PG&E, already facing liability for several major wildfires in Northern California last October, told investors Thursday that its insurance premium costs are significantly higher than just a few years ago and it plans to transfer some of the financial risk to insurance and capital markets. The utility holding company said it expects to have agreements for new risk coverage executed in the coming days.
At the same time, PG&E said that it has experienced credit rating downgrades from three major rating agencies, raising the possibility of higher financing costs and cautioned that it may have to scale back on some of the utility’s clean energy projects. The company also described how its extensive fleet of airplanes and helicopters is helping during wildfire season in detection and fire response efforts.
In remarks during the company’s second-quarter earnings conference call Thursday, PG&E CEO Geisha Williams said the utility is “seeing negative impacts in the insurance markets as providers are adjusting to the increased frequency and severity of wildfires across the state, coupled with the unsustainable strict liability standard.”
The CEO also pressed again for California lawmakers to overhaul state laws involving utility wildfire liability but largely dismissed a plan by Gov. Jerry Brown that partly reduces financial liability as “insufficient.” Williams previously used investor calls to make a case for the need to reform how the state deals with wildfires, including utility liability.
“Another fire season is upon us and we’ve already seen several sizable fires across the western United States and of course here in California,” Williams said. “In the same way that we need to take action to make our states, communities and infrastructure more resilient, it’s critical that we address our public policies.”
Cal Fire has pinned the blame on PG&E for at least 16 wildfires in last year’s so-called October Fire Siege in Northern California, including some blazes with fatalities.
The San Francisco-based utility took a $2.5 billion noncash charge in the April-June quarter for 14 of the 16 wildfires, the state agency concluded. That contributed to PG&E posting a net loss of nearly $1 billion for the second quarter.
Still, there’s other blazes from the October firestorm that are being investigated, including the so-called Tubbs fire in Santa Rosa that destroyed entire neighborhoods and was blamed for 22 deaths. A Cal Fire official said this week there’s no firm date on when the agency plans to release findings for the cause of the Tubbs fire.
Fitch Ratings previously estimated PG&E could face upward of $15 billion in financial exposure from October’s wildfires given the state liability laws and scale of the disaster, which destroyed or damaged about 10,000 homes and resulted in 44 fatalities.
Utilities in California face liability under what’s known as inverse condemnation as well as for negligence claims for wildfires and other damaging incidents caused by such things as power lines or other utility equipment. There are state regulations requiring strict vegetation management practices by utilities, and they include standards for keeping vegetation clear of power lines.
In June, Cal Fire said its investigators determined that a dozen wildfires in six counties, including the Nuns, Redwood and Atlas fires, were caused by PG&E’s “electric power and distribution lines, conductors and the failure of power poles.” There were nine fatalities linked to the Redwood fire, which Cal Fire concluded “started in two locations and was caused by trees or parts of trees falling onto PG&E power lines.”
Before that, Cal Fire announced in May that four other wildfires in last year’s October Fire Siege were due to “trees coming into contact with power lines.”
In all, there were more than 100 fires during the October Fire Siege, which was in Sonoma, Napa, Mendocino, Butte, Humboldt and Lake counties. More than 11,000 firefighters from 17 states and Australia were on the lines during the peak of the October wildfires in Northern California.
A special California legislative committee on wildfire issues met Wednesday and heard from experts about wildfire prevention, climate change, preparedness and efforts to overhaul the state’s inverse condemnation rules. Utilities in the state currently have more than 10 different lobbying firms and their in-house lobbyists pushing for liability reforms or other changes.
PG&E has been one of the investor-owned utilities leading the effort to change the state laws. However, some homeowners who suffered devastation during the October wildfires have been vocal opponents of it along with trial attorneys, consumer groups and the insurance industry. There also have been some lawmakers suggesting that any decision on utility liability reforms should wait until Cal Fire issues its report on the cause of the Tubbs fire — the most destructive of the October firestorms.
“The reforms we seek would not absolve investor-owned utilities from responsibility,” Williams remarked Thursday on the call. “Negligence claims against PG&E can still be pursued and the California Public Utilities Commission which should retain the authority to investigate our conduct and reject any costs that are not just reasonable. But where we acted reasonably, we cannot be put in the position of being held strictly liable for damages without the ability to recover those costs.”
A proposal unveiled by the governor this week would remove utilities in the state from having outright liability for wildfire damages and instead mandate that courts “balance the public benefit of the electrical infrastructure with the harm caused to private party and determine whether the utility acted reasonably.” But the governor’s plan also would double the maximum penalties for utilities violating safety rules and put curbs on them recovering fines or penalties from ratepayers.
“The governor’s proposal as a stand-alone measure represents some progress on reforming strict liability, but it’s insufficient,” Williams said. “And it’s important to keep in mind that this is just one element of a more comprehensive set of solutions that are needed.”
There also are several proposals already in the state legislature that deal with reforming rules and regulations involving wildfires or preparing for the next disaster. One proposal that some critics have labeled a “bailout” for PG&E — Assembly bill 33 — would allow state-authorized “recovery bonds” to be issued that “securitize” the costs from the 2017 Northern California wildfire claims, and it would be backed by charges on ratepayer bills.
According to PG&E’s CEO, “extreme wildfire conditions” are now the “new normal” in California. California suffered one of its most destructive and deadly wildfire seasons ever last year with October’s firestorms in Northern California and December’s record-setting Thomas fire in Southern California.
So far this year, the state is already trending above 2017 in terms of acreage losses and number of fires burned, according to Cal Fire.
“While we press for solutions on the legal and legislative fronts, we are not waiting,” Williams said. “We are moving quickly to implement additional measures intended to further mitigate wildfire risk.”
As part of the effort, the CEO said PG&E’s wildfire safety operation center is up and running 24/7 during the height of the wildfire season. The company also obtained two helicopters to assist first responder and fire personnel in wildfires and the executive noted that the equipment had already been utilized in two major fire emergencies in Northern California.
Finally, PG&E said it’s conducting “daily aerial fire detection patrols across thousands of miles of our service territory, to assist both state and federal agencies with early fire detection and response.” The patrols involve the use of seven planes “flying daily routes over the next several months” to provide what the company called “near real-time information” to PG&E’s wildfire safety center.
