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PG&E: what’s next for the utility at the center of California’s wildfires

Susie Cagle

It was like a scene out of a dystopian future film: a second world war air raid siren blasted over a blacked-out west Sonoma county in northern California to warn residents as winds picked up Saturday night and pushed the Kincade fire closer.

Pacific Gas & Electric, the utility servicing northern and central California, had shut down power when the fire began in hopes of preventing its equipment from sparking fires amid fierce winds.

But the shutoffs ostensibly meant to cut wildfire danger – and PG&E’s attendant liabilities for those wildfires – left officials struggling to send evacuation alerts across the region. And days after the start of the blaze, PG&E admitted that a still-energized transmission cable had malfunctioned shortly before the fire ignited.

The beleaguered utility’s share price plummeted.

PG&E has seen multiple stages of chaos and crisis in recent years, from the liabilities incurred from igniting wildfires, to the public safety power shutoffs meant to stop those fires, to this new nightmare scenario, featuring both potentially utility-created disasters at once.

The power safety shutoff plans that were supposed to prevent just this kind of blaze are proving untenable. The California governor, Gavin Newsom, is placing blame and hinting at more regulation to come. Others are calling for the state to take over PG&E, or break it up.

The company’s ongoing troubles and danger pose an existential question for California: what is needed to adapt this infrastructure for the climate-changed state, and who’s willing and able to pay for it?

‘We don’t fully understand the risk’

Turning off the power in order to prevent wildfire starts was supposed to be an option of last resort. When the state approved PG&E’s deenergization plans for public safety power shutoffs last year, no one seemed prepared for how frequently the utility would be conducting rolling blackouts for millions of residents: in October, some Californians suffered three separate power shutdowns. In some places, it was functionally just two – because PG&E didn’t finish inspecting lines and restoring service before it turned off the lights yet again.

Some criticized the embattled utility for overzealously imposing blackouts according to an opaque set of internal criteria, motivated primarily to protect itself from the liabilities incurred by its faulty equipment. After PG&E equipment was linked to the Kincade fire, and at least three other fires across the San Francisco Bay Area during the power shutoff last week, some wondered if the blackouts didn’t go far enough.

A fallen PG&E utility pole lays on a property burned during the Kincade Fire. Photograph: Philip Pacheco/AFP via Getty Images

“If anything, the evidence from the [public safety power shutoff] experience in northern California so far indicates that the utility probably should have turned off more, not less,” said Michael Wara, the Stanford Climate and Energy Policy Program director. “What happened up in Sonoma makes me think we don’t fully understand the risk.”

After PG&E’s grid was linked to deadly fires in 2017 and 2018 that totaled close to the company’s market value, the utility filed for bankruptcy. But any new PG&E-sparked fires pose a challenge to the company’s bankruptcy plans, as any post-bankruptcy fire claims will have to be paid in full before any pre-bankruptcy claims, which includes the $10.5bn in estimated liabilities from the 2018 Camp fire that PG&E admitted was sparked by its faulty infrastructure.

“Since they filed for bankruptcy, we’ve known that they were operating a dangerous business that could cause harm to others. They can’t guarantee consistent uptime for their grid, they can’t guarantee they won’t start a fire – they can just promise to do the best that they can,” said Jared Ellias, a UC Hastings bankruptcy law professor. “Bankruptcy law in some ways wasn’t built for that.”

Liability: ‘it’s a hot potato’

Power lines have been starting fires in California since there were power lines in California, and PG&E’s were some of the first. As communities have grown in California’s wildland urban interface, where cities meet brushland and forest across the state, that electricity grid has been expanded further into rugged, steep terrain, where it’s especially expensive just to send crews for repairs and transport new equipment, sometimes dropping it in by helicopter.

