Los Angeles Times - 01.08.2019

L ATIMES.COM/BUSINESS THURSDAY, AUGUST 1, 2019C3

PG&E Corp. told a judge
it “strongly disagrees” with a
Wall Street Journal story
suggesting that the utility
knew its equipment near the
ignition point of California’s
deadliest wildfire badly
needed upgrades and none-
theless deferred mainte-
nance.
The company’s response,
filed Wednesday, was or-
dered last month by a fed-
eral judge who demanded a
“fresh, forthright statement
owning up to” the accuracy
of the article.
The utility is under crimi-
nal investigation in Butte
County over the deadliest
fire in the state’s history. The
Camp fire, which raged in
the northern part of the
state for two weeks in No-
vember, killed 85 people, de-
stroyed the town of Paradise
and prompted Pacific Gas &
Electric to file for
bankruptcy.The California
Department of Forestry and
Fire Protection concluded
that the utility’s equipment
caused the Camp fire.
In the rebuttal to the
Journal article provided to
the judge, PG&E acknowl-
edged that it had proposed
replacing 60 towers on the
line that runs through Butte
County where the fire
started.
But the company said
that was for work required
to meet federal standards
and that the scope of the
project didn’t target the par-
ticular transmission tower
where the power line failed
and the fire started. It also
said that from 2014 to 2017,
only a small portion of the
fires caused by the utility
were sparked by transmis-
sion lines.

A Wall Street Journal

spokesman said the news-

paper is reviewing the filing.

U.S. District Judge

William Alsup has said

PG&E’s failure to cut and

trim vegetation and

branches was a cause of

some fires in Northern Cali-

fornia in 2017 and 2018. He is

overseeing the company’s

probation after it was con-

victed in 2016 of safety viola-

tions stemming from a 2010

gas line explosion in San

Bruno, Calif., that killed

eight people.

Alsup’s July 10 order also

cited an ABC News report

about recent political cam-

paign contributions and de-

manded that the company

disclose the full amounts

and recipients of the dona-

tions. He also demanded an

explanation as to why $5 bil-

lion in dividend payments

took precedence over man-

aging vegetation that posed

a fire threat.

PG&E said in 2017 and

2018 that it made political

contributions of $5.3 million,

paid for by shareholders and

not money from customers.

Responding to Alsup’s

concerns about dividend

payments, the utility said

revenue from customers

isn’t sufficient to support

operations and infrastruc-

ture. PG&E needs to issue

dividend payments to raise

money from capital mar-

kets, it said.

“Dividends facilitate in-

vestment in infrastructure,

because the steady payment

of dividends is essential to

raising new capital from in-

vestors,” PG&E said.

According to the Journal

article, a year before the

Camp fire, PG&E conceded

to a lawyer for California

that it needed to undertake

many projects to prevent

failures of its power trans-

mission system and that it

knew parts were outmoded.

Related to the Camp fire

specifically, “the company

knew that 49 of the steel tow-

ers that carry the electrical

line that failed needed to be

replaced entirely,” the Jour-

nal reported. The utility

started detailed inspections

of transmission lines only af-

ter the fire, according to the

article.

PG&E had delayed re-

placement of the towers on

the line for a variety of rea-

sons, including “engineer-

ing, operational and permit-

ting” issues, the utility said

in its filing.

The company said it

needed to replace the towers

to comply with federal clear-

ance standards for its lines

and the work wasn’t “to

identify and repair or re-

place worn or broken parts.”

PG&E also denied that it

began close inspections of

its transmission lines only

after the Camp fire, saying in

the filing that it conducted

ground inspections of over-

head lines at least every five

years and aerial patrols ev-

ery year when a detailed in-

spection wasn’t done.

PG&E disputes report on failing lines

Utility tells judge it

disagrees with article

suggesting it neglected

necessary upgrades in

area of the Camp fire.

bloomberg

THE CAMP FIREburns near Pulga, Calif. A Wall Street Journal story linked the blaze to maintenance delays on PG&E power lines.

Carolyn ColeLos Angeles Times

Stocks fell and bond

yields rose on Wall Street on

Wednesday after the Federal

Reserve lowered its key in-

terest rate for the first time

in a decade but left investors

uncertain about the likeli-

hood of further cuts.

