The Bottom Line Is California Won't Allow PG&E To Fail

than thirty nine percent. Joining us here in the Bloomberg Interact of Brokers Studios to lend his expertise is Kit Kneale. He is our senior industry analyst for the world of Utilities. Kit, thank you very much for being here. Total liabilities for p G and E. What kind of number are we talking about? Thirty billion? And I think that's the right range from last year plus this year. That's a lot

of money. That's more money, twice as much money as the invested equity in p G n E, twice as much as the annual revenues for pg n E. So it you know, when you look at it that way, you get a sense of just you know how you're between a rock and a hard place when you're saying they have to pay all of this if they did well. So let's just take a step back. What is p G n e S responsibility in the fires that are

currently ravage in California. In California, they have this rule called inverse condemnation, and the courts have held that if a utility equipment is in any way involved in a fire, that the utility is totally responsible for all the damages in the fire. They can't argue that somebody else had partial responsibility, or some homeowners should have done this, or some highway department should have done that. They just have

to pay it all. So that's been the real crunch that makes the California situation UH different than a hurricane in Florida, for example, where there's a long history of people saying, obviously the utility didn't cause this, so you know, we have to help them pay it back. The California legislature has a voice in all of this, right, that's right.

The California legislature, the governor, UH, the regulatory Commission. So all those are really kind of the three major UH state folks that are going to decide how this works out. And the legislature has already done something where they've indicated that the regulators are supposed to consider whether, basically whether utility is going to go bankrupt if it pays all

of the liabilities that might be assigned to it. So the legislature has said, hey, regulators, uh, you know, don't you have to pass off some of the of the liabilities or these guys can't survive financially. And yesterday we saw the head regulator in California re emphasizing that point, and that gave stockholders a kind of new lease on life and and bond holders as well from Penny. With the bonds surging and price, I have to wonder pg

NY knows that it has California hostage here. It is the biggest utility, biggest energy providers, so you know they're not going to be allowed to fail. The fact that they drew down their entire credit line and basically said all right, we're at risk of bankruptcy now forced their hands. No. Well, I think, uh, it's a good question whether they're they're that tough and cynical to be playing it that way.

You know, they're they're not. They're not hedge fun guys, right, you know, they're not necessarily uh, they're kind of hopefully running it for the long term. And also the reality is, you know there's an example, Well, if if they're running it is for the long term, I want to come in there, because if they are, they're not doing a very good job. And it's mean in terms of what sort of taxpayers are on the hook for in California,

they're not gonna be allowed to fail. They're they're struggling for sure, But look at the end of the day, even if it's the utility's fault, I mean, even if they did something drastically wrong. There's a couple of realities that California has to do with. One is the people got burned out have to get compensated in some way, so that could be in the multiple billions of dollars. The other is you have to sooner or later have

a financially viable utility. So to say, even if you say it's their fault, to say, well, they have to pay twenty or thirty billion dollars doesn't compute because then you don't have a utility that can continue to operate. Kit if you just for the sake of argument, put aside all of the inverse condemnation liabilities, the potential fifteen billion whatever it is, what's the financial operation of p g N like Well, aside from that, the financial operation

is fine. But you know, keep in mind, regulated utilities are entirely the creatures of the regulators, So their profitability, their cash flow is completely dependent on what the regulators say. It is. So if the regulators raise rates, then their earnings and cash flow go up. If they cut rates, they go down. If the regulators say, you don't have to pay these apparent liabilities, then you don't if you do so. So when people say, well, what's the company

really worth? Aside from all of this, it completely you know, it completely depends on what happens with the regulators and whether they want to let it go bank rupted or not. That's that's the end of the the end of the day what you have, and right now regulators are saying, we don't want you to go bankrupt. Kit Connolledge, thank you so much for being with us. Kit Connolledge's senior Industrials and Utilities analyst with Bloomberg Intelligence PG and E

has more than twenty two billion dollars of debt. Their prices on those bonds are rising today, although PAM I do have to wonder going forward if perhaps bond investors are not going to be as forgiving with some of these companies that can whip them around with different proclamations, if there is a situation like this that occurs. Brexit has been on the brink for a long time, but things seem to be heating up with the potential deal collapsing.

Theresa May now Prime Minister of the United Kingdom, trying to retain her control over Parliament and get this sort of deal through before the deadline. Joining us now, Brandon Brown, chief economist and head of economic research at Mitsubishi UFJ Securities, joining us here in our eleven three oh Studios Brunday, Can we just talk about what the pound is currently pricing in what scenario our markets saying seems most likely

right now? There are two scenarios, and I think the main scenario it's being priced in is that somehow this appeasement deal is going to get through, and most likely it'll get through because there will be some cross of crossing of our support from the Labor Party um to support the deal despite for Brexit opposition, with Brexiteer opposition within the Conservative Party, and why Labor would support the deal is that if the Conservatives go along with this,

they are a major risk of losing a lot of our nationalists working class support and this will probably sink for Conservative Party for the next generation. So Labor would really do well out of it. And in many ways I think what the pound is pricing in it is

suspecter of a far left government under Mr Corbin. Now there is a there is a better scenario, scenario number two, where Churchillian type figure maybe that an exaggeration emerges in in some sort of leadership challenge in the next few weeks, says that enough is enough. The Europeans have treated us terribly.

