Facing billions of dollars in damage costs and numerous lawsuits for its role in sparking devastating wildfires in northern California, the state’s largest utility is now exploring options to avoid financial ruin, including a possible bankruptcy filing. But while Pacific Gas & Electric Co. reckons with potentially crippling liability because its electrical equipment likely started several blazes, the question of who will ultimately pay for losses—particularly those from the recent Camp Fire, the deadliest and most destructive fire in California history—remains unanswered.
The Camp Fire was the world’s costliest natural disaster of 2018, with overall losses estimated at $16.5 billion, according to new figures released by Munich Re, the world’s largest reinsurance company. The cause of the fire remains under investigation.
California’s utility customers may be on the hook for much of those costs if state lawmakers or the California Public Utilities Commission (PUC) allows the company to recover its losses with rate increases. Last year, the state legislature passed a bill that permitted investor-owned utilities to pass on wildfire-related costs to consumers. The bill pertained to the 2017 wildfires and subsequent fires beginning in 2019, but it did not address fires occurring in 2018.
PG&E requested a 12 percent rate increase in December, a total of $1.1 billion. The company is asking for $9.6 billion in 2020 compared to $8.5 billion approved for 2019.
That rate increase, if approved, would increase the typical customer’s bill by 6.4 percent, but it would not cover liability claims. PG&E could face $30 billion in potential liability from the 2017 and 2018 wildfires. That figure doesn’t include fines, penalties or punitive damages.
Nearly two dozen lawsuits by Camp Fire victims have been filed against PG&E. Insurance companies are also suing the utility, and the state’s attorney general indicated in a recent court filing that the company may be charged criminally, including for murder. PG&E’s potential legal liability is heightened by the doctrine of inverse condemnation, which says a party can he held liable for property damage even if it was not negligent. Under California law, the doctrine applies to public utilities.
PG&E has argued that it should not be held strictly liable for these fires when climate change is increasingly exacerbating fire risk. Although utility equipment may spark fires, extremely warm and dry conditions play a role in amplifying the destruction. This raises further questions around wildfire liability costs and who should foot the bill.
“There is not enough money in the State of California—whether it is public funds or investor-owned utility funds—to pay for the damages from wildfires of this magnitude if they continue to occur,” said Steve Weissman, lecturer at UC Berkeley’s Goldman School of Public Policy and a former administrative law judge with the PUC.
And it is likely that these mega wildfires will continue to occur. According to California’s Fourth Climate Change Assessment, the state could see a 77 percent increase in the average area burned by 2100. The National Climate Assessment’s latest report warned that western wildfires will increase in frequency as the climate warms.
Another looming question is whether utilities could try to hold fossil fuel producers liable for wildfire damages. The attribution science linking specific fires to emissions from specific companies is complex and indirect, but Sean Hecht, co-executive director of the Emmett Institute on Climate Change and the Environment at UCLA Law School, said he wouldn’t be surprised to see climate liability lawsuits from fire losses similar to ones based on sea level rise impacts.
“I’d say yes, we can expect to see cities and counties trying to get compensation from fossil fuel companies, but that would be alongside other efforts to obtain compensation,” he said.
In the meantime, Weissman said that wildfire risk management is the only option left.
“Utility ratepayers cannot continue to cover these liabilities. Neither can utility shareholders. The only answer is to undertake an exhaustive effort to reduce the intensity of future wildfires by managing vegetation more effectively,” he said. “We may need an agency to protect forested lands just like California has an agency to protect coastal resources. The state needs to make this a top priority.”
Because the state’s recent law left out what utilities can pass on to ratepayers for 2018, utilities like PG&E are lobbying lawmakers to pass new legislation shielding them from the enormous liability costs of the 2018 fires.
In addition, PG&E is asking the PUC for a rate increase to pay for additional wildfire safety measures.
“Assuming it becomes clear that PG&E was the cause of major fires, and without any new legislation, the company’s first stop to try to get ratepayers on the hook would be the California Public Utilities Commission, not the legislature,” said Hecht. “I do expect some legislative proposals, given the appearance of a crisis situation—and those could change the PUC’s authority to allow passing on of costs for 2018 fires to ratepayers—but it’s unclear what any proposals will look like.”
PG&E’s stock price fell by more than 20 percent on Monday as news emerged that the company is seeking bankruptcy protection. Bankruptcy is a backup plan, Reuters reported, if the company is not permitted to pass on its liability costs to customers.
“Bottom line is that the company’s threat of bankruptcy may result from real concern about its considerable potential liabilities, but is also surely tactical, in order to try to force a legislative fix or different treatment from the Public Utilities Commission,” Hecht said.
In addition to exploring bankruptcy, PG&E is considering selling its natural gas division to pay for mounting wildfire claims.