Monday, February 18, 2019

Camp Fire Prompts Talk of PG&E Bailout or Breakup

By Hudson Sangree

President Trump and California Gov. Jerry Brown toured the scene of the Camp Fire on Saturday, Nov. 17. Trump called it “total devastation.” | California Governor’s Office

California’s deadliest and most destructive wildfire has set off a new round of turmoil in the state’s utility sector, with wildly swinging stock prices and questions about what policymakers will — or won’t — do to protect the state’s investor-owned utilities from fire liability.

As of Monday, the Camp Fire in the Sierra Nevada foothills of Butte County has killed at least 77 people, with 1,000 still missing. It has destroyed more than 10,000 homes and burned 150,000 acres, including nearly the entire town of Paradise, which until 10 days ago had 27,000 residents. Thousands who survived are holed up in shelters, tents and RVs, with winter on the way. Many are waiting for word on friends and family members lost in the fire.

Gov. Jerry Brown called the Camp Fire “probably the worst tragedy that California has ever faced, at least from a fire situation,” after touring the post-apocalyptic scene in Paradise with President Trump on Saturday. In a joint press conference with Brown, Trump described the scene of an entire town turned to ash as “total devastation.”

Picker Addresses PG&E’s Woes

After the fire started, San Francisco-based Pacific Gas and Electric watched its stock price plummet from roughly $48/share to less than $18/share — a 62.5% drop in one week. Suspicion quickly fell on the investor-owned utility for starting the fire. (See Destructive Fires Drive Down PG&E Stock.)

Southern California Edison faced similar scrutiny, and a big drop in stock price, for the Woolsey Fire, which killed three and destroyed 1,500 structures in Ventura and Los Angeles counties this month. In addition, SCE recently admitted its equipment may have caused last year’s Thomas Fire near Santa Barbara, one of the largest fires in state history. (See Edison Takes Partial Blame for Wildfire in Earnings Call.)

The Woolsey and Camp fires began the same day, Nov. 8.

That day, PG&E filed a report with the California Public Utilities Commission, saying it had experienced an outage on a 115-kV line and observed damage to a transmission tower near the Camp Fire ignition point. The company later wrote in a news release that the “information provided in this report is preliminary, and PG&E will fully cooperate with any investigations. There has been no determination on the causes of the Camp Fire.”

A week later the company informed the PUC that it had experienced a second outage on 12-kV line in Concow, near Paradise, on the morning of Nov. 8, and the California Department of Forestry and Fire Protection identified a second possible second ignition source for the Camp Fire.

The news sent PG&E’s share price crashing, but the utility’s stock rallied on Thursday after CPUC President Michael Picker took part in a call with Wall Street analysts in which he said allowing PG&E to go bankrupt wouldn’t be good public policy, Bloomberg and other media outlets reported.

Picker reiterated those comments in at least two newspaper interviews and discussed the possibility of legislative action to relieve PG&E’s financial burden.

The PUC president also said, however, that he was concerned about PG&E’s lack of accountability. He told The Wall Street Journal that breaking up the company might be an option for regulators to consider. In a news release, Picker said he intended to expand an ongoing investigation into PG&E’s “safety culture” that the commission had opened after the San Bruno gas line explosion in 2010.

“In the existing PG&E safety culture investigation proceeding,” Picker said in the statement, “I will open a new phase examining the corporate governance, structure and operation of PG&E, including in light of the recent wildfires, to determine the best path forward for Northern Californians to receive safe electrical and gas service in the future.”

PG&E’s stock rose back to around $24/share Friday after Picker’s comments and stood at about $22/share on Monday — less than half of what it was before the Camp Fire started.

In an interview with The Sacramento Bee, Picker said he didn’t think PG&E was headed toward bankruptcy, as some speculate. He said the company’s woes are “a small slice of a bigger shit pie. That’s a technical term.”

“What is California doing about wildfires?” Picker told the Bee. He called climate change a major unanswered issue, and said, “We have to have other solutions.”

Picker did not respond to a request for comment from RTO Insider.

Smoke from the Camp Fire covered the San Francisco Bay Area and the Sacramento Valley for more than a week, providing a potent reminder of the disaster to the north. | NASA Earth Observatory

What will Lawmakers Do?

The Camp Fire has revived talk of PG&E’s safety failings and financial liabilities — and what state policymakers might do to deal with both problems.

The company’s financial fate became the subject of concern following a series of devastating wildfires in 2017. State fire investigators have said PG&E was responsible for at least 17 of the 21 blazes. An investigation by Cal Fire has not yet determined the cause of the worst of the 2017 fires: the Tubbs Fire, which wiped out a large part of the city of Santa Rosa, Calif., killing 22 and destroying 5,643 structures in October 2017. Until the Camp Fire, it was the most destructive in state history.

The 2017 fires could subject PG&E to billions of dollars in liability under California’s unique system of holding utilities strictly liable for all damage caused by power lines and equipment, regardless of negligence. (Citigroup estimated PG&E could face $15 billion in liability for the 2017 fires and another $15 billion for the Camp Fire, The New York Times reported.)

Earlier this year Brown proposed doing away with the strict-liability standard, known as inverse condemnation, arguing it threatened electric reliability and the state’s efforts to completely exclude carbon emissions from its power grid by the middle of the century.

Lawmakers tasked with formulating a major wildfire bill, SB 901, ultimately left inverse condemnation intact while creating a method by which utilities could issue long-term bonds to pay for some fire damage. (See California Wildfire Bill Goes to Governor.)

Critics protested the bill as a bailout for utilities, but Brown signed the legislation in September.

PG&E executives recently said in an earnings call that the new law was insufficient, and they intend to seek an end to inverse condemnation through the courts and legislature. (See PG&E Outlines Fire Strategy in Earnings Call.) That was before the Camp Fire, however, and the anti-utility political backlash it might well create.

In the meantime, SB 901 provides some relief for PG&E for the 2017 fires. It established a financial stress test that would allow IOUs to be held liable for the 2017 wildfires but only to the extent that the costs do not harm ratepayers or materially impact a utility’s “ability to provide safe and adequate service.” The bill also provides for bond issuance starting in 2019, but the new law left utilities completely exposed to financial liability for 2018 fires.

Picker and others have said the situation likely could be addressed through clean-up legislation that includes the 2018 fires within the scope of SB 901.

Others, however, have called for more aggressive action toward PG&E when the State Legislature reconvenes Dec. 3. Lawmakers could call a special session to deal with IOU wildfire liability, potentially speeding up the lawmaking process.

State Sen. Jerry Hill, a Silicon Valley Democrat and a harsh critic of the utility, told the Los Angeles Times he’s interested in legislation that could break up PG&E and sell off its pieces to local governments.

“Many have argued that PG&E is too big to fail,” Hill said. “I think it’s too big to succeed.”