They haven't ready sat down in good faith and negotiated, and the best we can do is reach some interim and deal for the next year and then we're away, out out and under w t O rules, and that would salvage a Conservative party possibly or rarely a lot of nationalists support, and they may even win a general election one year down the road. Well, the French Finance minister said earlier today that well, he said that British politicians who campaigned for Brexit, he described them quote as liars.

Does that help May actually reach an agreement with her

own party as well as with Parliament. Absolutely not. But if you ask me what the main failure in the homemade strategy has been, it has been right from a start, not doing everything possible to get a US deal, because once they realize that the Europeans were going to be totally obdurate, as they have been in Germany and France, the obvious strategy was to take the advantage of an anti German president of the United States, anti EU, pro British to do a deal and fundamentally aligned Britain with

all American interests and policies in the Middle East and everywhere else. And May has totally failed to do that instead, in fact, she's gone for the opposite. She's been backing m mercle on Iran and all these other issues that

purposely to annoy President Trump. So I want to shift focus from Europe to the United States because what's moving markets today in in large part is FED Vice chair Rich Clarida his comments about getting to neutral and the possibility of perhaps raising rates less frequently than previously thought because of some of the head winds to growth and the fact that you are seeing a little bit of slowing given that you just wrote this book, the Case

against two percent inflation, Do you think that the FED needs to slow down now and not hike very much at all to get to neutral in order to sort of normalize, or do you think that there's still room to run. We'll let me say one or two things. Nobody knows what neutral interest rates, let alone Federal Reserve officials. And secondly, nobody knows where we are in the business cycle.

If you study any fifty or hundred year period or twenty year period, the record of Federal Reserve fine tuning and knowing exactly where we are in the business cycle is appalling, and probably at the moment, with a cheerlead leader for Trump Economics as the chief of the FED, he's probably tending to exaggerate the strength of the economy.

I mean, my view is that the growth cycle upturn, which started in the early two thousand and sixteen in the US and globally under the influence of radically easy monetary policy, has become tired, and most likely the global growth slow down out iv United States has now been joined by the United States. That is a dangerous period because growth cycle slowdowns do sometimes go into recessions and sometimes do bring about asset inflation. So we are at

a dangerous moment. I just want to note that your new book is entitled The Case Against two percent Inflation From negative Interest Rates to a twenty one century gold Standard. Do you see that happening? Well, A century is a long time in twenty one century? What what I what I do think is that the two percent inflation standard is going to blow apart sooner than most people think, even although there's not any effective political opposition to it.

And it's probably going to blow apart because in risk global slow that global slow slow down, inflation everywhere is going to be well below target, including in the United States. I think the next phase of monetary development is going to be currency war. It's going to be monetary a new period of monetary chaos in the way of the US will react to a global slowed down global slow down is going to be stepping up quite justifiably action

against current its manipulators in Europe, Japan, and China. We look forward to you in the future guiding US through those issues. Thank you very much. Dr Brendan Brown. He is the chief economist and head of economic research for Mitsubishi UFJ Securities. He's also the author of the case against two percent inflation from negative interest rates to a one century gold standard. We have an expert in the

world of food, Adnan Durrani. He is the founder and the chief executive of Saffron Road and he has a diverse and storied list of experiences in the food industry. For example, he managed to sell what was at the time the second largest bottled water company in the Northeast. It was acquired by cot Averages. I'm speaking about Vermont Pure and Crystal Rock. And he joins us here in studio. Thank you very much for being here. Thank you very much for having me. It's honor to be on your show.

Tell us a little bit about halal food and Saffron foods and how this all came together. Give us a little of your history. Sure so, uh, I'm kind of, I guess, both a serial immigrant and a serial entrepreneur. And this started with the idea of the Silk Road, which was you know, went all the way from Italy to Asia and celebrated a hundred different cultures on that road,

and so we thought, let's create a journey. Let's create a brand around Royal cuisines where they can be used as an enlightenment tool to bring together people of different faiths, different ethnicities, different cultures and celebrate their cuisines. And so the zafron was the main spice used on the Fron Road. So that's how it really came together as kind of a social model. And halal food, you know, is is a huge business outside US. It's a two trillion dollar

industry outside US. And halal has to do with not only how was it harvested, but how the animals treated while they were living. It's very similar to kosher. But we knew that there was a very strong demographic in US for that, and that's why we launched that. That's not our core consumer necessarily, it's one of the elements of our brand. Well, yeah, that's what I was gonna say.

