Should We Break Up PG&E?

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Or should we turn the scofflaw company into a public agency?

By Alastair Bland, EAST BAY EXPRESS

February 20, 2019

When thick smoke and ash from the Camp fire blanketed the Bay Area last November for 12 days, N-95 masks flew off of store shelves, and journalists, politicians, and pundits labeled California’s latest wildfire disaster, “the new normal.” Then-Gov. Jerry Brown called it, “the new abnormal.”

Indeed, one inferno after another has left scores of Californians dead since the turn of the century. As climate change worsens, most of California now dries to a crisp each summer, and wildfires are an unavoidable element of the environment. Plus, the state’s human population is exploding and continuing to move into wildland areas, creating more opportunities for fires to start in the first place.

But California’s increasingly hot and arid climate and its changing demographics aren’t solely to blame. Since 2010, when a gas line exploded and killed eight people in San Bruno, politicians and consumer advocates have increasingly pointed the finger at Pacific Gas & Electric Co. That 2010 incident resulted in a $1.6 billion fine for PG&E in 2015 and two years later, six felony convictions when a federal jury found the company guilty of intentionally bypassing safety protocol when maintaining its pipelines.

But that deadly blast, and the shaming and scolding PG&E received from state regulators and media, hardly motivated the company to regain the public’s trust, and in the years since, its public safety record has crumbled. According to state investigators, deferred maintenance on PG&E’s electrical lines and slack efforts to cut back vegetation resulted in the 2015 Butte fire and at least 17 fires in 2017. Now, evidence shows that failed aging electrical equipment also likely caused last November’s catastrophic Camp fire, which destroyed the town of Paradise, killed 86 people, and has prompted a class-action lawsuit against the utility that could render it liable for tens of billions in damages and has forced it into bankruptcy.

PG&E’s unbroken pattern of negligence, lies, and disasters also is prompting serious questions about whether there is a safer way to provide gas and electricity for California’s residents, millions of whom live scattered across rural, wooded areas. While PG&E has claimed that the changing climate, by causing higher temperatures and gustier windstorms, is making it impossible to safely run an electrical grid, some critics say PG&E’s own actions are more at fault.

Already, their calls for radical changes in the company’s structure seem to be producing results. PG&E replaced three top executives in early January, on Jan. 13, the company’s CEO resigned, and on Jan. 29, PG&E filed for Chapter 11 bankruptcy protection, which will allow the company to keep operating while it devises a plan to deal with its massive debt.

But state Sen. Jerry Hill, D-San Mateo, whose district includes San Bruno, wants sterner action. “I think some of PG&E’s executives should possibly go to prison,” Hill said in early January, days before the replacements.

Amid a storm of criticism and blame, PG&E insists its chief priority is safety. “PG&E’s most important responsibility is public and workforce safety, and we are committed to providing safe and reliable energy that our customers expect and deserve,” wrote Paul Doherty, a PG&E spokesperson, in an email.

That’s what PG&E has been saying for years, of course, and not everyone believes it. Now, even the California Public Utilities Commission — widely accused by critics of going too easy on PG&E — is bullying forward. In December, the regulatory commission presented a laundry list of possible actions against PG&E, with the explicit goal of reducing risks of yet more devastating wildfires.

One idea is to divide PG&E’s energy production and its energy delivery sectors into separate companies. The CPUC also has proposed dismantling PG&E into multiple entities, as well as reshaping it into a publicly owned utility, like the East Bay Municipal Utility District, Alameda Municipal Power, and the Los Angeles Department of Water and Power. This could give the people of California more control over PG&E’s management decisions and procedures and, perhaps, ultimately save lives.

But CPUC President Michael Picker questioned in a December press statement whether “any of the proposals provide Northern Californians with safer natural gas and electric service.”

They might not. UCLA professor of ecology and evolutionary biology Jon Keeley argues that the increasing concentration of humans on the landscape is the underlying culprit behind the overall uptick of wildfires in California. “Climate change is exacerbating the problems, but population growth is a more direct cause,” Keeley said, explaining that more people living in wildland areas means more potential ignition sources.

