After Deadly Fire, Regulators and Consumers Question PG&E Blackouts

Last November, a broken Pacific Gas & Electric transmission line ignited California’s deadly Camp Fire. In January, facing an estimated $30 billion in legal liabilities from this fire and other recent disasters, the company filed for bankruptcy. Then, last month, PG&E repeatedly cut off power to millions of Californians in an attempt to prevent more catastrophe.

Those three events have helped shape the financial fate of the utility giant, as well as that of residents like 62-year-old Renate Stepro: Her home of 17 years burned down in the Camp Fire, so she had to take a second job to pay her bills while waiting for her claim against PG&E to be resolved in bankruptcy court. Last month, the utility shut off her power five times in a row; each time she paid to replace nearly everything in her refrigerator. She’s now pondering how to scrape together money for a generator.

“They took everything I owned — 50 years worth of things,” she said. The blackouts, she said, are “more money out of our pockets.”

The company says power cuts are its surest and swiftest tool to prevent more devastating wildfires during California’s most fire-prone time of year. Equipment failures at the nation’s largest electric company have been associated with six of California’s 20 most destructive fires; fire officials are now investigating whether PG&E equipment also sparked October’s Kincade fire, which burned 78,000 acres and 434 structures in California’s wine country.

Yet many of the company’s customers, watchdogs, and regulators have expressed skepticism around the company’s motives. This week, the California Public Utilities Commission announced a new investigation into the most recent spate of power shutoffs, seeking to ensure that utilities’ decisions to cut power are only made “when absolutely necessary and are based on actual and substantiated conditions.” All three of California’s major electric companies have cut power in response to high winds this year, but of the 2.6 million customer shutoffs, 2.4 million were PG&E’s.

Analysts have noted that in addition to safety concerns, PG&E also has a financial incentive to cut power: Not only would new liabilities further burden the company, but the two plans that have been proposed for the utility’s path out of bankruptcy both include a clause allowing financiers to renegotiate or back out if PG&E ignites another fire that burns more than 500 homes or other buildings.

“They have to say, ‘Is there a chance of fire? Turn it off,’” said Jared Ellias, a bankruptcy law expert at the University of California Hastings College of Law in San Francisco. “They really can’t afford any screw-ups.”

A new tragedy could also hurt victims of previous fires. If PG&E’s finances are further stretched by new claims, past victims could lose part — or, in a remote possibility, all — of their financial settlements, according to Ellias.

The publicly regulated utility has been criticized for more than two decades by state officials, courts and advocacy organizations for failing to invest in preventative maintenance and other improvements to safeguard its system, focusing instead on keeping rates lower for customers and increasing profits and executive bonuses. In 1997, PG&E was convicted of criminal negligence when unmaintained power lines ignited a fire in Nevada County. In 2016, the company was convicted of federal felonies after a gas pipeline on which maintenance had been deferred exploded in a San Francisco suburb, killing eight people.

“This is a crisis of their own making – that’s why people are so upset,” said Mark Toney, executive director of The Utility Reform Network, a non-profit customer advocacy group. “If PG&E had spent the billions of dollars they’ve been receiving on trimming trees, on fixing poles and wires properly, they never would have had to revert to these massive shutoffs just to prevent fires.”

In a statement, PG&E spokeswoman Jennifer Robison said the company recognizes the hardship that the outages have caused customers. “We are constantly working to minimize the impact of these safety shutoffs while prioritizing public safety,” she said. “It’s important to remember that the sole purpose of these power shutoffs is to reduce the risk of catastrophic wildfire in the communities that we serve.”

Shut-offs: ‘A Measure of Last Resort’

Before last year, PG&E did not routinely turn to blackouts during California’s late-fall tempests, though it occasionally cut power to individual lines when fire officials or its own staff deemed it necessary. After its equipment lit the catastrophic 2015 Butte Fire and some of the 2017 North Bay Fires, state regulators compelled all utilities to develop policies around when and how they would preventatively turn off power.

During high winds in October 2018, PG&E conducted its first major shutoff, affecting 60,000 customers in seven counties. But three weeks later, when even windier conditions arose on the day of the Camp Fire, the company left the power on, saying that it “no longer anticipated the need to proactively de-energize.” An investigation later revealed the winds had broken the nearly 100-year-old high-voltage PG&E transmission line that sparked the deadly fire.

The company has long prided itself on its reliability, a factor that may have been in play as it chose not to cut power before the Camp Fire, said Steven Weissman, a public policy lecturer at Berkeley and former staff attorney for the commission.

