Special Briefing: Who’s Going to End Up Paying Off PG&E’s Fire Liability?
WHY YOU SHOULD CARE
PG&E’s downfall is the latest step in a complicated fight over responsibility, private enterprise and extreme weather.
This is an OZY Special Briefing, an extension of the Presidential Daily Brief. The Special Briefing tells you what you need to know about an important issue, individual or story that is making news. Each one serves up an interesting selection of facts, opinions, images and videos in order to catch you up and vault you ahead.
WHAT TO KNOW
What happened? California investor-owned utility PG&E has officially given notice that it plans to declare bankruptcy after a mandated 15-day waiting period. The company, which is Northern California’s main supplier of electricity and gas, is on the hook for about $30 billion in damages after it was found liable for multiple deadly wildfires over the past two years. According to California state law, the company has to pay out those damages even if no negligence on its part is proven, and it won’t be able to pass the costs on to its customers.
Why does it matter? Some see PG&E’s bankruptcy as a high-risk ploy in a game of chicken with the state government over how people will be compensated for lives and property lost in the fires. But it’s not a simple issue: With 16 million customers and high property prices driving people to settle in fire-prone areas, PG&E is forced to deliver power in places that may not be safe. And who will take on costs for maintenance and damages is a question that will likely be repeated in the coming years as climate change increases the risk of fires around the world.
HOW TO THINK ABOUT IT
They asked for it. California has resisted bailing out PG&E, as public anger mounts over what’s widely seen as a broken safety culture within the company. Now legislators must determine the best way to ensure safety, reliability and affordability, whether utilities are government- or investor-owned. Although companies have been bailed out in the past — like the financial institutions and automobile industry, which received federal-level relief in the wake of the 2008 financial crisis — politicians are reluctant to speak up for a discredited PG&E, already facing penalties for falsifying safety documents for natural gas pipelines.
Big enough to fail. California lawmakers have signaled they would wait until the utility giant is in bankruptcy court — a lawsuit to which the state would be a party — before discussing any taxpayer-funded relief for some $30 billion in liability. Previous legislation allowed PG&E to pass the costs of wildfires in 2017 to its customers with higher rates after the company was found liable for 17 of 21 major Northern California fires that year. But legislation permitting something similar for 2018’s wildfire season has yet to be introduced. Meanwhile, PG&E’s former CEO Geisha Williams is expected to walk away with a multimillion-dollar severance aside from millions in pension benefits.
An unstable grid. More natural disasters necessarily mean more power trouble for citizens as aging utility infrastructure faces flooding, winds and fires at the same time as increased demand. Severe weather has been found to be the leading cause of power outages in the U.S. And utility companies can’t always weather the storm. Way back in 2005, Hurricane Katrina forced Entergy New Orleans into bankruptcy. More recently, the Puerto Rico Electric Power Authority left residents of the island without power for half a year after Hurricane Maria struck in 2017. That bankrupt utility is now on its way to restructuring and likely privatizing. Rate hikes and unreliable service could see more people turning to solutions like private solar, decentralized microgrids or renewable energy solutions like wind farms, which are less vulnerable to extreme weather.
Pay up. A number of retailers have recently filed Chapter 11 bankruptcies, including Toys R Us and Sears, putting thousands of their employees’ jobs at risk. Sears’ prior store closures meant workers were already being laid off, but they stopped receiving severance pay when bankruptcy hit. A separate claim must be filed by those who are owed money, throwing former employees in with other creditors as claims get prioritized. Meanwhile, former workers at Toys R Us, which declared bankruptcy last year, wrangled a $20 million fund out of private equity firms that bought the company in 2005 — a fraction of what they said they were owed — after months of protests.
WHAT TO READ
Who Could Get Hurt by PG&E’s Fire-Driven Bankruptcy, by David R. Baker on Bloomberg
“Filing for bankruptcy puts those lawsuits — total estimated liability: $30 billion — on hold and wraps them into the bankruptcy proceedings. That’s part of bankruptcy’s appeal to PG&E.”
Why the Government Shutdown Is Increasing Fire Risks in California, by Natasha Bach in Fortune
“Thousands of U.S. Forest Service, National Park Service and Bureau of Land Management employees remain furloughed, preventing these agencies from doing critical work to prepare for the next fire season or reduce existing risks.”
WHAT TO WATCH
Potential PG&E Liabilities Falling on Taxpayers?
“I don’t even know how they can quantify the damages. … They’re liable for all of it, they’re liable for everything that was in your house … either they or the government of the state (and therefore the taxpayers of the state) of California.”
Watch on Fox Business on YouTube:
PG&E Bankruptcy Would Be One of the Biggest Chapter 11 Filings in U.S. History
“PG&E opted to jump the gun and to use bankruptcy as a weapon as a way to resolve these claims. It’s most unfortunate and horribly disappointing to the thousands of people who have been impacted.”
Watch on KPIX CBS SF Bay Area on YouTube:
WHAT TO SAY AT THE WATERCOOLER
Can’t stop, won’t stop. Despite the massive costs in lives and money from California wildfires in recent years, developers continue to get the green light to build homes in fire-prone areas. Los Angeles County’s board approved the Centennial project, which would build thousands of homes in an area eight times the size of San Francisco. Fire specialists have warned the land is at a “high” or “very high” risk of fire. The developer, Tejon Ranch Co., has defended the project by noting there have been only four fires in the area in the past 50 years.