How Utility Stocks Got Risky

Climate change and PG&E’s fall force investors to rethink a once-stodgy sector

- Jim Efstathiou Jr. & Chris Martin

It wasn’t so long ago that investors saw utilities as safe, boring, and modestly profitable. With dependable revenue from monthly electric bills and regular dividends, they were a favorite among penny-saving retirees and portfolio managers wanting to hedge against volatility in the broader market.

That was then. Things began to change with the deregulation of the 1990s, but global warming and rooftop solar panels have also steadily been chipping away at the notion that the sector is a safe haven. And now there’s PG&E Corp.: California’s largest utility owner filed for Chapter 11 on Jan. 29 in the face of as much as $30 billion in potential liabilities from wildfires that killed more than 100 people in the state in 2017 and 2018.

“It has absolutely become more complicated to invest in utilities,” says Jan Vrins, head of the energy practice at Navigant Consulting Inc. “The energy transformation is accelerating.” For a start, utilities are having to figure out how to navigate the rise of renewable energy sources. Utilities that invested heavily in giant nuclear and coal plants have found themselves saddled with mounting costs from generating facilities struggling to compete against cheap natural gas and wind and solar farms that have seen costs plunge.