When I think of Saffron Road, I think of major supermarkets, I think of whole foods, I think of you know, aisles where it's not just people who are looking for halal food, but they're looking for Middle Eastern food. They're looking for Indian food. So can you talk a little bit about your distribution, your expansion, especially now as there's a more nationalistic tone in the United States. Very good question, Lisa. Yes, we started out obviously serving the Helala community, which is

around six or eight million American Muslims. Very educated. It's not like you have in Europe sent higher education than the average American as well as very high income. So it's it's really when you think about your technology engineers and all of that, that's really the demographic that's here. So that's a marketer's dream, right, But our consumers are not even ha consumers. There are consumers that are part of the natural organic movement or what we call NASH

natural Organic, sustainable, healthy living lifestyle today. Food in our opinion, especially millennials who are about sixty or seventy pc of our demographic, look at food tribes and so we're part of this natural organic food tribe. And this is my

fourth food company in the natural organic sector. One of them was Stony Field Farms yogurt I mean I for thirty years have been devoted to businesses that are social responsible to the environment, and so we say journey to better and what we mean by that is journey to better ethical values around food. Journey that's a better for the farmer's journey that's better for the the animals of livestock, and journey that's better for the food system that brings

you really healthy food. So since that's our starting point, we were able to distribute nationally. We're in twenty thousand stores all over the country, all fifty states. We're the only national hall band as well. But that's because of our standards. Uh. You know, Whole Foods was our initial partner. We were the first uh non JEMO verified TROS and nottre in the world. We're the first certified humane entree

in the world. So what we were doing was really trying to lift and elevate the ethical values around food that's offered in the supermarkets today. There are many legacy brands that are having trouble in the food aisle and in the what I would call the frozen case, the frozen aisle, because frozen food it doesn't it gets a bad rap. But you've been very successful in that line with your entrees, with your balls, you make it very

clear no antibiotics. Ever, how is that business doing and tell us how yours is different than many of the well known legacy brands. Sure, that's a very good point, Biman. What's happened in the food industry, And having been in this industry thirty years, I never thought I'd see this happen in my entire lifetime. But last year, Boston Consulting Group in IRI but out of study that said that forty of the growth of the eight hundred billion dollar

food and beverage industry is coming from small brands. That was a shocker. That was a wake up call. It was a wow moment. I think for the big CP Geese, they're not succeeding because they haven't pivoted into this category in a mindful, authentic way. What we do is we don't just you know, we don't just come up with these certifications as a marketing element, although it's a smart marketing element if you're authentic to it, it's because that's

that's our value system. And so millennials today are very viral. They go online, they check out everything about the brand, they check out everything about the products. So you have to be bulletproof in terms of transparency, which a lot of big CPGs aren't. We've been able to disrupt and become a modern challenger brand. We single handedly lifted whole food sales in frozen National Organic for the last four years about a year um and most of the other

brands were suffering terribly. Now a lot of the big brands, the CPGs have started to pivot into this category and they're getting zoomer. Package goods companies have started to really pivot into this category in a in a good way, and they are cleaning up their products. That's part of our mission right is to really it's also to bring them along, you know, to really change the foods system because a lot of what they're looking at us through the river view mirror. We keep looking forward how to

completely lift our standards every year. You know, when you talk about being sustainable, I think about some of the effects of climate change that we've seen recently. Has there been anything yet that has forced you to change your supply chains as a result to UH as a result

of change in weather. Absolutely, we're always looking for partners, whether it's the farms resourced from or whether it's a particular vendors that we choose that are dedicated to the same values that we're dedicated to so for example, UH, we we have a line of very successful organic snacks, chickpie snacks. We're the only ones that are fair trade certified. We have a dark chocolate and dark chocolate chai. I

brought them for you and him to try to sample. UH. We also look very carefully at what are their standards around UH labor, what are their standards and their facilities, and we do audits on them. So we're very careful with that. We also think that you know, we we've been changing our packaging and there's a big movement towards more environmental packaging as well. Is the is the halal food more expensive? Because we talk about organic food being

more expensive than non organic food. Is there a real price point difference? Halal is not quite there yet because kosher is um because when the Kosher certifiers and the Ruth scholars came here, they did a wise thing for years ago, they set some standards. Right now, there's a lot of different standards. I think halala still in early stages, even though it's a pretty huge market. UM. So I think once they set those standards will start to see

the price movement upward. But right now there's a slight premium. It's not really that significant. The more significant is really the natural organic sustainability. Thank you so much for being with us. Really a pleasure having you at Non Drani, founder in chief executive of Saffron Road, long time entrepreneur and uh and traveler, and and really the flavor is getting into stores around the country and around the world.