Still, many lawmakers, officials, and activists think utility companies could, if they had the will, be operating relatively safe electrical grids. “The fact is, there are state laws on managing vegetation around electrical lines, and PG&E is failing to meet those minimum standards,” said state Sen. Bill Dodd, D-Napa, who has called for a replacement of PG&E’s executives but also authored legislation that could provide a cash handout to PG&E if it begins to buckle under financial stress.

One explanation for PG&E’s habitual disregard of the law could be its financial structure: Shareholders own stock in the company. Activist Jamie Court, president of the group Consumer Watchdog, thinks this arrangement corrupts day-to-day operations and obligations. “They care more about profits than public safety,” he said, “and it makes sense that a publicly owned PG&E would care more about homeowners and the ratepayers who are endangered by fires.”

Court wants to see PG&E gutted and entirely overhauled, and he said he hopes Gov. Gavin Newsom will help drive this change with strategic replacements and appointments of public officials.

Some things in California can be predicted, like the fact that every summer will be bone-dry in most of the state. Much less certain is who will be running the grid — and how — when the 2019 fire season begins.

If anyone other than PG&E’s shareholders wind up footing the bill for the utility giant’s errors, PG&E may have Sen. Dodd to thank. He is the author of Senate Bill 901, legislation signed into law in September that allows PG&E to pass some level of costs incurred from 2017’s fires and any that occur this year — though not from 2018 — on to ratepayers. The bill’s critics call it a “bailout,” because it’s possible that PG&E will fold without it.

“I don’t like calling it a bailout,” Dodd said. He explained that the law is much more than a gift to keep PG&E afloat. It is a tool, he said, for stabilizing PG&E’s fiscal problems and allowing the company to improve its internal operations and make the grid safer and more reliable.

The law basically requires PG&E to pay all that it’s able to on its own before turning to its customers to shoulder the financial burden. Dodd said allowing the company and its shareholders to bear too great a financial strain — what many see as due justice for the utility — would ultimately impact, more than anyone, the public. Such circumstances, he said, would probably impair and worsen PG&E’s ability to manage a safe electrical grid. He said there might end up being more fires, rates could spike for customers, and wildfire victims expecting reparations might be left emptyhanded.

But SB 901 rides on the assumption that PG&E, when handed large volumes of cash, will put it to proper use — something Mark Toney, executive director of consumer group The Utility Reform Network, or TURN, doesn’t believe PG&E will do. “TURN has lost all confidence in the current PG&E leadership and believes that we will not get safe, reliable, clean, affordable energy until the current board and management is replaced,” Toney wrote in an email.

Nor does Sen. Hill believe PG&E can be trusted with a large public subsidy. He said he has “no faith in” PG&E’s ability or even its willingness to improve operations.

If Californians distrust PG&E, it’s the company’s fault. PG&E’s pattern of willful neglect of responsibilities and laws are soundly documented. The company has repeatedly dodged doing repair work and maintenance, sometimes after receiving and allocating money for the work.

For example, a jury found PG&E guilty of 739 counts of criminal negligence in a trial following 1994’s Trauner fire, which destroyed 12 homes in Nevada County and which the CPUC determined was caused by a failure to trim vegetation around electrical equipment. An investigation by the CPUC found that, in the seven years prior to the fire, PG&E steered $495 million intended for facilities maintenance to corporate uses.

An internal audit conducted by PG&E in 2008 found that a company policy of rewarding regional managers for maintaining leak-free gas lines had led to falsified reports that gave an impression of flawless infrastructure. Two years later, the underground gas main in San Bruno exploded, killing eight people and prompting a storm of media criticism and public shaming, as well as a damning trial and jury verdict. Incredibly, in the midst of this fracas — and while San Bruno was still recovering — PG&E continued to produce bogus inspection and safety records, revealed in December by a CPUC report.

Last year, in late August, immediately after lawmakers approved Dodd’s bill and sent it to the governor’s desk, PG&E released a statement that called the legislation “a common-sense solution that puts the needs of wildfire victims first, better equips California to prevent and respond to wildfires, protects electric customers, and preserves progress toward California’s clean energy goals.”

Barely two months passed before the Camp fire erupted. An old PG&E transmission line appears to have caused California’s deadliest and most destructive fire.

