PG&E Bankruptcy Tests Who Will Pay for California Wildfires

By Ivan Penn, Thomas Fuller and Lisa Friedman, THE NEW YORK TIMES

January 14, 2019

LOS ANGELES — Pacific Gas and Electric said on Monday that it would seek bankruptcy protection as “the only viable option” as the giant California utility faces billions of dollars in liability claims from two years of deadly wildfires.

The company’s troubles pose a challenge to the state’s elected officials and regulators, who will ultimately decide whether part of the solution will be raising already high electricity rates. The problems could also make it harder to achieve California’s ambitious goals for renewable energy.

Fire investigators determined PG&E to be the cause of at least 17 of 21 major Northern California fires in 2017. It is also suspected in some of the 2018 wildfires that have been described as the worst in state history, including one that killed at least 86 people and destroyed the town of Paradise.

Experts said PG&E’s predicament could be an early indicator of a wider economic toll from climate change, which is making wildfires more frequent and destructive. At the same time, the financial straits could handicap the utility’s ability to step up the kind of preventive measures it has been faulted for neglecting, like trimming trees and brush around power lines and transformers.

For Gov. Gavin Newsom, who took office last week, the bankruptcy disrupts an agenda that until now had focused on early childhood education, paid parental leave and the expansion of the state’s health care program to cover more undocumented residents.

Mr. Newsom said Monday that he had been “in constant contact throughout the week and over the weekend” with the company and regulators. “Everyone’s immediate focus is, rightfully, on ensuring Californians have continuous, reliable and safe electric and gas service,” he said.

PG&E said it faced an estimated $30 billion liability for damages from two years of wildfires, a sum that would exceed its insurance and assets. The bankruptcy announcement, in a filing with federal regulators, led the company’s shares to plunge more than 50 percent.

The shares had already lost almost two-thirds of their value since a wave of wildfires in early November, and its bond rating had been downgraded to junk status by two rating agencies.

California’s utilities have been seeking favorable regulatory and legislative support to guard themselves against wildfire liability — but none more than PG&E, the primary gas and electricity supplier to the northern half of California, serving about 16 million customers over 70,000 square miles.

After intense lobbying, the state’s investor-owned utilities, which include Southern California Edison and San Diego Gas and Electric, won a legislative shield from having to bear the cost of 2017 fires. The law allows them to pass the cost of wildfires to their customers in the form of higher rates.

Now they are seeking the same for last year’s fires. State law requires them to compensate property owners for fire damage caused by their equipment, regardless of whether negligence is proved.

Consumer and environmental groups called the bankruptcy decision part of a series of threats and pressure by PG&E on lawmakers and the governor to give the company whatever it wants. “It’s high brinkmanship with the Legislature,” said Jamie Court, president of Consumer Watchdog, an advocacy organization. “I think it’s about hostage taking.”

The utility companies acknowledge that they may bear some responsibility for wildfires but say not all of it, because climate change and development in remote areas have made blazes more destructive.

Indeed, energy experts said PG&E’s intention to file for bankruptcy was one of the first major financial casualties from climate change — and far from the last.

Rising global temperatures driven by man-made greenhouse gas emissions are drying out Western forests and leading to more intense and long-burning wildfires. But that’s just one of the risks that utilities and other major entities are starting to confront.

The National Climate Assessment, a broad government report on climate change released last year, found that every part of the country’s energy infrastructure will be stressed by droughts, heat waves, rising seas and fiercer storms.

“Today PG&E is confronting this risk from wildfires,” said Michael Wara, director of the Climate and Energy Policy Program at the Woods Institute for the Environment at Stanford University. “Tomorrow it could be insurance companies or state governments that are overwhelmed after an unexpectedly intense hurricane or series of hurricanes.”

Some see an opportunity for Mr. Newsom in the current crisis to mitigate future fire risks by requiring more safeguards for power lines, like burying them underground.

The California Public Utilities Commission, which regulates PG&E, could play a key role. Mr. Newsom has a vacancy to fill on the commission, and he could make his appointee its president, potentially determining whether the agency will tilt toward consumers or the utilities in its approach.

The company’s safety culture has been under scrutiny since it was found at fault in a natural-gas explosion in 2010 that devastated the San Francisco suburb of San Bruno and killed eight people. PG&E was fined a record $1.6 billion by the state for failing to maintain its pipeline system properly, and it paid $900 million to resolve lawsuits related to the explosion.

Public anger over the utility’s efforts to shield itself from wildfire liability boiled over at a November meeting of the commission, which protesters disrupted with chants and signs reading, “No PG&E bailout!”

PG&E will need the commission’s approval for any bankruptcy plan that would impose new costs on ratepayers. One possibility is that another utility company would take over all or parts of its business.

Part of the company’s reorganization will include replacing its chief executive, Geisha Williams, who had led the corporation since 2017. On Sunday, PG&E announced her departure and a search to fill her job, which for the interim will be held by John Simon, the company’s general counsel.

The bankruptcy will allow PG&E to renegotiate its contracts with its electricity suppliers, which could hurt solar and wind farms that might struggle to make money and repay debts if they are forced to accept lower prices.

The announcement may also lead to more calls for electricity services in some areas to be taken over by local governments.

Dennis Herrera, the city attorney for San Francisco, where PG&E has its headquarters, mentioned the possibility of a publicly owned utility to ensure affordable and reliable power. He said his office would “remain vigilant” that the company would not “shift its failures onto the back of hardworking residents.”

PG&E’s filing with the Securities and Exchange Commission on Monday said the company planned to ask a court for bankruptcy protection “on or about Jan. 29,” saying the move was “ultimately the only viable option to restore PG&E’s financial stability to fund ongoing operations and provide safe service to customers.”

The filing noted that the company was required to give employees 15 days’ notice of such a move, under a recently passed California law.

Tom Dalzell, business manager for the International Brotherhood of Electrical Workers Local 1245, and the utility said workers would not be affected by the bankruptcy. In fact, Mr. Dalzell said the union supported the bankruptcy effort as a way to ensure that the workers were treated fairly at a time when, he believed, undue criticism was being aimed at PG&E for its fire prevention efforts.

“There are minor electrical failures that happen at every utility that cannot be engineered out,” Mr. Dalzell said. “There are 1.1 million trees trimmed a year that our members do.”

But a judge in the United States District Court for Northern California criticized PG&E for its safety violations and issued an order Wednesday for the utility to “reinspect all of its electrical grid and remove or trim all trees that could fall onto its power lines.” A hearing is scheduled for Jan. 30.

PG&E has filed for bankruptcy once before, after a botched deregulation move by the state in 2000 and 2001 resulted in blackouts and soaring electricity rates.

Garry South, a longtime Democratic political consultant who worked for Mr. Newsom when he was mayor of San Francisco, was the chief political adviser to Gov. Gray Davis during the earlier energy crisis.

“This will be the first crisis that Gavin Newsom faces as governor,” Mr. South said. “How a governor acquits himself when a crisis likes this hits really has an effect on how people view him as a leader.”

Ivan Penn reported from Los Angeles, Thomas Fuller from San Francisco, and Lisa Friedman from Washington.

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