Pacific Gas & Electric could soon get a legislative lifeline to help manage the threat of multibillion-dollar liabilities from this month’s Camp Fire, a move that could be critical to shield the utility from the looming threat of bankruptcy.
The bill from California Assemblyman Chris Holden, expected to be introduced as early as next week, would amend a critical provision of state law SB 901, the wildfire omnibus bill passed in September. Among its provisions, SB 901 will allow PG&E to issue bonds to pay for the potential liabilities of the deadly wildfires of 2017 — but it didn’t extend that option to fires this year.
Holden’s proposed bill would extend this provision to 2018, giving PG&E the option to raise bonds to cover the potential liabilities it faces in the wake of the Camp Fire. With 85 deaths confirmed to date, the fire has become the state’s most destructive in history.
PG&E has not been found responsible for either the Camp Fire or the Tubbs Fire, both of which are still under investigation. But the California Department of Forestry and Fire Protection (Cal Fire) determined in May that PG&E lines were the cause of several fires that killed at least 15 people and razed over 5,000 homes last fall.
PG&E faces multiple lawsuits from residents who lost loved ones and property in the Tubbs Fire, which was far more damaging than the series of fires it was found liable for causing by Cal Fire this spring. Analysts have estimated the total potential liability could be as high as $15 billion for that fire.
As for the Camp Fire, current estimates put the damages in the $7 billion to $10.5 billion range. While the cause is still under investigation, PG&E reported a day after the fire that it “experienced an outage on the Caribou-Palermo 115 kV transmission line in Butte County,” in a location and at a time close to those identified as the ignition point of the Camp Fire.
PG&E shares lost nearly half their value in the week after the Camp Fire started, prompting it to borrow all of the cash available under its revolving credit facilities, roughly $3.1 billion, a move that analysts noted could be a precursor to a decision to file for bankruptcy protection. Moody’s downgraded PG&E’s credit rating to near-junk status that week, noting that its wildfire liability exposure exceeds its current market capitalization.
The freefall prompted California Public Utilities Commission President Michael Picker to take the unusual step of declaring that regulators would seek to avoid a PG&E bankruptcy. Picker said the CPUC should use the powers given to it by SB 901, as well as by asking the legislature to alter the law to allow PG&E to raise bonds to pay for fire damages, as Holden’s proposed bill would do.
PG&E’s exposure to wildfire liabilities is heightened by the state’s “inverse condemnation” legal standard, which holds utilities responsible for all damages caused by their equipment. Outgoing Governor Jerry Brown had wanted to include inverse condemnation reform in this year’s wildfire package, but the proposal was dropped from the final bill under heavy opposition from insurance companies, homebuilders and the groups representing PG&E customers suing the utility for last year’s wildfires.
Holden told Bloomberg on Tuesday that his bill won’t take on inverse condemnation reform. With the legal standard still in place, it’s possible that PG&E could face liability for wildfires if its equipment played a role in starting the fires, even absent a showing of negligence on its part. PG&E reported this month that it has about $1.4 billion in wildfire liability insurance for the period of August 2018 to July 2019, an amount dwarfed by its potential liability for the Camp Fire.
To manage this exposure to liability, SB 901 instead gives the CPUC several tools to limit the amount that PG&E or other utilities would have to pay. For PG&E’s 2017 wildfire costs, the bill asks the CPUC to conduct a “stress test” that takes PG&E’s financial status into account, and limits costs to the “maximum amount the corporation can pay without harming ratepayers or materially impacting its ability to provide adequate and safe service.” Any costs over that threshold would be allowed to be covered through bonds issued by PG&E and backed by increased rates on customers.
SB 901 also provides for the CPUC to review future fires through a “reasonableness” review, to determine which costs can be passed on to ratepayers, versus those that must be borne by the utility’s shareholders. This provision only applies to fires in 2019 or later, however.
Kellie Smith, a consultant for the California Assembly's Utilities and Energy Committee who is advising Holden on the bill, told Utility Dive that the broader goal is to forestall disruption that could come in the wake of a PG&E bankruptcy.
PG&E managed to keep operating the grid through its previous bankruptcy after the state’s 2001 energy crisis — although at a cost of roughly $10 billion to its customers, and tens of billions of dollars to the state as a whole. But today, PG&E is much more closely intertwined with the state’s ambitious green energy and carbon reduction goals, with billions of dollars in renewable energy procurement, grid modernization and distributed energy integration investment at stake.