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After Years of Fires, PG&E Relents: It Will Bury Its Power Lines.

Illustration by Elias Stein

Shares of California utility PG&E took a beating this past week, cratering 13% on Monday, after the utility admitted in a regulatory filing that a blown power fuse might have ignited the Dixie Fire ravaging Northern California. Then on Wednesday, PG&E announced that it would spend billions to bury power lines, a step it previously had rejected as too expensive. The shares fell another 1.8%, to $9.32.

Analysts weren’t surprised by the announcement. It was “definitely an expected filing from them,” says Guggenheim’s Shariar Pourreza.

Many consider “undergrounding”—replacing overhead cables with underground lines—a necessary step, given the state’s dry-as-tinder forests. “If California politicians and officials are serious about preventing future fires linked to utility-owned equipment, this represents the only realistic long-term solution,” says Mizuho analyst Paul Fremont. The project will cost around $1.5 million to $2 million per mile of cable, says Pourreza, or $15 billion to $20 billion over 10 years.

PG&E filed for bankruptcy in 2019 after its power lines sparked the Camp Fire that destroyed the town of Paradise and killed 84. The utility emerged from bankruptcy last year after settling $25.5 billion in liability claims.

Who will shoulder the new costs? Pourreza thinks mostly customers. The hope: The upfront outlays will eventually reduce maintenance, not to mention litigation. Pourreza has a Buy rating on PG&E, but admits there’s “lots of externalities that have caused it to weaken.” What, he asks, “if wildfires cause incremental liabilities shareholders have to absorb?” Good question.

Last Week

A Bad Start, a Good Week

Stocks dove, in the worst decline in 2021, to begin the week, as worries crested about the Delta variant, global growth, and record indexes. Bond yields, oil prices, and Bitcoin also fell. But earnings were strong, and the indexes rallied, hitting highs on Friday. On the week, the Dow Jones Industrial Average rose 1.1%, to 35,061.55; the S&P 500 gained 2%, to 4411.79; and the Nasdaq Composite soared 2.8%, to 14,836.99.

Delta on the March

Cases of the Delta variant rose, as calls to don masks began. U.S. vaccinations have fallen to about 550,000 a week from three million. The White House blamed social media for vaccine misinformation and said some 99.5% of hospitalizations and deaths from Covid are of the unvaccinated. On Monday, when England dropped Covid rules, United Kingdom Prime Minister Boris Johnson had to self-isolate after his health minister, who had two shots of the AstraZeneca vaccine, developed symptoms.

An Oil Deal

After weeks of talks, OPEC+ lifted output by 400,000 barrels a week. It was a victory for the United Arab Emirates, which had sought to expand production. In other U.A.E. news, real estate magnate Tom Barrack and two others were indicted, accused of serving as agents of the Emirates with the Trump administration.

Hack, Counterattack

The U.S. and close allies accused the Chinese of hiring criminal gangs to engage in a hacking, including an attack on Microsoft email last year that hit 30,000 organizations. Separately, the U.S. Department of Justice unveiled an indictment of four Chinese nationals from the Ministry of State Security for hacking operations in 2011 to 2018. A group of media organizations found that surveillance software from Israel’s NSO had hacked smartphones, including some from Apple.

Bezos in the Blue Yonder

Former Amazon.com CEO Jeff Bezos blasted off in Blue Origin’s New Shepard spacecraft with three other “guests,” rising 66 miles before parachuting back to Earth. The automated craft had no crew and, like Richard Branson’s flight nine days earlier, experienced a few minutes of weightlessness.

Annals of Deal Making

Zoom Video Communications agreed to buy cloud-based call-center company Five9 in an all-stock deal for $14.7 billion…Bill Ackman’s SPAC called off a 10% investment in Vivendi’s Universal Music after regulators raised issues and investors showed little interest. Ackman’s Pershing Square then agreed to buy the stake. Vivendi plans to take Universal public in September…GlobalFoundries’ CEO dismissed merger talks with Intel. The Wall Street Journal had reported that Intel was talking to Global’s owner, Abu Dhabi’s Mubadala Investment, on a $30 billon deal. The chip maker said it would seek an IPO and talked up U.S. expansion…Robinhood hopes to get a market cap of $35 billion in its IPO this week.

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