PG&E Takes $2.5 B Loss for Early Wildfire Claims

Pacific Gas &Electric Corp. is taking a $2.5 billion hit in its upcoming quarterly earnings to cover the “low end range" of liability claims arising from 14 of l6 Northern California wildfires that burned last October and were investigated by CalFire, the utility announced during a June 21 conference call.

The “high range” of liability from the wildfire damage and loss of life is not known at this time, Jason Wells, PG&E senior vice president and chief financial officer, told financial analysts this morning.

The pre-tax $2.5 billion loss noted in the company’s 8K Securities & Exchange filing on June 21 is to come from the funds saved from suspending dividends at the end of last year, said Geisha Williams, PG&E chief executive officer and president. Tapping into the capital markets won’t be necessary at this time.

“We anticipate having ready access to capital markets should we look to finance losses in the future,” added Wells.

The $2.5 billion loss does not include potential liability claims from two of the more serious fires, the Tubbs and Altas. That is because of insufficient information, according to PG&E executives.

There were as many as 21 major wildfires in Northern California last fall, burning a total of more than 245,000 acres, destroying about 8,900 structures and killing 44 people. The most destructive, the Tubbs Fire, burned major parts of Santa Rosa and continues to be under investigation.

Williams emphasized that PG&E was fighting tooth and nail to overturn California’s inverse condemnation law, which holds it can be strictly liable for the wildfires, regardless of blame.

“This is going to be a long and complex litigation process.” Williams said.

PG&E also is challenging the liability issue on the state legislative and regulatory fronts.

PG&E officials have been meeting daily with state lawmakers to legislatively overturn the state’s inverse condemnation law. An Assembly committee advanced legislation would do so earlier this week.

Williams asserted that lawmakers “remember vividly the energy crisis,” and its impact on utilities, including PG&E’s bankruptcy. However, only a minority of lawmakers were members of the Legislature at that time.

Inverse condemnation in effect makes the utility “akin to a backstop insurance provider,” Wells said. “Our goal is to change the state inverse condemnation law so ratepayers and shareholders are not harmed.”

CalFire investigations revealed that utility equipment sparked 16 of the investigated blazes. In most of those cases, PG&E was claimed to be in violation of vegetation clearance standards for its lines and the investigations were referred to the appropriate district attorneys’ offices.

The $2.5 billion write off is aimed at covering cover at a minimum liability from the Porte, McCourtney, Lobo, Honey, Redwood, Sulphur, Cherokee, Blue, Pocket and Sonoma/Napa merged wildfires.

The company also filed an appeal June 20 with the California Supreme Court to overturn the lower court’s refusal to throw out the strict liability claims in the 2015 Butte fire, as urged by PG&E.

The Butte Fire, ignited by utility power lines, killed two people, injured one, and destroyed 549 homes, and 372 other structures.

The utility also delayed the filing its massive 2020 general rate case by four months because it is unable to estimate upcoming financial losses from fire claims. “This is one of the largest and one of most important cases we present to the [California Public Utilities Commission],” Williams noted.

“Wildfire risk, this is going to be a perennial issue,” Williams told the analysts.

In related developments, state energy regulators June 21 granted PG&E’s request to establish a Wildfire Expense Memorandum Account to track specific wildfire liability costs, including retroactive ones, over the objections of consumer advocates.

The account is to include incremental costs arising from the 2015 Butte Fire.

Commissioner Cliff Rechtschaffen said he supported establishing the tracking account outside the general rate case because otherwise the utility would be “precluded from recovering costs for circumstances out of its control.”

The Office of Ratepayer Advocates argued that PG&E’s request for this tracking account was not associated with any specific wildfire even, and should not include the Butte Fire or other wildfires predating the filing of the application.

The decision does not approve recovery of any wildfire -related costs.

Also approved on the commission's consent calendar was a decision backing PG&E’s request for $117 million in ratepayer recovery for the costs of disasters that occurred from 2012 to March 2016. The commission found the costs were reasonable and prudent. —Elizabeth McCarthy

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PG&E Takes $2.5 B Loss for Early Wildfire Claims

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