CPUC imposes largest ever penalty of $1.9B on PG&E for Northern California wildfires

Dive Brief:

  • The California Public Utilities Commission (CPUC) unanimously voted on Thursday to impose a $1.93 billion penalty on Pacific Gas & Electric (PG&E) for wildfires it caused in 2017 and 2018, marking the largest penalty the agency has ever imposed and closing its investigation into “a grim chapter in PG&E’s history,” according to Commissioner Clifford Rechtschaffen.
  • The regulators, however, reversed course on a previous version of the decision, which required the utility to pay an additional $200 million to the state’s general fund. PG&E has said that the fine could jeopardize a $9 billion equity backstop financing package that it has lined up for its bankruptcy exit.
  • Rechtschaffen acknowledged that permanently suspending the fine is “deeply unsatisfying to many.” However, he noted that the fine is just one of many aggressive steps taken by the CPUC to hold PG&E accountable, and “an extremely rare set of circumstances” justify his decision.

    Dive Insight:

    The CPUC opened an official investigation into PG&E’s role in sparking wildfires in Northern California in mid-2019, after the agency’s safety division identified numerous instances in which the utility’s operations violated rules and regulations. The fires collectively burned hundreds of thousands of acres and led to 129 fatalities.

    In December, PG&E reached a settlement with commission safety division officials and the Coalition of California Utility Employees that would have resulted in a penalty of more than $1.68 billion. That settlement was later modified by a CPUC administrative law judge, who recommended bumping that figure up to $2.1 billion, including a $200 million fine payable to the state’s general fund.

    But in a subsequent appeal, PG&E argued that the additional fine could jeopardize the funding it had lined up for exiting bankruptcy.

    The decision approved by the CPUC Thursday requires PG&E shareholders to pay for $1.8 billion of fire-related spending that would otherwise have been passed on to its customers, as well as an additional $114 million spent on upgrading its system, funding local fire prevention efforts, and similar measures. The penalty will save residential customers around 3% of their bills in 2021, according to the agency.

    PG&E’s appeal of the original penalty was “highly unfortunate and indeed deeply disappointing,” Rechtschaffen said during the commission’s virtual meeting.

    “These protests were particularly disingenuous given that among other things, PG&E was at the same time pleading guilty to 84 counts of involuntary manslaughter in connection with the Camp Fire,” he added.

    However, his decision suspended PG&E’s obligation to pay the $200 million additional fine because the utility “raised a credible threat that paying fines from sources other than the victims’ trust could jeopardize the funding commitments that it had received and that it needs to exit bankruptcy,” Rechtschaffen said. He noted that while PG&E had proposed to pay that fine out of a trust set aside to compensate victims of the wildfires, it “would be entirely inappropriate to pit the payment of fines to the PUC against the claims of the wildfire victims.”

    PG&E accepted the CPUC’s decision and will work to implement the shareholder-funded system enhancements and other measures it requires, utility spokesperson James Noonan said in an emailed statement.

    “We remain deeply sorry about the role our equipment had in tragic wildfires in recent years. We recognize our fundamental obligation to operate our system safely. We share the same objectives as the Commission and other state leaders — namely in reducing the risk of wildfire in our communities, even in a rapidly changing environment. While we have taken unprecedented actions to do so, we recognize that more must be done and remain committed to change,” he said.

    The CPUC’s decision lets PG&E off the hook for violations that led to avoidable deaths, Mark Toney, executive director of The Utility Reform Network, said in an emailed statement. “For the commission to cave in to PG&E’s demands for a free pass not only sends the wrong message to the company, it sends the wrong message to the public the CPUC is supposed to protect,” he added.

    Several public commenters during the meeting urged the CPUC against approving PG&E’s bankruptcy exit plan, due in part to concerns that it would overly burden the utility’s ratepayers.

    The plan, which also requires confirmation from the bankruptcy court, is based on a $25.5 billion payout to resolve the company’s liabilities for the Northern California wildfires. Commissioners are scheduled to vote on approving the plan on May 21.

    “We are here because PG&E has demonstrated that a system that relies on turning a profit to be safe does not work,” said Lincoln Oliver-O’Neil, who organizes with the Sunrise Movement, a climate change advocacy group. He added that California’s electric rates are already some of the highest in the country, and the plan should include debt forgiveness for bills and prevent negligence-related costs from being transferred to ratepayers.