Wildfires Are Destroying California, and Utility Customers May Be Stuck Paying for Damages

Wildfires are heavily afflicting California for the second year in a row. The most destructive, called the Camp Fire, is the worst in the state’s history in terms of deaths; it has killed at least 63 people while burning roughly 140,000 acres in and near the town of Paradise, 90 miles north of Sacramento. Now, as firefighters attempt to contain the blaze and residents pick up the pieces of their lives, one of the state’s largest utility companies is facing tens of billions of dollars in liabilities for those fires. It’s more money, The New York Times reported Thursday, than the company’s insurance would cover, potentially leaving customers responsible for the bill.

Though investigators haven’t determined the cause of the Camp Fire, the utility company, Pacific Gas and Electric (PG&E), disclosed in a regulatory filing that “an outage and damage to a transmission tower were reported in the area shortly before the fire started last week,” the Times reports.

Citigroup estimated that the company already owes approximately $15 billion for fires in 2017, and may owe another $15 billion if its equipment is found to have caused the Camp Fire. Some fear these billions could be passed on to consumers.

PG&E, which has 16 million customers in California, saw its stocks tumble 52 percent this week, according to Marketwatch.

PG&E is defending its record, saying it blames global warming for the wildfires. Tim Hynes, head of North American research at Debtwire, accepts this argument, telling Marketwatch, “The company has been around for more than 100 years and its equipment has not caused wildfires like this in the past.”

However, Marketwatch points out, “PG&E is already facing liabilities from wildfires that raged in 2017, destroying more than 245,000 acres.”

The Times concurs, pointing out that “[s]tate 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.”

PG&E’s detractors allege that “poor maintenance of power poles and failure to trim vegetation around power lines is a major cause of fires,” the Times reports. The company’s safety initiatives are under investigation by California’s Public Utilities Commission.

The burden of the wildfires’ costs will go far beyond PG&E, the Times says: “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.”

California state legislators have already allowed for this possibility. They’ve passed a bill—Senate Bill 901—protecting PG&E and similar companies from legal action, “allowing them to pass the expense on to ratepayers.”

The bill allows utility companies to sell bonds to cover liability costs, which they would pay off over time. The cost to the average consumer might be $5 a year for every $1 billion in bonds, according to PG&E. A spokesperson for the legislation’s sponsor, state Sen. Bill Dodd, did not elaborate on the reasoning behind it, telling the Times, “We were focused on 2017 and protecting the ratepayers from that fire.”

The new law applies to some of the 2017 fires and any starting in 2019. Praful Mehta, an analyst at Citigroup, told the Times that this legislative intervention might be the last. “It is unclear whether the political will exists, because it might be seen as a bailout.”