When a Regulated Utility Causes a Wildfire, Who Pays for the Damages?

12.20.2018

Consumer Protection

Utility Regulation

Bills & Economics

Reliability & Resilience

Climate Change

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Who’s liable for the costs when a regulated utility is responsible for a disaster?

To be honest, we’re really not sure, but all eyes are on California to see how they hash this out.

It is growing increasingly apparent that Pacific Gas & Electric (PG&E), California’s regulated utility, could be responsible for the Camp Fire, California’s deadliest wildfire, this past fall. But, as an Investor Owned Utility (IOU), who is really on the hook for these costs? And, considering the changing climate, who is really responsible for the destruction?

IOUs regularly pass their costs along to their customers, Entergy Louisiana customers may have just noticed that Katrina & Rita charges finally rolled off of their bills this year, yet Entergy Louisiana was not deemed liable for either hurricane.

Since PG&E is likely responsible, would their mounting $30 billion in liability come out of company profits? What if that bankrupts the company? More recently, the California Public Utilities Commission has indicated a potential bailout. So, what really is in the customer’s best interest?

First, let’s recap the pickle PG&E’s in:

If this feels like deja vu, you’re not wrong. Investigators found that PG&E power lines were the cause of the 2017 wildfires, the deadliest fires pre-2018. After PG&E spent the first half of 2018 fanning bankruptcy fears, the State bailed out PG&E by allowing them to spread out the costs of the 2017 wildfires, and even pass along costs to customers.
Ironically, that legislation does not cover the 2018 fire season. It’s unclear why the 2018 fire season was not covered, yet PG&E has once again began waving the bankruptcy flag, and at least one regulator has appeared to be granting PG&E leniency.
Responsible, Liable or In Violation? Turns out, bankruptcy isn’t the only concern. PG&E may have violated it’s criminal probation. Back in 2010, during Thursday Night Football, one of PG&E’s natural gas pipelines exploded in San Bruno, a San Francisco suburb, killing eight people, and here’s what I had to say about it then. In 2017, the utility was convicted of five felonies for failing to keep the pipeline safe and a sixth felony for impeding investigators. If the judge concludes that PG&E violated its probation, the utility could face unprecedented punishment.

So, is PG&E ‘Too Big to Fail’? Would a customer funded recovery lessen the economic blow of bankruptcy?

Is it time to change our names to PG&E as Arlo Guthrie suggested in regards to Chrysler? As of right now, the verdict is still out, but the convicted felon title likely goes along with the money.

Could this have been prevented? Sure, PG&E may have been negligent in utility pole and power line maintenance, yet it is also widely accepted that the effects of climate change may be at least partially to blame for an increase in natural disasters, AND New Orleans is no stranger to risks associated with a changing climate. We know utilities have resisted shifting their generation from climate change-causing fossil fuels to more distributed renewables for years, so is there some responsibility there too?

As a New Orleanian, natural disasters resonate with me, as do poor decisions and negligence by our utilities. We pay some of the highest electricity bills and face significant power outages that threaten public safety. Although California’s wildfires may be thousands of miles away from swampy Louisiana, this potential $30 billion bailout could set quite a bit of precedent for utilities across the country, and I’m not too keen being on the hook for someone else’s negligence.

Could this be a time where California looks towards Louisiana for guidance on how to rebuild? Following devastating hurricanes in 2005, Louisiana created a quasi-government agency, Louisiana Utility Restoration Corp. (LURC) to help Entergy rebuild. Could this be used a blueprint for the California Public Service Commission and PG&E, or is this a time where Louisiana and the rest of the country look toward California to see if regulators really will bailout a convicted felon, with ratepayer money?