The Washington PostDemocracy Dies in Darkness

Inside a California utility: Mandatory blackouts amid wildfire threats and bankruptcy

Pacific Gas & Electric is widely considered the first “climate bankruptcy” in the country. (Jeff Chiu/AP)

SAN FRANCISCO — In Pacific Gas & Electric’s windowless emergency operations center, Mark Quinlan, senior director of emergency preparedness and response, was trying to decide just how many of the utility’s customers were going to lose their electricity.

It was late November, and strong winds were beginning to blow in from the ocean, careening through valleys of northern California. That raised dangers that the utility’s aging power poles might tumble over, setting alight the bone-dry grass and trees.

The utility had already notified approximately 250,000 customers in 19 counties that their lights might be switched off. Doing that would take one to three hours and — surrounded by experts in planning, intelligence, logistics, operations, communications and finance — Quinlan was struggling to decide whether to lean toward safety even if that meant disrupting lives.

One official urged him to have a contingency plan in case strong winds grounded PG&E’s 45 support helicopters; Quinlan agreed. Another suggested making decisions before one of the twice-daily public updates. Someone else reminded Quinlan that the first wave of “deenergizing” would begin in 30 minutes.

“I have the authority to execute a decision in real time,” said Quinlan, his face taut. But he said, “I don’t think any of us wants to deenergize people who don’t need it.”

Quinlan is on the front line of the corporate battle against climate change. Stronger winds, less rainfall, drier ground conditions and aging wires and poles have all made Quinlan, who moved here from Chicago six years ago, the person balancing risks. He’s been doing that amid outcries from those hurt by fires as well as those inconvenienced or harmed by rolling blackouts.

“We inhale and we exhale the weather,” he said.

A wrong decision could also add millions or even billions to what has been widely dubbed the “first climate change bankruptcy.” In January 2019, PG&E declared bankruptcy after being hit with what it then estimated to be $30 billion in liabilities tied to tragic wildfires in 2017 and 2018, which took 86 lives.

Negotiations have been tense. The bankruptcy judge on Tuesday approved PG&E’s plans to pay $13.5 billion to wildfire victims and $11 billion to insurance firms. But PG&E bondholders, including Pacific Investment Management (Pimco) and Elliott Management, have a rival plan that would let them buy the utility for $20 billion.

Meanwhile, California Gov. Gavin Newsom (D), who wants any reorganization completed by June 2020, has blamed PG&E and its maintenance of power lines for the fires and has called for the firing of the PG&E board. He also wants the option of taking over the utility if it fails to meet safety and performance criteria. The prospect of a state takeover in turn damages the ability of PG&E to raise capital from investors.

On Thursday, the California Public Utilities Commission, which earlier imposed a $1.75 billion penalty on PG&E, unanimously rejected requests from the state’s three main utilities for higher rates of return on equity — also making it harder to lure investors.

While PG&E may be the first climate bankruptcy, it will likely not be the last, according to a report by Columbia University’s Center on Global Energy Policy. “Wildfires alone could become up to 900 percent more destructive in certain regions by midcentury, and utility assets will also be increasingly exposed to threats stemming from hurricanes, rising sea levels, and other climate-related events,” it said.

Many investors still see PG&E’s troubles as unique to the northern California utility. Regulated utilities in the United States have raised more than $50 billion of corporate debt in 2019 at rates below the historical average, according to the Columbia study, suggesting that investors aren’t too worried — yet.

But experts warn that climate change will impose sooner, greater and more widespread costs in the future — and not just in California.

A paper by BlackRock, the world’s largest asset manager, said that investors are often “under-estimating the likely frequency and severity of extreme weather events” because they’re basing assessments on historical data.

Newsom wants PG&E to harden its infrastructure in the next five to ten years. But the models say that will be difficult. The state’s sobering climate change assessment predicts a 77 percent increase by 2100 of areas burned by wildfires. And Cal-Adapt, a state-funded project led by the University of California at Berkeley, charts a variety of grim scenarios.

The costs are daunting. There are 2.4 million utility poles in PG&E’s jurisdiction with an average age of 39 years. The wires are vulnerable to falling trees that have been killed or weakened by bark beetles or drought. To keep dry vegetation cut back away from potential sparks, the utility had already jacked up spending from $100 million in 2014 to $500 million three years later.

In addition, seven of PG&E’s roughly 100 substations are located in what in the past have been considered 100-year flood zones, but where big floods are expected to occur more frequently. Each substation would cost hundreds of millions of dollars to relocate.

Climate change has also stepped up the frequency of extreme heat waves. In the central valley, extreme heat waves in the past took place on average once every three or four years. Now they happen about four times a year, a company official said. And they’ll grow more frequent by 2050, when each will be as severe as one that took place in July 2006 and knocked out nearly 2,000 transformers, according to the company.

In building new infrastructure, PG&E weighs six climate-related dangers: wildfire, extreme heat, inland coastal flooding, drought, severe storms and sinking land, or subsidence. Sinking land already poses special problems in the state’s agricultural central valley and for PG&E’s large network of underground natural gas pipelines.

For PG&E to succeed in financial restructuring, it must rely on the ability of financial wizards, meteorologists, policy experts and state politicians to peer into the future and accurately quantify the changing climate.

