California is incurring yet another round of blackouts to try and prevent strong winds from causing power lines to break and starting fires. The result is approximately 318,000 California customers in the dark. While renewable energy and climate change activists attempt to pin the blame on the lack of action by the Trump Administration, there is a much simpler answer for the current problems.
It is not surprising the California politicians would attempt to blame the flames on climate change, but the fact of the matter is lawmakers in the Golden State have grossly mismanaged their priorities for the last few decades and the poor decisions they made are having disastrous and deadly consequences for their constituents.
The Pacific Gas and Electric Corporation (NYSE:PCG) is facing upwards of $30 billion in liabilities for its alleged fault in dozens of wildfires between 2017 and 2018, including November’s ‘Camp Fire’ – now the single most destructive wildfire in California’s history. This is a big problem for a utility that has a net present value of roughly $12 billion and only $2 billion worth of insurance coverage. It is also a blow for California’s proclaimed transition to renewable energy by 2045.
A major disaster, the ‘Camp Fire’ has thus far burned an area the size of Chicago, killed 86 people, razed 14,000 homes, and caused nearly $7 billion in damages. Massive lawsuits ensued. Unsurprisingly, PG&E filed for Chapter 11 bankruptcy last Tuesday (Jan 29), citing ‘extraordinary challenges’ in the face of outsize liability costs and lawsuits connected with the disasters.
Unfortunately, when the smoke clears, it may be California’s utility shareholders, customers, and green energy sector writ large that ultimately pay the price.
Who is to blame? PG&E, state lawmakers, or climate change?
An initial examination indicates that a damaged PG&E electric pole and powerline was the source of the record-setting blaze, though the investigation is still ongoing. There is alleged evidence of PG&E negligence including their refusal to address complaints of sparks along some of their transmission lines, as well as repeated failures to shut off powerlines amidst high winds in the area before the fire broke out. Claimants allege a continued pattern of carelessness exhibited by PG&E, and the utility could face criminal charges if found guilty. It is important to note that, unique to stringent California law, a public utility is liable if its equipment caused a fire, even if the company was in compliance with safety policies.
In response to the lawsuit filed by Camp Fire victims, PG&E had this to say:
It’s important to remember that the cause (of the “Camp Fire”) has yet to be determined. The safety of our customers and the communities we serve is our highest priority. We are aware of lawsuits regarding the Camp Fire. Right now, our primary focus is on the communities and supporting first responders as they work to contain the fire and getting our crews positioned and ready to respond when we get access, so that we can safely restore gas and electricity to our customers.
Climate change is creating an environment conducive to increasingly frequent and intense fires. Typically, peak-season for wildfires in California falls in the late summer following a dry, hot season. From June to August of 2018, California saw above average temperatures and experienced below average precipitation. By October, precipitation normally increases in the region and reduces the risk of wildfires. However, parts of California experienced record-low rainfall and near drought-like conditions throughout October and November. Combine this with inadequate tree clearing and controlled burn practices, and you have a literal tinderbox waiting to erupt in flames.
The Little Hoover Commission, an independent state oversight agency, concluded in their report that California has suffered from years of forest mismanagement and neglect – an issue further complicated by the fact that over 50% of forest land is owned by the federal government. With the USDA Forest Service facing significant budget cuts (federal funding for wildfire management was slashed by $700 million between 2017 and 2018), the implementation of effective land management in federal forests is only becoming more onerous. The report sensibly calls for increased controlled burns and harvesting to reduce the number of trees available to burn when a fire breaks out, but acknowledges that costs can be prohibitive.
It will not be the last time this tragedy strikes California, and it certainly isn’t the first.
In addition to lawsuits from the 2018 wildfires, PG&E is said to be responsible for 17 other fires that scorched Northern California since 2017. PG&E was convicted for felonies in its role in the 2017 San Bruno Fire and was found guilty of negligence in the devastating Sierra Fire back in 1994. This includes inadequate maintenance and upkeep of infrastructure and failure to remove trees and branches in close proximity to equipment.
“PG&E has done perhaps more than any other U.S. utility company to decarbonize its energy supply,” according to the Washington Post, but have failed to address the current threat of wildfires intensified by climate change. PG&E has yet to adequately bury power lines in high-risk areas, only using half the money budgeted for the important safety measure (see chart below).
PG&E records indicate a pattern of underspending in power line burial.
California’s lawmakers are not blameless either. In an (admirable) effort to push for a cleaner and more efficient power sector, state leaders pressured utilities like PG&E to meet ambitious renewable energy requirements. This caused PG&E to redirect company resources away from basic maintenance and upkeep of existing infrastructure. Senate Bill 100 – which aims to make California’s electric grid fossil-fuel free by 2045 – is one such lofty green energy target. PG&E spent $44 billion on power purchase agreements with renewable providers but only 1.5 billion on maintenance expenses in 2017.
Furthermore, it was only recently that regulators addressed comprehensive wildfire safety and liability concerns – California state legislators passed major wildfire reform in August of 2018 as the state saw several fires destroy areas in Northern and Central California. Too little too late for many. The matter of liability is therefore as entangled as the forest brambles, and will feature prominently in any future litigation.
Given this confluence of factors, it seems that the 2018 Camp Fire was not a matter of if, but when. And the collateral damage for California will be tremendous. More on that in part II.
With Assistance from Natasha Orehowsky and James Grant