PG&E earnings hit by wildfire costs
Company reports $1.59 billion in expenses related to October blazes
SAN FRANCISCO » PG& E on Thursday revealed its latest accounting of the staggering expense of last fall’s North Bay wildfires, saying that $1.59 billion in costs drove a $984 million net loss for the utility in the second quarter.
The charge PG& E took in the second quarter alone for Northern California wildfire-related costs nearly equaled the company’s $1.6 million penalty in 2015 for a natural gas explosion that killed eight and wrecked a San Bruno neighborhood
in 2010. That was the largest regulatory punishment ever imposed on a U.S. utility, and the company was later found guilty of crimes it committed before and after that explosion, a verdict that branded PG&E a convicted felon.
San Francisco- based PG& E attributed the $1.59 billion in new wildfire costs to cleanup, repair, legal fees and claims from third parties against the utility related to the fire. But even those costs pale next to the additional billions in liability the utility faces over the fires — an issue that has tanked the company’s stock in recent months and that dominated a conference call with company executives following its Thursday earnings report.
In recent months, PG& E has been waging a campaign to change the state’s legal framework for determining whether utilities and their shareholders — or the companies’ ratepaying customers — ultimately pay for costs associated with wildfires sparked by the utilities’ infrastructure. A state legislative committee is considering various proposals, including one from Gov. Jerry Brown that would ease utilities’ future potential wildfire-related liabilities but wouldn’t apply to the October 2017 Wine Country fires.
Consumer advocates this week branded Brown’s proposal a giveaway to the utilities, but PG& E took an opposite stance Thursday, saying it is “insufficient.” The company has previously said the potential liabilities from the Wine Country fires — estimates of losses have topped $9 billion — threaten it with financial ruin.
PG& E told analysts during the conference call that itmay have to slash spending on maintenance, equip- ment and clean energy unless it receives more favorable outcomes from Sacramento. PG& E also said insurance premiums and its costs have jumped in the aftermath of the wildfires.
“We will never sacrifice safety- driven work, but as long as these flawed policies remain in place, we must carefully evaluate whether we can support our current level of capital expenditures,” said Geisha Williams, PG& E’s CEO, during a conference call.
Brown’s plan, if adopted, could dramatically ease the potential wildfire-related financial burdens on large utilities such as PG& E — and potentially shovel more costs onto ratepayers’ shoulders.
“The governor’s proposal is constructive, but it is insufficient,” Williams said. “It is an important input, but more work is necessary. The time for action is now.”
In particular, PG& E wants the legislature to change a prevailing le- gal concept known as inverse condemnation, which holds utilities strictly liable if their equipment was a factor in starting a wildfire, even if the utility properly conducted maintenance and facilities upgrades.
That effort has prompted opposition, however, from insurance companies.
“The insurance industry is saying hold your horses in terms of getting rid of inverse condemnation,” said Paul Patterson, an analyst with Glenrock Equities. “A whole ecosystem related to inverse condemnation has been built up over the decades that may be tough to change in a month.”
PG& E said it must navigate an increasingly challenging landscape for insurance coverage in the wake of the fires.
“Some carriers have significantly reduced their exposure by reducing limits or excluding events that were previously covered, and all have significantly increased their pre- miums,” said Jason Wells, PG& E’s chief financial officer, during the conference call. “We are seeking to transfer approximately $1 billion to $1.5 billion of financial risk to the insurance and capital markets.”
The cost of this new insurance coverage is expected to be $350 million. At present, PG& E customers are covering, through a portion of their monthly bills, $50 million in costs for wildfire-related coverage.
That means higher monthly bills loom over customers just to cover higher insurance costs.
PG&E appears to be under intense pressure, said state Sen. Jerry Hill, a frequent critic of PG & E whose legislative district includes San Bruno.
“We are hearing a level of desperation from PG& E leadership,” Hill said. “They know they are responsible for much of the fire damage, and they desperately need to change the liability laws. PG& E won’t rest until it changes the laws it keeps breaking.”
The utility’s equipment and facilities were determined by state fire investigators to have caused 16 wildfires last fall, including 12 of the October wildfires in Northern California.
Of the 16 fire incidents, state investigators alleged that the company violated the law in 11 blazes in 2017.
Despite the net loss on the company’s bottom line reported Thursday, PG&E’s shares soared about 4 percent and closed at $44.70 after it posted profits from operations of $1.16 a share, which topped Wall Street’s forecast of 95 cents.
Excluding the one-time costs associated with the October wildfires, PG& E would have earned $601 million from its operations in the three-month period that ended in June. Operating profits were 36.6 percent higher than in the second quarter of last year.