Why only activist hedge funds are interested in PG&E

Bloomberg today reports that California Governor Gavin Newsom wants Warren Buffett’s Berkshire Hathaway to buy PG&E out of bankruptcy.

Right now, the only parties interested in the epic shitshow that is PG&E are investment company Pimco and activist hedge fund Elliott Management Corp. Why are these the only bidders for Old Sparky?

Literally the only positive thing PG&E has to offer potential buyers is millions of captive users who now hate the utility with the fire of a thousand suns.

The utility has gone for many years now investing in “green” projects at the expense of maintaining existing infrastructure. Any buyer for the utility would be acquiring a bunch of networks that are beyond their useful life. That means they have no positive value, only unrealized costs.

Of course, the problem is not only that most of the company’s equipment needs to be replaced. It’s that the equipment is a legitimate on-going fire hazard that is impacting ever more populous areas. The Sonoma fire, which may have also been caused by PG&E equipment, has now burned an area the size of Baltimore and forced 200,000 evacuations. It was a smaller fire that sent the company into bankruptcy.

Ideally, utilities submit to mountains of government regulation because they are a natural monopoly. Having a monopoly that fails millions of people is a recipe for a humanitarian crisis.

But the governments in California did not use their regulatory authority to force utilities to maintain safe and stable systems. In fact, they did the opposite. The climate alarmists in California redirected investment away from productive efforts toward their pet political priorities. They destabilized a natural monopoly and millions of people will suffer for it.

Right now, PG&E estimates that it will take 10 years before the threat of rolling blackouts has passed. Ten years! I’d joke “will the last company in Silicon Valley turn out the lights,” but PG&E already turned out the lights.

Whoever decides to be PG&E’s bagholder is not going to be acquiring any solid assets, only liabilities and deaths that have not materialized yet. You’ll dump a lot of money into a company that will likely only hit the bankruptcy court again. And your name will be associated with one of the worst brands in American history. And you will be trying to push capital improvements past people who think these fires are the result of climate change and we are all going to die in 12 years. You know, the same people who built this crisis in the first place.

Good luck to anyone dumb enough to take that project on. But I doubt it will be Warren Buffett, unless he views it as a charity case.

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