Because it could take a year before the U.S. National Transportation Safety Board issues its findings on the explosion's causes, no legal losses will likely be incurred before then, so short-term, the PG&E's prospects should be fine. The utility will have plenty of time to collect revenues from its rate increase and prepare itself for any damage settlement.
However, some pessimistic shareholders may have jumped ship now because they fear negative public relations will have a BP-like affect on the stock. Reports that residents had reported smelling gas prior to the explosion and that a section of the gas line had been flagged as "high risk" could foster negative public sentiment that could yet cause the stock to tumble in the future.