Paym Definitely interesting to sort of see how even if there is sort of more protectionist rhetoric, there is an ex more expansive taste for different cultural foods. So that's something that is sort of a uniting factor topic Brexit. UK Prime Minister Theresa May has just named the pro Brexit Stephen Barkley as her new Brexit secretary. He his remit will be to concentrate on preparing legislation, while talks between the European Union and the United Kingdom will be

handled by May's team in her Downing Street office. Now, this basically strips the Brexit Department of a key part of its job. Here to tell us more about what's going on with Brexit is Terres Raphael Bloomberg Opinion editor. Terres, a pleasure to have you with us. Coming to us from London. Your most recent column about Brexit says, the

problem isn't Theresa May, it's Brexit. What do you mean, Well, it's not to say that Theresa May hasn't made a whole lot of mistakes in the last two years since triggering uh, well year and a half since since triggering Article fifty. But you know, the the key problem here is that Britain has to make some pretty big compromises if it wants both access to EU markets and the um you know, freedom from EU rules and institutions. It

really can't have both. Now, May's mistake was sort of telling both remainders and levers that they could have mostly what they wanted, and not quite being clear with them that that there would be some tough decisions to be made. And now you know that time has run out. She's got a deal back from Brussels. Everyone is upset about it. Yes, everybody is upset about it. Does that mean it's a good deal? Um, I don't think. I don't think anyone

can really call it a good deal. What what we could say about is it's probably the best she's going to get and it is far preferable UH to have this deal than to have no deal at all, because no deal at all, um is you know, it's a disaster for the UK economy. It literally means, you know, planes don't take off unless um, there are some very last you know, minute agreement's made. It means you know, stockpiling medicines. Um. It's a whole lot of uncertainty and

a and a whole lot of grief. So you know, this is this is a deal that you use offering. Uh, they don't want to talk any further about it. There may be some very marginal concessions left to be wrung out. Some in May's cabinet are now working to see if they can go and try to salvage this in a way they could sell it to Parliament. But this is pretty much as good as it gets for her now. And the question is can she sell it to her parliament.

Based on your reporting and your conversations with people close to the whole Brexit negotiations, do you believe that Brexit is being used as a political weapon against the Prime minister and that, as you said earlier, this is as good as it gets and she was handed a pretty lousy hand of cards to play. She did not call the Brexit referendum. Did she know? And in fact she was a Remained supporter. She wasn't an enthusiastic Remains supporter. But once that vote, um, you know, was decided, it

went for Leave and she became Prime Minister. She said, I'm going to deliver the best Brexit I can. I mean, there's no doubt this is political Dominique rob her Brexit secretary, resigned, having taken the job to negotiate the deal, having stayed on while that deal was being negotiated, having accepted while she presented it to cabinet, And you know, there are a lot of people out there think, well, you know, he he resigned thinking that it's not going to go

through Parliament and he wants to be party leaders. So they're political machinations mixing with this huge generational, historical, uh decision change that Britain is going through. So it's it's very hard to separate the two. And it's, you know, kind of what complicates the whole thing. British public opinion. Give us a window onto what the British population thinks. Okay, so the public opinion seems to have been shifting recently, and there was a poll out recently that showed an

eight point shift towards remaining. So if you were to have a straight in out vote right now, uh, many people think that it would go the opposite way, and maybe by a larger margin than eight. The problem with that is you don't really know what people are going to do until you call a vote and you have a campaign and a lot there's a growing sort of chorus of voices saying, let's have a second vote. But

what do you ask? Do you put a remain option on the ballot, and that would be you know, completely unacceptable to brexitters, who said, well, you know, the people have already told us what they want, they want out. We can't then ignore the first vote. So do you put a deal or no deal option on the ballot, in which case Parliament and says, well, what if they vote no deal? It's always possible because you don't know how this is going to play out in campaign, So

it's a tricky question. I think it's not impossible it will get to another referendum, but I don't really see the way through now, given the difficulty and figuring out what's on that ballot. Just give you about twenty seconds terres Tony Blair coming out today talking about Brexit. He says it's the worst of both worlds. Does that help Theresa May at all? PIM Tony Blair would get a standing ovation if he was on Capitol Hill right now.

He has not loved in Britain. Um, it's there's actually a real it's almost when he speaks out, Um, it really hurts his cause. Uh, maybe that's mellowing a little bit of a Former Prime Minister John Major has also been speaking out, but I'm not sure it helps that much. Thank you very much for being with us as always, Terres Raphael Bloomberg Opinion Editor. Once again, the news is that Prime Minister Theresa May will be taking direct control

of Rexit negotiations. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa abramowits one before the podcast. You can always catch us worldwide on Bloomberg Radio.