The state created a $21 billion emergency fund, half provided by three big California utilities, to cover the costs of anticipated catastrophes. The utilities could use their own funds for improving facilities. Based on damages over the past five years, the fund should be big enough to last five to 10 years while PG&E upgrades its network, according to people familiar with the financial arrangements.

But whether that figure — a product of politics as much as prognostication — is enough is unclear.

“It was a political process,” said Pedro Pizarro, chief executive of Edison International, one of the state’s biggest utilities. Newsom had his own “strike team” of financial experts from Guggenheim Securities as well as climate experts. “There were a lot of assumptions,” Pizarro said.

For other expenses, PG&E would have to raise money in three ways: passing costs to ratepayers with approval from the state utility commission; a bond offering with likely high interest rates; or issuing equity once it emerges from bankruptcy. But investors’ appetite will be uncertain at best. And the more the governor rails against the utility, the harder it will be to raise shareholder equity.

Utilities have long promoted themselves as providing safe, reliable and affordable power. But the power right now is not safe, not reliable and could soon get a lot more expensive.

This makes it ripe political fodder.

“Years of corporate negligence and misplaced priorities by energy utilities like PG&E have caused devastating fires and costly blackouts — which is exactly what happens when publicly traded utilities put corporate profits and stock prices above their customers and public safety,” Sen. Kamala D. Harris (D-Calif.) said in a statement. “These companies should serve the people, not plunge them into darkness or cause a massive wildfire.”

There have been proposals to break up PG&E, and the state could also take it over, but that would transfer cost and risk to taxpayers. Many experts say that the governor, for all his criticism of PG&E, does not want to own those problems.

Billions of data points

The emergency operations center, located on the ground floor of PG&E’s 17-story landmark headquarters, is empty on most days, but on Nov. 20, it was filled with about 100 people working in eight rows of desks and monitors.

The emergency operations center, located on the ground floor of PG&E’s 17-story landmark headquarters, is empty on most days, but on Nov. 20, it was filled with about 100 people working in eight rows of desks and monitors.

Scott Strenfel, the principal meteorologist for PG&E, put his computer cursor on a map of Willows, Calif. The computer, drawing on about five billion wind data points, spit out this calculation: The wind speed was 30 miles an hour, and compared with historical data, that meant a power outage was likely within 25 miles 50 percent of the time.

The utility’s computers crunched 80 billion data points for fire, water, wind and temperatures collected over three decades. At a point near Angwin, sustained wind speeds hit 34 miles an hour. That meant 44 percent of the time there would be an outage within 25 miles, the computer said.

Strenfel called up a slide based on state data from eight aid stations that showed that from Oct. 1, the traditional start of the wet season, until Nov. 29, only 0.3 inches of rain had fallen in northern California. The average year sees 7.5 inches.

“The longer and more prolonged heat waves, the more moisture is sucked out of plants, the lower moisture is in shrubs and trees, the more easily ignitable they are,” he said.

Quinlan was running the PG&E operations center a year ago, when the Camp Fire swept through northern California, destroying communities and killing 86 people.

“No one wants another Camp Fire. No one wants to see that kind of damage and destruction,” he said. “I visited the site, and it was like something I’ve never seen.”

His deputy interrupted an interview, showing Quinlan how one substation could keep the electricity on for about 10,000 customers. Quinlan told him to send workers to make sure the line was intact.

“I think about how important it is to do something to protect public safety,” he said. “I have a bias toward safety.”

Lights out

Few Americans like their utility, but very few like PG&E.

The company failed over the past decade to take steps to bury electricity lines or to beat back the dead trees or dry grass along electricity routes. There are about 120 million dead or damaged trees in its service territory, and high winds have blown the tops of trees as far as two or three miles, crashing into wires, company officials have said.

The company bears some of the blame for the Camp Fire and other catastrophes, and it has antagonized those whose lights have been switched off over the past several weeks.

“As it relates to PG&E, it’s about dog-eats-dog capitalism meeting climate change,” Newsom said at a news conference. “It’s about corporate greed meeting climate change. It’s about decades of mismanagement. It’s about focusing on shareholders and dividends over you and members of the public.”

Nina Greeley was hit with a power shutdown in October the second time PG&E “deenergized” households. Though warned in advance, she had been attending a meeting in Sausalito of people improving their voices for audio devices. Greeley has recorded museum guides, political ads and a Suzuki motorcycle ad. One member of the group was reciting a script about a ghost town replete with strange noises when the lights went off.

Greeley’s partner is a “doomsday prepper” so they were well stocked with flashlights, one of which she used to walk home. They had a radio, solar lamps and special blankets. They saved ice from the ice maker and put it in the freezer.

But they discovered some shortcomings. Shade on the house meant the emergency solar panels would need to go on a neighbor’s lawn. The Prius plug-in hybrid couldn’t be recharged. She has owned the car for 15 months, and the blackout meant she filled the tank for the seventh time.

“The first day [without electricity] was not that bad,” she said later. “But it began to get a little old.”

As for their stockpile of supplies packed under the house, Greeley and her partner left them alone — to wait for a true emergency.