Summary by JW Williams
As wildfires ravage large swaths of California for a second year, one of the state’s biggest utilities has declared that it faces billions of dollars in potential liability — far more than its insurance would cover.
The potential losses could leave the company’s customers on the hook to pay the bill, exposing businesses and consumers to higher costs. The utility, Pacific Gas and Electric Company, could even face bankruptcy, putting pressure on the state for a bailout.
With its financial liabilities mounting, the company’s shares dropped by more than 20 percent on Wednesday. More than half of its market value has been wiped out since late last week as the fires have spread.
Investigators have yet to determine the cause of the deadliest of the current blazes, known as the Camp Fire, which has killed at least 56 people and destroyed virtually the entire town of Paradise, about 90 miles north of Sacramento. PG&E disclosed in a regulatory filing on Tuesday that an outage and damage to a transmission tower were reported in the area shortly before the fire started last week.
Many fires in recent years have been caused by downed power lines serving California’s utilities. State officials have determined that electrical equipment owned by PG&E, including power lines and poles, was responsible for at least 17 of 21 major fires in Northern California last fall. In eight of those cases, they referred the findings to prosecutors over possible violations of state law.
Citigroup estimates that PG&E’s exposure to liability for those fires is $15 billion — and that it could face another $15 billion in claims if it is found responsible for the Camp Fire, a number that could rise because the fire is only a third contained.
“The damages, if you add 2017 and 2018, obviously are going to be really significant,” said Praful Mehta, a Citigroup analyst.
The compounding costs of the year-after-year wildfires are making it increasingly difficult for any party to absorb the expenses, said Mark Cooper, senior research fellow for economic analysis at the Institute for Energy and the Environment at Vermont Law School.
If the utility is forced to increase rates sharply, the costs may take an economic toll. Manufacturing companies could choose to move their businesses out of the service area or even the state. Residential customers within the utility’s territory then could be left to cover the costs.
“This becomes a humongous challenge,” Mr. Cooper said. “If they try and raise the prices, they may not be able to get them. Should they even be allowed to recover all the cost, if they were guilty of imprudent behavior?”
PG&E said its liability insurance for the year that began Aug. 1 amounted to $1.4 billion.