Digging through the ashes near Coffey Park
Facing one of the largest financial disasters in its history, PG&E Corp. warned Thursday that claims from last fall's deadly wine country wildfires will probably exceed $2.5 billion.
The besieged utility, whose transmission lines and other equipment have already been blamed by state investigators for many of last October's fires, said in a filing with the Securities and Exchange Commission that it will take a $2.5 billion charge against profits for the quarter that ends June 30. "This expected charge corresponds to the lower end of the range of PG&E Corporation and the utility's reasonably estimated losses, and is subject to change," the company said.
"At this point, we are unable to estimate the high end of the range," said PG&E chief financial officer Jason Wells in a conference call with investment analysts. Besides the state investigation, the utility has been sued more than 200 times in connection with the fires, which killed 44 people.
State officials have said the property damages from last October's fires could top $10 billion.
Notably, PG&E's estimate of its losses doesn't include any potential liability from the Tubbs Fire, the most destructive of last October's fires. The SEC filing said PG&E believes a financial loss from Tubbs isn't "probable." But when asked about it by analysts, Wells said PG&E omitted any estimates because "it's early to assess the cause of Tubbs."
At $2.5 billion, the loss would swamp the $840 million in insurance carried by PG&E. It's the equivalent of nearly two years' worth of profits for the company, and would exceed the $1.6 billion PG&E paid in fines, settlements and other costs from the deadly natural gas explosion in San Bruno in 2010. That was one of the biggest single financial losses in the company's history and prompted PG&E's chief executive at the time, Anthony Earley Jr., to publicly float the idea that the utility could be forced into bankruptcy.
Current CEO Geisha Williams, asked Thursday about a bankruptcy filing, noted the utility is lobbying state legislators for relief from wildfire liability and alluded to PG&E's 2001 bankruptcy during the energy crisis. "Many of the lawmakers in California vividly remember the energy crisis...so the topic does come up in our conversations," she said.
PG&E has been trying to convince legislators to reduce its wildfire liability by changing a state policy known as "inverse condemnation." Under that doctrine, utilities can be forced to pay damages if the fire is caused by its equipment, even if investigators can't show the company was negligent. PG&E and other utilities are arguing that 2017's wildfires, which caused billions in damages in Northern and Southern California, were largely the result of climate change and other factors beyond their control.
"We're in an increased wildfire ... risk situation," Williams said. "This is going to be a perennial issue." But she acknowledged that Cal Fire's findings won't help PG&E's cause in the Legislature.
"Things will likely be more difficult for us on the legislative front, given the negative media and the headlines," she said.
Wells indicated that PG&E might seek to recover some of the costs from ratepayers. But he noted that the Public Utilities Commission, in a closely watched case last November, denied San Diego Gas & Electric Co.'s request to charge customers for some of the costs of a 2007 wildfire.
Cal Fire has already blamed Pacific Gas and Electric Co.'s power poles, transmission lines and other equipment for 15 of last October's fires. That includes the Atlas Fire, which swept through Napa and Solano counties, which burned 50,000 acres and killed six people. PG&E, however, said it doesn't think it will face any liability for the Atlas blaze.
The state agency hasn't yet made a finding on the Tubbs fire, which killed 24 people and destroyed 5,000 homes in the area around Santa Rosa. That accounted for more than half of the 44 fatalities in what is widely considered the worst set of wildfires in California history.
PG&E has already suspended its dividend to shareholders as it braces for the onslaught of claims, a move that will save $1 billion a year. At the same time, the utility has declined to say it's at fault for the wildfires and noted in its SEC filing that it doesn't have "access to the evidence collected by Cal Fire as part of its investigation or to the investigation reports for the fires Cal Fire has referred to the county district attorneys."
The $2.5 billion charge announced Thursday is a non-cash cost that will erase profits in the current quarter, although PG&E doesn't expect to begin actual payouts anytime soon.
"As far as cash out the door, it's going to be years," Williams said.