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Why PG&E Stock Just Crashed
Key Points
California will not forbid insurers filing subrogation lawsuits against electric utilities that cause wildfires.
Gov. Newsom had backed the proposal that legislators just shot down.
California electric utility stock PG&E Corporation (NYSE: PCG) crashed 19.6% through 11:50 a.m. ET Monday after a legislative effort in Sacramento to limit utilities' exposure to lawsuits from insurance companies fell apart over the weekend.
Image source: Getty Images.
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What's happening in California today
As Sacramento NBC affiliate KCRA 3 reports, Gov. Gavin Newsom was working to secure legislation that would partially insulate PG&E and similar utilities from liability for wildfires caused when their equipment malfunctions. When homes are destroyed in a wildfire, for example, homeowners claim compensation from their insurance companies -- which in turn try to mitigate their own losses by suing the electric utility they deem responsible for the fire. (Legally, the route used to do this is called "subrogation.")
The legislation in question would have prevented insurance companies from suing utilities, resulting in the insurers -- not the utilities -- bearing the cost of wildfires. Problem is, the insurers point out that if they're required to bear the full cost of wildfires that result from circumstances out of their control (and more within the control of utilities), they'll need to raise their insurance premiums, or drop insurance for homeowners in high-risk areas.
Ultimately, this argument prevailed, and legislators refused to go along with the Governor's proposal.
What's next for PG&E
The situation's not a total loss for PG&E. Compromises proposed over the weekend seek to at least discourage frivolous lawsuits by limiting the attorneys' fees that law firms receive for filing wildfire-damage suits. Also, utility company CEOs may be denied bonuses in years their companies cause wildfires.
But on the really big ask -- ending subrogation lawsuits -- they failed. That's bad news for PG&E stock, and it's why PG&E shares are down so much today.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.