Climate change has given PG&E an alibi. The company has blamed warmer temperatures and more powerful windstorms for making it more difficult to prevent wildfires. The argument creates an almost bulletproof shield in California’s super-green political climate, where state officials and the media have repeatedly called the changing climate and alarming trends in wildfires “the new normal.”

Numerous scientists have stated as much: that drought, exacerbated by global warming, has heightened California’s wildfire risks. In other words, utilities can’t be held 100 percent responsible.

Susie Kocher, a forestry advisor with the UC Cooperative Extension program, said in an email that recent trends in worsening wildfires will continue, both because of an “actively warming” climate and “because we aren’t managing the landscape enough through tools like tree thinning, prescribed burns, and targeted livestock grazing.

“I’m sure the grid could be managed better, but the landscape needs to be managed, too,” she added.

PG&E spokesperson Doherty said the company is facing increased difficulties and dangers due to global warming patterns. “Fire season is now extended due to prolonged periods of high temperatures, extreme dryness, tinder-dry grass, and record high winds increasing the number of wildfires fires and making them more dangerous,” he said.

But some PG&E critics say the company’s climate change rhetoric is a PR strategy to displace blame. “In 2017, PG&E did a great job of diverting the conversation to climate change and weather, high winds and low humidity, but as we all know, it takes a spark to cause a fire,” Sen. Hill said.

Toney said that, even in a changing climate favorable to wildfire conditions, “we absolutely have the right to expect any utility to comply with safety regulations, and PG&E isn’t doing it.”

Investigations by the CPUC and the California Department of Forestry and Fire Protection, or Cal Fire, have found that PG&E has cut corners on equipment upgrades and maintenance, has ignored laws requiring that power line operators trim back encroaching vegetation, and has submitted falsified reports, in spite of constant scolding, fines, and punishment. Decisions like these caused at least 17 fires in 2017, officials have concluded, leading to numerous fatalities. Toney observed that it was the same spirit of negligence and calculated deception that caused the San Bruno gas line explosion. “And you can’t blame that on climate change,” said Toney, who believes a radical overhaul of PG&E will be necessary to protect Californians.

But are critics of PG&E expecting too much of a company to deliver electricity to 16 million people, many of them living in wildland areas, without having accidents? California’s landscape is extremely fire prone, and under blazing summer conditions, most of the state is primed to burn. Global warming is amplifying these seasonal conditions.

Poor forest management also has had a hand in California’s wildfire crisis. For decades, it has been the policy of the U.S. National Forest Service to stamp out virtually any wildfire as soon as it’s detected. This has led to a dangerous accumulation of woody debris — fuel, as woodland scientists say — in millions of acres of forest. Today, that material is essentially igniting all at once, logging year after year of devastating, off-the-charts wildfire statistics. Of the 20 largest wildfires in California’s history, 15 have occurred since 2002, according to Cal Fire data.

Demographic trends aren’t helping, either. Between 1990 and 2016, 60 percent of new homes in the United States have been built in what forest and wildfire scientists call the wildland-urban interface (written in short as WUI and pronounced as “woo-eey”). This has not just increased the odds of wildfires starting in the first place but created an amplified burden for firefighters, who are responsible for protecting homes from flames.

Recognizing this, California initiated a program in 2011 by which rural residents paid into a wildfire prevention program. Called the State Responsibility Area Fire Prevention Fee, the program annually taxed residents of mapped-out danger zones $156 per inhabitable structure on their properties, generating $112 million for Cal Fire over five years, before the fee — hated by Republicans — was eliminated.

Then there is overall population growth — what Keeley at UCLA said is the single-largest factor in the trend of larger, more destructive wildfires. “I believe the climate is changing, and I believe it is causing problems, but global warming is a distraction from the bigger problems here,” he said. “When you put more people on the landscape, the risk of a fire starting goes up. It also means more people are at risk when a fire starts.”

All these factors place a tremendous burden on PG&E. Moreover, a federal judge, William Alsup, recently called on PG&E to take measures that would “reduce to zero” the odds of another catastrophic wildfire. Such a plan would involve close inspection of PG&E’s entire grid — more than 100,000 circuit miles of electrical distribution lines — and a tremendous amount of tree trimming. PG&E objected to Alsup’s order, complaining that it would cost at least $75 billion and cause customer rates to spike five-fold.