The quarter-point cut

announced by the central

bank was widely expected,

so investors focused on

Chairman Jerome H. Pow-

ell’s remarks during a news

conference for hints about

the Fed’s plans.

Powell said that there

could be more cuts, but that

the central bank was not in-

tending to embark on a long

cycle of lowering interest

rates. He characterized the

rate cut as a “mid-cycle ad-

justment.”

The remarks sent stocks

into a skid that briefly

knocked the Dow Jones in-

dustrial average down more

than 470 points. Prices of

short-term U.S. government

bonds fell, sending yields

higher.

Stocks erased some of

their losses later during

Powell’s news conference,

when he seemed to shift his

message to leave open the

possibility that the Fed

would cut rates again.

“Clearly, the market is

disappointed,” said Quincy

Krosby, chief market strate-

gist at Prudential Financial.

“They wanted a more em-

phatic message from the Fed

that this was in fact the be-

ginning of a trend.”

The Standard & Poor’s

500 index declined 32.80

points, or 1.1%, to 2,980.38. It

was the worst day in two

months for the benchmark

index, which hit an all-time

high Friday.

The Dow ended down

333.75 points, or 1.2%, at

26,864.27. The Nasdaq com-

posite fell 98.19 points, or

1.2%, to 8,175.42. The Russell

2000 index of smaller compa-

nies retreated 10.99 points,

or 0.7%, to 1,574.61.

Trading was muted

Wednesday until the Fed is-

sued its interest rate policy

statement. The rate cut was

widely expected, so the mar-

ket didn’t have much of an

initial reaction. That

changed swiftly as Powell

spoke, casting doubt on the

prospects for further rate

cuts.

“The market was expect-

ing a cut of 25 basis points

with an actively dovish mes-

sage, meaning there would

be more rate cuts coming,”

Krosby said. “But once he

started to talk about the fact

that this was a mid-cycle ad-

justment ... the market al-

ways wants more.”

The 10-year Treasury

yield fell to 2.01% from 2.06%,

abig move. The two-year

yield, which is more influ-

enced by the Fed’s move-

ments, rose sharply to 1.86%

from 1.83%.

Stocks have been mostly

falling after setting records

last week. Wednesday’s

losses were widespread,

with technology, healthcare

and consumer-oriented

companies accounting for

much of the slide.

Benchmark crude oil

rose 53 cents to settle at

$58.58 a barrel. Brent crude

oil, the international stand-

ard, rose 45 cents to close at

$65.17 a barrel. Wholesale

gasoline stayed at $1.90 a gal-

lon. Heating oil rose 2 cents

to $1.96 a gallon. Natural gas

rose 9 cents to $2.23 per 1,000

cubic feet.

Index

Dow industrials

S&P 500

Nasdaq composite

S&P 400

Russell 2000

EuroStoxx 50

Nikkei(Japan)

Hang Seng(Hong Kong)

Close

Daily

change

Daily % YTD %

26,864.27 -333.75 -1.23 +15.16

2,980.38 -32.80 -1.09 +18.89

8,175.42 -98.19 -1.19 +23.21

1,966.72 -20.08 -1.01 +18.26

1,574.61 -10.99 -0.69 +16.76

3,181.29 +2.48 +0.08 +15.26

21,521.53 -187.78 -0.87 +7.53

27,777.75 -368.75 -1.31 +7.59

Major stock indexes

change change

Source: AP

MARKET ROUNDUP

Stocks sink amid

new uncertainty

associated press

The U.S. Treasury De-
partment announced plans
to maintain record debt
sales as Republicans and
Democrats continue a
spending frenzy that’s
widening the deficit even as
economic growth remains
solid.
President Trump is set to
sign legislation to suspend
the debt limit and boost do-
mestic and defense spend-
ing, pushing the annual
budget deficit over $1 tril-
lion. That’s driving Treasury
to keep its long-term debt is-
suance at a record $84 billion
for the third consecutive
quarter, the agency an-
nounced Wednesday. The
deficit was $779 billion in fis-
cal 2018.
The level of issuance tops
previous records set in 2009
when the U.S. was recover-
ing from the worst downturn
since the Great Depression.
Borrowing is surging after
Republican-backed tax cuts
that have given a lift to econ-
omic growth and helped
push unemployment to near
a half-century low. Still, the
Federal Reserve cut interest
rates by a quarter point

Wednesday, in part because

of global head winds related

to Trump’s trade war.

