PG&E's (PCG  ) stock has been in freefall since late-2017. Currently, it trades around $7.50, a nearly 90% decline from its peak. Notably, that period was quite positive for utilities in general given that interest rates moved significantly lower as well. For instance, the Utilities ETF (XLU  ) was up 20% over this timeframe.

However, this isn't PG&E's first brush with bankruptcy. In 2001, the company was unable to meet its obligations, and the state was forced to take over the company. That time, the catalyst was a drought which led to decreased hydropower output leading to rolling blackouts across the state. PG&E was forced to buy electricity from out of state to make up the difference at a much higher cost.

Further due to state regulations that fixed prices utilities could charge, it was unable to pass on the higher costs to customers. In a short time, the company was forced into bankruptcy, and the state took it over. A few years later, the company emerged from bankruptcy with an agreement that it could charge its customers higher rates.

2017 and 2018 Northern California Fires

There are many parallels to that episode and the current one. This time, the catalyst for PG&E's decline was the raging wildfires in Northern California in 2017 and 2018. The company has been found liable for contributing to these fires due to faulty electrical equipment. Of course, the fires were exacerbated by drought and dry conditions.

Due to California's "inverse condemnation" laws, PG&E was held liable for the fire damage it caused. The company has been waging an intense legal battle to evade or reduce fines and penalties. These are estimated to be between $20 and $30 billion which dwarfs the stock's current market capitalization of $4 billion. Importantly, applying "inverse condemnation" means that the utility cannot raise rates to make up for shortfalls which essentially penalizes customers for the utility's error.

The stock's price action clearly shows these efforts have not been successful. Recently, PG&E's latest challenge failed as a judge ruled that "inverse condemnation" did fully apply in this case. Therefore, it's fair to assume that the stock's downward trajectory will continue.

Given these difficulties, PG&E has already stopped making interest payments on junior levels of debt. Currently, PG&E has around $18 billion of debt outstanding. It seems unlikely that the company will be able to meet these obligations given that liabilities have ballooned and paths to revenue growth are shut off.