Still, Keeley believes that utility companies have responsibilities to meet, and that they could be doing better. For instance, they could put their power lines underground. “And it wouldn’t have to be everywhere — there are high-wind corridors where this could be done,” he said. “That would eliminate the risk of a power line starting a fire.”

Existing laws intended to prevent ignition of vegetation near power lines are simple, and PG&E has routinely ignored them. For example, Public Resources Code 4293 requires anybody operating a power line to maintain, depending on the voltage, between 4 and 10 feet of cleared area on either side of the cable. But Cal Fire investigators have alleged that in untold instances, PG&E has failed to meet these requirements.

In a Dec. 21 release, the CPUC said it was “concerned that the safety problems being experienced by PG&E were not just one-off situations or bad luck, but indicated a deeper and more systemic problem. The fact that imposing penalties on PG&E (the commission’s standard tool for addressing safety problems) did not seem to change the situation reinforced this concern.”

Plaintiffs in the Camp fire lawsuit against PG&E are banking heavily on the likelihood that the company caused the horrific blaze. Their suit alleges that PG&E’s executives and managers knew of specific infrastructure problems near Paradise, the town destroyed by the fire. The company, the suit states, “knew its infrastructure was aging and inadequately maintained (indeed, ‘run to failure’ is its corporate policy), it knew trees and vegetation were too close to the poles and lines, it was acutely aware of current and seasonal weather in Northern California that created a high risk of fire, it knew where and how fires had ignited before in these areas, and it knew its own failures had caused fires and the attendant destruction many times before. … PG&E knew all of this, but failed to adequately act on this knowledge.”

According to the lawsuit, “As more calls followed and firefighters began to arrive, the Camp fire’s cause became clear: The power lines and/or electrical equipment owned, operated, and improperly maintained by PG&E had failed yet again.”

How to make the company finally comply with safety regulations is the question — but there are no clear answers. Some say PG&E is a lost cause and must be dismantled and reconstructed. For them, no matter what PG&E says and pledges to do to, the company, a convicted felon, simply can’t be trusted.

Sen. Hill insists that, if it can be demonstrated with robust evidence that “executives made clear decisions that caused people’s deaths,” they should wind up in jail. That, he said, will spark meaningful change.

“I think that until someone goes to prison, we’re not going to see changes in this culture,” he said. “The San Bruno explosion should have been the wakeup call. Being convicted of six federal felonies should have been the wakeup call. Being on probation for five years should have been the wakeup call. Prison will be the wakeup call.”

The CPUC’s proposals for restructuring PG&E range from simply replacing the individuals directing the company’s operations to drastically overhauling its entire operational structure, top to bottom. Hill agrees that PG&E’s current financial structure is problematic and incentivizes an ethos of shortcutting on duties and responsibilities. “They know that the only way to maximize profits is to cut costs,” Hill said.

If that is the problem, then what is the solution to disrupting the ongoing pattern of deferred maintenance followed by deadly accidents? Toney, like just about everybody engaged in the discussion, wants to see a dramatic shakeup in PG&E’s leadership and management structure. He thinks, for instance, that more engineers should be helming the company.

“Currently, most of the people on the board are in finance — they care about finance,” Toney said. “If we want a significant shift, we need a focus on safety. Engineers are kind of agnostic. They’re loyal to making things work. They don’t care about the politics and the money. So, replace those bean counters with people who know how to make things work.”

But Toney also warned that certain actions could aggravate the situation. “We’re concerned about breaking up the company in such a way that there are a lot of parties interested in serving the densely populated urban areas with very low fire risk and very high revenue and very few parties interested in the rural areas that are much more expensive to serve and that have much higher wildfire risk and have many more miles of distribution lines and tree trimming that need to be maintained,” Toney said. “I don’t want to see a system where … suburban customers and rural customers get screwed.”

He said a large system, like PG&E runs now, has an advantage, in spite of obvious problems: Specifically, it disperses both costs and risks, with revenue from urban customers helping support the system in rural areas and equalizing monthly rates for everyone. Toney believes major reform is necessary but that it must be carried out with care and precision.