“Not providing power… works against the DNA of an electric utility,” Weissman said. “It’s like violating the Hippocratic oath for a doctor.”

These past few months, the utility has changed its approach: It has cut power so often that Renate Stepro jokes that Californians are living in a “post-electricity era.” In early October, 729,000 customers lost power in the largest weather-related shut-off by a utility in American history. Smaller shutdowns followed; then, spurred by historic winds, the utility launched an even larger blackout during the last weekend in October, affecting 975,000 customers. More than a half-million had their power cut yet again a few days later.

California law forces utilities to pay for damage caused by its equipment, a requirement that PG&E has lobbied to eliminate, saying the rule is unconstitutional. However, the company says it does not pay for losses associated with safety-related power shutoffs. Those losses are not insignificant: Just the first few days of power outages cost $400 million and $600 million in lost economic output, according to an estimate by Moody’s Analytics. Blackouts also make life even more difficult for low-income people and endanger those with serious medical needs.

State regulators have forbidden the utilities to use the tool to protect themselves financially: “Under no circumstances may the utilities employ de-energization solely as a means of reducing their own liability risk from utility-infrastructure wildfire ignitions,” wrote the CPUC in a recent ruling, noting shut offs should exclusively be used “as a measure of last resort.”

On Oct. 18, the commission called an emergency hearing to demand an explanation for PG&E’s spate of shutoffs.

“The fact is that we did this for one reason, and that is safety,” PG&E CEO Bill Johnson told regulators that day. “The only thing we cared about in all of this was the safety of our customers, our employees and the people of California.”

At the October meeting, Johnson and other PG&E managers laid out the company’s fire-prevention measures, including updating power lines; replacing flammable wooden power poles with fire-resistant ones; and trimming more than one million trees a year. But Johnson also noted the widespread skepticism about the company’s motives, acknowledging its spotty safety record.

“The reputation and condition of this company has been adversely affected by instances in the past where it did not keep people safe,” said Johnson. “In this instance, we were doing our best to do just the opposite.”

On Nov. 12, CPUC president Marybel Batjer sent a letter to PG&E, demanding the company make a case for why it shouldn’t be fined — up to $100,000 per offense — for actions that she said were “ill-conceived, poorly planned, uncoordinated (both internally and externally) and ineffectively communicated.” The next day, the commission voted to start its investigation into the policy more generally, saying it is “not solely concerned with technical or ‘check the box’ compliance.” As of Friday morning, PG&E had not yet issued a public statement on either issue.

Wildfires: The Fine Print

After the Camp Fire, Stepro filled out a lengthy itemized claim form to account for her losses. It was tedious: The mustard in her incinerated kitchen had to be itemized separately from the ketchup. It was also torturous: Her beloved late husband’s flute was technically worth around $300, when she would have paid anything to have it back.

If PG&E is responsible for another disaster now, Stepro’s payout could shrink considerably. In bankruptcy, new victims may “have a claim that’s senior to pre-bankruptcy wildfire victims,” said Ellias, the UC Hastings law professor. In the worst-case scenario, many creditors — except perhaps lawyers, who have already billed more than $140 million — could get nothing, Ellias said.

The parade of disasters has tanked PG&E’s value on the stock market: In late October, PG&E stock hit a low of $3.80 a share, down from a high of $24 this summer and $70 before the 2017 and 2018 fires. Yet PG&E has made a case that its assets are still worth more than its liabilities, presenting a plan to the court that would allow it to emerge relatively intact; a competing plan would place the company under new ownership.  Both include the clause that allows the financial backers to renegotiate — or back out entirely — if the company starts fires that “destroys or damages more than 500 structures.” The Sacramento Bee has reported that, as of Oct. 25, investors in the competing bid, at least, remained committed.

The clauses reveal financiers’ skittishness over PG&E’s ability to prevent new fires, said Catherine J.K. Sandoval, a former member of California’s utilities commission and associate professor of contract law at Santa Clara University.

“That clause, I think it’s ingenious,” said Sandoval. “What they were trying to do was create a financial incentive to really go the extra mile to prevent something like this from happening.” If the Kincade fire was caused by PG&E, she added, the company is well on its way to that 500-structure threshold.

Regardless of PG&E’s financial fate, it may take years for claims like Stepro’s to be resolved, said Scott McNutt, a bankruptcy expert who teaches at the University of California, Davis School of Law and has a small role in the case as counsel for the court appointed fee examiner.

“This is going to go on for a long time,” McNutt said. “We’re creating a whole generation of people who will spend their declining years waiting for a check that will arrive too late.”