Employee arrives at Santa Rosa country club to witness devastation
California’s wildfires have left Pacific Gas and Electric Co. confronting its most serious financial crisis since the 2010 San Bruno gas explosion, a disaster that threatened the company with bankruptcy and ultimately cost the utility $1.6 billion in fines and other costs.
Two state agencies, Cal Fire and the California Public Utilities Commission, have launched investigations into whether Northern California’s largest utility could be at least partly responsible for the fires that ignited Oct. 8, killing at least 41 people and destroying roughly 5,700 homes and businesses.
So far, neither Cal Fire nor the CPUC has cited evidence that PG&E contributed to any the ignitions. But the stock price of parent company PG&E Corp. has plunged over the last week amid investor jitters that the utility could be held responsible. PG&E shares closed Monday at $53.43, a drop of $4.34. Since Friday the company’s stock market value has fallen by more than $5 billion.
Cal Fire investigators are likely examining whether inadequate maintenance of poles or inadequate trimming of vegetation caused the utility’s electric lines to fall and spark during high winds, igniting some of the fires. Last year, a Cal Fire investigation found PG&E responsible for the 70,000-acre Butte Fire in 2015, a finding that could ultimately force the utility to pay more than $1 billion in claims damages.
Emergency dispatch records from late last Sunday night show that firefighters responding to blazes in Yuba County, northeast of Sacramento, said power lines had fallen and in some cases were draped across roads. Similar reports have emerged from the wine country, where the series of fires that broke out across Northern California nearly simultaneously delivered the most devastation.
Cal Fire investigations typically take months to reach conclusions, and some legal experts are urging caution about assigning blame.
“We may not know what happened for a while. It is too early to tell,” said Britt Strottman, a lawyer who represented San Bruno in its lawsuit against PG&E and also represents Calaveras County in its Butte Fire litigation against the utility. But she noted that the latest wildfires, in California wine country and parts of the Sacramento Valley, have so far caused far more destruction than the 2015 blaze.
“Considering the magnitude of this fire, their exposure could be a lot more than the San Bruno disaster,” said Strottman, a Oakland-based lawyer with Meyers Nave. Following San Bruno disaster, the utility’s CEO floated the possibility of bankruptcy if the CPUC upheld a proposed $2.25 billion fine.
Paul Moreno, a spokesman for PG&E, said the utility maintains 18,466 miles of transmission lines and 106,000 miles of electric distribution lines in Northern California. Some of those were knocked down amid the high winds of Oct. 8 and 9, which topped 75 mph, he said.
Moreno also noted that vegetation was extremely thick and combustible following last year’s big winter followed by months of record heat.
“All that contributed to trees and brush impacting our power lines,” he said.
Until investigators conclude their probes, the fires represent “a cloud that’s going to hang over the securities of the company for some time,” said Philip Adams, a senior analyst who follows PG&E for Chicago bond-market analyst Gimme Credit.
Adams said PG&E’s bond prices are falling along with the stock price. He said investors appear to be responding to the utility’s recent history as much as anything.
“They have the fire a couple years ago, they have the San Bruno incident, it goes all the way back to Erin Brockovich,” he said in an interview. “There’s going to be some presumption (by investors) that there’s going to be some culpability at some level.”
He added that the utility “is otherwise held in high regards” and is considered strong financially, even if it’s found liable in one or more of the recent wildfires. PG&E Corp. reported profits of $982 million in the first six months of this year on revenue of $6.39 billion.
On Thursday, the CPUC announced it was investigating PG&E, and it sent the utility a letter ordering it to “preserve all evidence with respect to the Northern California wildfires in Napa, Sonoma and Solano counties.” This evidence included “all failed poles, conductors and associated equipment from each fire event.”
In an interview Monday, Cal Fire spokesman Scott McLean said that its investigation has “many dynamics and complexities” and that it was too early to discuss specific causes, including downed power lines.
In a Securities and Exchange Commission filing Friday, PG&E said it has $800 million in liability insurance for potential losses resulting from the wildfires. “If the amount of insurance is insufficient to cover the Utility’s liability or if insurance is otherwise unavailable, PG&E Corporation’s and the Utility’s financial condition or results of operations could be materially affected,” the filing said.
The utility already faces significant liabilities for the Butte Fire. That blaze burned 70,868 acres, killed two people and destroyed more than 900 homes and other buildings in Calaveras and Amador counties in September 2015.
In an estimate filed with SEC in late July, the utility said it believes “it will incur a loss of at least $750 million” on the Butte Fire, including payments to government agencies and settlements with individuals. Of that amount, the utility said it had already reached settlements totaling $380 million, of which $176 million has been paid out.
The final cost to PG&E could go considerably higher. PG&E said the $750 million estimate doesn’t include two recently announced claims, a $190 million claim by the Governor’s Office of Emergency Services for tree and debris removal and infrastructure damage, and an $85 million claim by Calaveras County.
The $750 million figure also doesn’t include potential punitive damages the utility might have to pay.
The payouts don’t all come out of PG&E’s pockets; the utility said in the SEC filing that it expects to collect $646 million from its insurance companies for losses tied to the Butte Fire. The utility had a total of $900 million worth of liability insurance for Butte claims. While PG&E said it expects to recover much of its Butte Fire losses from insurers, it said it would ask the Public Utilities Commission for authorization to charge ratepayers for any costs not covered by insurance.
Asked about his company’s pummeling on Wall Street over the past week, Moreno, the PG&E spokesman, said the utility’s singular focus was on “the well being of communities affected by the fires.” He said the utility has more than 1,500 employees making repairs and restoring electric and gas service.
By mid Monday morning, PG&E crews could be seen driving their big blue trucks out of a makeshift base camp in Napa, near the Highway 12 turnoff toward Sonoma. Hundreds of workers started assembling here a week ago Monday to repair electric lines and poles, many sleeping in semi trailers. By Tuesday, it was “essentially a mini city“ said PG&E spokesman Jeff Smith.
Because of the winds and fires, some 315,000 PG&E customers lost electric service on Oct. 8, mostly in Sonoma and Napa counties, he said. Since then, all but 18,600 customers in the area have seen their service restored, and that work was expected to be completed before Tuesday, said Moreno.
The Bee’s Anita Chabria and Ryan Lillis contributed to this report.