The Washington PostDemocracy Dies in Darkness

California’s energy challenge: How — and whether — to save PG&E, a utility that could face monumental fire liabilities

A home destroyed by the Camp Fire, seen in Chico, Calif., on Nov. 11, 2018. Pacific Gas & Electric, which says it faces the potential of billions of dollars in liabilities for wildfires across California, recently filed an intention to declare bankruptcy. (Mason Trinca/For The Washington Post)

SACRAMENTO — It was just after 6:15 a.m. when the line “tripped off.” Soon after, workers for Pacific Gas and Electric spotted smoke near the utility tower that, on the windy morning of Nov. 8, had suddenly gone dark.

There was little time to do much more than take notice. Within 15 minutes, a fire began scorching through the town of Paradise in the Sierra foothills north of here. By the time it was controlled weeks later, the Camp Fire had turned the retirement community to ash.

The timing of the tower outage and the start of the fire, the largest in California history, has been reported to state utility regulators by PG&E. There has still been no determination on the question of whether the company is responsible for starting the fire, which killed 85 people and destroyed more than 14,000 homes.

Out of the ashes, schools in fire-ravaged Paradise, Calif., struggle to rebuild

But by taking the step last week of filing an intention to declare bankruptcy, PG&E is preparing for what’s most likely to come — a financial liability for the Camp Fire that will certainly exceed $10 billion and could push far higher. The company also is awaiting a ruling on whether its equipment caused the Tubbs Fire, which tore through the city of Santa Rosa in fall 2017, holding the mark as the state’s deadliest and costliest — until Paradise.

State lawmakers now face the question of how and whether to save a utility with a history of fatal safety lapses but one that remains key to California’s broader clean-energy goals. At the moment, there is little political motivation to assist PG&E, whose bankruptcy announcement prompted the company to fence-off the entrance to its $1 billion San Francisco headquarters for fear of demonstrations.

PG&E spokeswoman Lynsey Paulo said in an emailed statement Friday that “the devastating impacts of extreme weather is one of the most important issues currently facing the state of California today.”

“As previously announced, in addition to prior actions taken to confront the growing wildfire threat, our Board is actively assessing PG&E’s operations, finances, management, structure, and governance — and remains focused on improving safety and operational effectiveness,” Paulo said.

The answers in the capital will provide both short-term and long-term guidance for how the nation’s most populous state, and in many ways its most pioneering on the issue of climate change, will ensure that publicly traded utilities remain economically viable as California enters the age of the endless fire season.

“It most definitely must evolve and change,” said state Sen. Jerry Hill (D-San Mateo), referring to a state regulatory system he called “not nimble enough to move” as quickly as the changes in the utility industry or with the climate.

His district includes the San Bruno area — south of San Francisco — where eight people were killed in 2010 after a PG&E-owned natural gas pipeline exploded. The company was later placed on five years of federal probation, which is due to run through this year.

Hill said that the company “just checks the boxes” when it comes to safety and that the tower at the center of the Camp Fire investigation might have been more than 100 years old.

As wildfires raged, California frets over a future of greater perils and higher costs

California is one of just two states — Alabama is the other — that holds utilities “strictly liable” for fires that their equipment starts. The liability applies even if the company’s equipment was working correctly and met safety requirements at the time of an incident, a high standard that last summer PG&E officials lobbied the state legislature to lower. Company executives said at the time that “yesterday’s laws will not keep up with tomorrow’s risks.”

The wildfires reduced Paradise to ashes and razed much of Malibu's landscape. (Video: Luis Velarde/The Washington Post)

The company’s effort was unsuccessful. Then-Gov. Jerry Brown (D), warning of “a concern we could lose our utilities,” offered an alternative to PG&E’s preferred measure that did not ultimately receive support from the utility or the Democratic-majority state legislature.

Lawmakers did pass legislation making it easier for PG&E, and other utilities, to pass on fire damage costs to consumers, in the form of rate hikes.

“You take all of that,” said Hill, referring to the Camp Fire and other PG&E safety lapses, “and they come back with the same narrative and the same leverage. Frankly, now, I don’t think anyone in this building gives a darn about what they need anymore.”

In the intervening months, the politics in Sacramento have changed with the arrival of a new governor, Gavin Newsom, and Democratic supermajorities in both houses of the legislature. The Assembly is more liberal, more populist, than it has been in years.

Brown worried that the worsening climate extremes and current state law would leave utilities too financially weak to help with his climate goals, outlined in the legislation he signed last year that committed California to 100­ percent carbon-free electricity by 2045.

Achieving that mark counts on companies — at the state’s encouragement — to build out charging stations and other supporting elements to accommodate a millions-plus electric-car fleet. PG&E has begun building 7,500 charging stations across northern and central California, and as with the company’s other projects, the $130 million program is likely to be reviewed in bankruptcy court.

In a statement issued soon after PG&E’s bankruptcy announcement, Newsom said the company should “continue to honor promises made to energy suppliers and to our community.”

“I will be working with the legislature and all stakeholders on a solution that ensures consumers have access to safe, affordable and reliable service, fire victims are treated fairly, and California can continue to make progress toward our climate goals,” he said.

A state bailout, of almost any size, appears highly unlikely given the public anger toward the utility.

PG&E is facing $30 billion in liabilities, and it had just $1.8 billion in fire insurance in 2018. Unless state laws are changed, the same regulations and climate patterns will remain in place for whatever emerges. The result is a company with little commercial or political appeal.

“Whoever wants to get into that game has to have north of $40 billion,” said Assemblyman Chris Holden (D-Pasadena), chairman of the Assembly’s Utilities and Energy Committee. “And the dynamics will not have changed.”

As California has allowed the spread of suburbs into the edges of wilderness, utilities have had to deliver power through increasingly tricky areas, including the steep hillsides and forests of Paradise. These are places where it is easy for something to go wrong.

The Butte County Sheriff’s Office released body camera video Nov. 29 of a deputy who escaped the Camp Fire in Paradise, Calif. on Nov. 8 alongside evacuees. (Video: Butte County Sheriff Office)

One result of the bankruptcy could be a breaking up of PG&E into smaller, more locally accountable utilities. Regardless, making power delivery safer to avoid tragedy and liability will be very costly for any utility as the scope of the fires here grow with each year.

Placing utility wires underground in the state’s back country, better protecting transformers and taking other expensive steps would take years to complete. The problem appears more urgent.

Michael Wara, director of the climate and energy policy program at the Stanford Woods Institute, said the state Public Utilities Commission should realize the only near-term safety solution is to allow utilities to shut off power more regularly to areas under high-fire alert. He said the state should find a way to supply those areas with batteries for backup power.

But Wara acknowledged the difference between where power cuts have been used in California — mostly in lightly populated utility districts in the south — and where it would be in PG&E’s customer region. A PG&E cut would mean power loss in the Bay Area suburbs through the Sierra foothills, a much wider public disruption and potential cost.

“What has to change is for how all of this works for the residents of California,” Wara said. “The only way PG&E has a future in this state is if it improves its safety. Unless PG&E shows it can stop burning down communities, it has no future.”