“We don’t want a system where, for the same amount of electricity, some customers pay $50 and others pay $300,” he said. “The bottom line is what’s best for the customers, and the way TURN sees it, we have to look at all customers, no matter how spread out they are. The urban pockets will be easy to figure out, but what will we do with the Paradises of the world?”

For PG&E, the walls are closing in. Lawmakers, watchdog activists, and regulators, like parents of an unruly child, are publicly discussing what to do about the scofflaw company and the energy systems it operates. The Camp fire lawsuit could put the company on the hook for more than it’s worth, and — if that weren’t bad enough — the state attorney general has said PG&E could be looking at murder charges (though the consequences of such against a corporation, rather than its human executives, may be more or less meaningless).

Investigators with Cal Fire announced in late January that the cause of the 2017 Tubbs fire, which killed 22 people in the North Bay, was “a private electrical system adjacent to a residential structure.” Still, the mounting liability from other disasters could destroy PG&E. Its stock value has tanked since the day that the Camp fire started amid rumors and reports that PG&E equipment was involved (though it instantly spiked when the Tubbs findings were announced). Finally, after weeks of speculation that PG&E would file for bankruptcy, the company did so on Jan. 29.

Don’t fall for it, warned Court, at Consumer Watchdog. “They are a solvent company — they can pay their bills,” Court said, alleging that PG&E’s estimate of its liability costs — $30 billion — is a gross exaggeration. “They don’t need to go bankrupt, and they’re doing it because they’re hoping to get a bailout from the PUC or the politicians.” Dodd’s “bailout” bill, SB 901, doesn’t cover 2018, the year of the Camp fire.

Court explained that PG&E has “socialized the risk [of being an electrical provider] and privatized the gain. The shareholders take all the profits in, but when times get tough, they claim they’re going to go bankrupt and then the ratepayers have to step up.”

Court sees bankruptcy as a chance to buy the company out, gut it, and rebuild it under a completely different model. “The public could buy the equipment and reorganize the company the same way that municipal utilities are organized,” he said. “If PG&E was publicly owned, there would finally be civilian authority over the company, and that’s what’s lacking now.”

Forest managers and journalists often say that California’s fire season has become a year-round phenomenon as a result of global warming trends, though the idea — dramatic headline material — doesn’t always ring true. The largest wildfires occur in summer and fall, and it’s rare for one to burn in the dead of winter. This year, especially, as heavy rains soaked the landscape, there will probably be no significant wildfire risk for months to come.

However, summer — a fire season every year — is just around the corner. Another major wildfire on PG&E’s watch will almost certainly spell doom for the company, if it manages to pull through the current storm of allegations and controversy in one piece — and the company knows this. According to Doherty of PG&E, work crews are busy attacking overhanging vegetation that could make contact with wires, fortifying poles to prevent them from toppling, replacing wooden poles with those made of noncombustible materials, and encasing wires with protective materials. PG&E also has been installing wildfire detection cameras in high-risk areas, Doherty said.

That’s not all. Last March, PG&E opened its Wildfire Safety Operations Center at the company’s San Francisco headquarters. The high-tech facility is staffed by electricians, engineers, meteorologists, and others with technical backgrounds and was launched as a surveillance hub for dangerous weather conditions, vulnerable electrical equipment, and wildfires.

PG&E also has implemented new policies of turning off power when high winds develop — something Keeley warned could be counterproductive. For one thing, he said, this could prompt many people to buy gasoline-powered generators. “Generators cause a lot of fires,” he said.

Intentional power shutoffs could also mean another problem. “A lot of people in rural areas have electric well pumps, so if you shut off the power, they won’t have water to protect their homes from a fire,” he said.

The effectiveness of PG&E’s mitigation actions will be hard to gauge. Sen. Dodd pointed out that given PG&E’s record of lying and falsifying equipment inspection reports, there is little way to know if the company is actually trimming hazardous trees or not. He thinks it will take high-tech surveillance to enforce the laws that human regulators are unable to.

“We could use drones to go in and really make sure PG&E is doing the tree trimming they say they’re doing, because they obviously can’t be trusted to do it on their own,” he said. “We need much more oversight. We can’t take their word for it anymore.” 

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