The state went to lengths to stabilize PG&E earlier this year and offset the costs of further fire risk amid its bankruptcy. One piece of legislation, signed into law in July, set up a $21bn compensation fund for future wildfire liabilities, with half the money coming from ratepayers and half from investor-owned utilities. In order to cash in, the utilities were required to institute new safety measures tied to executive compensation.

The fund was essentially a kind of insurance meant in part to restore investor confidence. But if the fires continue, that fund could quickly be depleted.

Pacific Gas and Electric CEO Bill Johnson listens to speakers during a California Public Utilities Commission meeting in San Francisco. Photograph: Jeff Chiu/Associated Press

“You wonder if seeing these fires will scare the investors,” said Ellias. “But you have to imagine that California will be willing to step in again, because at the end of the day, they need private investors for this company,” said Ellias.

But just how California might step in remains an open question.

“It’s a hot potato,” said Leah Stokes, a UC Santa Barbara political science professor. “I think that the government’s probably thinking if we take this on, and then the fires keep happening, because they will, then it becomes it’s even more our fault. So I can see why Gavin Newsom wouldn’t want to do that.”

In an interview with Bloomberg on Saturday, Newsom, the California governor, said he hoped Berkshire Hathaway, which owns a utility in Nevada, might buy and take over the company. But there is a growing movement calling for public ownership – either through a state takeover, or local municipalities splitting up PG&E’s grid.

On Tuesday, the California representative Ro Khanna called on Newsom to support turning PG&E into a customer-owned utility. “California needs to be bold and take over PG&E,” he said.

A state takeover would mean more public oversight, as well as more public liability for any future wildfire costs.

But breaking up the utility is a more complicated proposition. Wealthy cities like San Francisco seceding from PG&E and creating its own municipal system – which the city has a plan to do – would mean even more of those liability costs concentrated in the rest of the less-wealthy California customer base.

“When San Francisco says, ‘we want to secede,’ I hear that and I think, what you actually want is to not have to deal with the problems of your neighbors,” said Ellias.

“There are a lot of liabilities on the table and breaking it up is going to make it harder for certain communities,” said Stokes. “There’s a question about equity.”

Crisis or opportunity?

Regardless of who owns the poles and the power lines, making the repairs and upgrades necessary to run electricity mostly worry-free when the wind starts blowing in California will take a long time, and be very expensive – for PG&E investors, for ordinary California ratepayers or both. Consumer advocacy groups are torn between lobbying for an increase in safety, but not in rates. But the money will have to come from somewhere.

PG&E has estimated the cost of undergrounding its lines at $3m to $5m per mile.

Any solution, public or private, will require huge investments in the infrastructure that electrifies California – infrastructure that will only grow more vital as California moves toward using more renewable energy sources and reducing emissions, in part through new municipal policies throughout the state requiring electrification of buildings and the phase-out of natural gas.

PG&E crews work on restoring power lines in a Santa Rosa neighborhood ravaged by fire in 2017. Photograph: Marcio José Sánchez/Associated Press

PG&E has repeatedly blamed the climate crisis for worsening wildfires in California – a stark contrast from the company’s climate-denial efforts 20 years ago. Utilities have historically been part of the carbon-emitting fossil fuel industrial complex that has driven the climate crisis.

PG&E is today a comparatively clean electricity provider, because California requires it to be – at least at present. State Republicans suggested the utility could find funding for necessary maintenance and upgrades if the state cancelled plans to source 100% of its energy from clean sources by 2045.

Wara presents another possible solution: that this crisis, and much-needed climate adaptation as a whole, could be an opportunity for a kind of California Green New Deal for economic investment in the state’s infrastructure. Through a package of home hardening, vegetation management and microgrid backup for blackouts – so that they don’t continue to disproportionately impact low-income people – California could turn PG&E’s crisis into a public climate adaptation project.

“Luck is not in our favor, given the evolving climate situation in California,” said Wara. “But we’re a wealthy state. We can make sure that people are not left behind, and that we don’t end up with climate change making inequality worse.”