The bipartisan budget

deal Trump struck with

Congress will suspend the

debt limit until mid-2021.

The House passed the legis-

lation last week, and the

Senate is expected to vote on

it this week. The Treasury

Borrowing Advisory Com-

mittee, made up of dealers

and investors, urged Con-

gress to repeal the debt limit

ahead of that expiration

date, according to a state-

ment to the Treasury secre-

tary.

“The committee strongly

believes that discussions on

total borrowing are more ap-

propriately considered

when making appropria-

tions rather than when fund-

ing previously approved”

spending, the Treasury Bor-

rowing Advisory Committee

said.

The Treasury said it an-

ticipates no further changes

in issuance sizes for nominal

coupon and floating-rate se-

curities for the rest of the cal-

endar year. Yet dealers pre-

dict that sales will have to in-

crease in about 12 months.

“Treasury usually does

not go beyond three months

in its forward guidance, so

guiding through the end of

the year is a pretty strong

statement,” Stephen Stan-

ley, chief economist at

Amherst Pierpont Securi-

ties, said in a note.

The department also de-

tailed changes to sales of

Treasury Inflation-Pro-

tected Securities, or TIPS,

over coming months as it

continues plans it originally

laid out last year to bolster

its use of the securities.

The Treasury said

Wednesday that it expects

to increase the August TIPS

30-year reopening auction

size to $7 billion, raise the

September 10-year TIPS re-

opening auction size to $12

billion, and introduce the

new October five-year TIPS

at an auction size of $17 bil-

lion. The overall increases

are consistent with the de-

partment’s prior guidance,

the Treasury said.

This week, the Treasury

said it plans to borrow more

than twice as much as previ-

ously expected in the third

quarter, assuming lawmak-

ers free up spending by lift-

ing the debt ceiling.

The department plans to

issue $433 billion in net mar-

ketable debt from July

through September, $274 bil-

lion more than it estimated

in April, according to a state-

ment released Monday in

Washington. The pickup is

coming partly as the Treas-

ury seeks to bring its cash

balance up to about $350 bil-

lion, bolstering its cushion,

which it drew down amid ef-

forts to avoid breaching the

debt limit.

The Treasury has been

using extraordinary ac-

counting measures to stay

under the nation’s statutory

debt cap after the prior sus-

pension expired in March.

A Treasury official said in

a briefing Wednesday that

the department doesn’t ex-

pect any disruption in mon-

ey markets as a result of the

planned increase in bill sales

aimed at reaching the cash-

balance goal. The net

amount of bill sales at about

$160 billion is seen as within

the limits of what primary

dealers have indicated the

markets can handle and is

less than what was issued af-

ter the previous suspension

of the debt limit, according

to the official, who spoke on

condition of anonymity.

“Once legislation sus-

pending the debt limit is en-

acted into law, Treasury will

begin the process of raising

its cash balance back to lev-

els consistent with its pru-

dent cash balance policy,

primarily through sizable in-

creases in Treasury bill issu-

ance,” the department said

in Wednesday’s statement.

The Treasury didn’t say

how the coming halt of the

Fed’s drawdown of its bond

holdings will affect debt

sales. Fed policymakers are

expected to keep to the origi-

nal plan of ending the bal-

ance-sheet runoff in Sep-

tember, a Bloomberg News

survey said last month.

McCormick and Mohsin

write for Bloomberg.

Bloomberg staff writer

Emily Barrett contributed

to this report.

SUSPENSIONof the debt limit and increases in spending will push the annual budget deficit over $1 trillion.

Mandel NganAFP/Getty Images

U.S. Treasury will maintain record debt sales

The department

announces plans as

lawmakers continue a

spending frenzy.

By Liz Capo McCormick
and Saleha Mohsin