Le­gal bar­rage has PG&E on the ropes

San Francisco Chronicle - Late Edition (Sunday) - - FRONT PAGE - By J.D. Mor­ris

Pa­cific Gas and Elec­tric Co. is fight­ing for its fi­nan­cial sur­vival, fac­ing a po­ten­tial $30 bil­lion in li­a­bil­ity from deadly wild­fires as its le­gal prob­lems con­tinue to mount.

While PG&E de­fends it­self against two years of fire-fu­eled law­suits, reg­u­la­tors and law­mak­ers are start­ing to ex­am­ine its man­age­ment, safety prac­tices and cor­po­rate struc­ture.

The loom­ing ques­tions add up to an ex­is­ten­tial threat to Cal­i­for­nia’s largest in­vestor-owned util­ity.

Steven Weiss­man, a for­mer ad­min­is­tra­tive law judge for the Cal­i­for­nia Pub­lic Util­i­ties Com­mis­sion, which reg­u­lates PG&E, could not iden­tify a sit­u­a­tion that comes close to the com­pany’s le­gal and reg­u­la­tory quag­mire.

“This is a new level of com­plex­ity,” said Weiss­man, an emer­i­tus lec­turer at UC Berke­ley’s Gold­man School of Pub­lic Pol­icy. “There are ques­tions be­ing raised mul­ti­ple times a day

about the im­pacts of this re­cent ac­tion or that one. There’s a level of scru­tiny here that I’ve never seen with any other reg­u­la­tory is­sue.”

In ad­di­tion to the le­gal bat­tle in which PG&E has been de­fend­ing it­self over last year’s North Bay firestorm, the San Fran­cisco com­pany now faces mount­ing claims over the Camp Fire, the dead­li­est and most de­struc­tive wild­land in­ferno in state his­tory.

Fur­ther com­pli­cat­ing mat­ters, a fed­eral judge over­see­ing the util­ity’s pro­ba­tion in the deadly 2010 San Bruno pipe­line blast di­rected PG&E last week to an­swer ques­tions about the Camp Fire and other blazes.

Mean­while, reg­u­la­tors plan to widen an in­ves­ti­ga­tion into the util­ity’s safety prac­tices, and state law­mak­ers may give PG&E a close look of their own. And North Bay dis­trict at­tor­neys may still pur­sue crim­i­nal charges against PG&E be­cause of the 2017 fires.

Travis Miller, a util­i­ties an­a­lyst with Morn­ingstar Re­search Ser­vices, said he had not seen PG&E face so much si­mul­ta­ne­ous le­gal and reg­u­la­tory pres­sure since he be­gan fol­low­ing the com­pany more than a decade ago.

But the com­pany is also put in a dif­fi­cult position be­cause of its size, lo­ca­tion and the fact that “the pub­lic loves to hate its util­ity,” he said.

“PG&E is in a tough area of the coun­try: It’s an area with a lot of en­vi­ron­men­tal is­sues, ob­vi­ously, risk, and very en­gaged ratepay­ers who pay quite high rates,” Miller said. “That’s a tough sit­u­a­tion to man­age.”

PG&E did not an­swer spe­cific ques­tions about its le­gal and reg­u­la­tory dif­fi­cul­ties.

“There will be a time and place for dis­cussing this and other mat­ters,” spokes­woman Lynsey Paulo said in an email. “Right now, we are fo­cused on as­sess­ing in­fra­struc­ture, safely restor­ing power where pos­si­ble, and help­ing our cus­tomers re­cover and re­build.”

Still, the out­come of PG&E’s var­i­ous prob­lems will be cru­cial to de­ter­min­ing whether the be­lea­guered util­ity sur­vives — and in what form.

Last year’s North­ern Cal­i­for­nia fires and the Camp Fire this year have ex­posed PG&E to bil­lions of dol­lars in li­a­bil­ity, should the com­pany be deemed re­spon­si­ble for the worst in­fer­nos. Cit­i­group es­ti­mates that the 2017 fires could cost it $15 bil­lion, and the Camp Fire the same.

The cause of the Tubbs Fire, 2017’s most de­struc­tive wild­fire, and the Camp Fire are still un­der in­ves­ti­ga­tion. But spec­u­la­tion has cen­tered on the util­ity’s equip­ment in both cases.

Last week, U.S. Dis­trict Judge Wil­liam Al­sup, who is over­see­ing PG&E’s pro­ba­tion in the San Bruno case, or­dered an “ac­cu­rate and com­plete state­ment” of any role the util­ity played in the cause and re­port­ing of the fire. Al­sup also asked what re­quire­ments of last year’s judg­ment against the com­pany — in­clud­ing an or­der not to com­mit any more crimes — could ap­ply “were any wild­fire started by reck­less op­er­a­tion or main­te­nance of PG&E power lines.”

Al­sup or­dered responses by Dec. 31 from PG&E, the U.S. at­tor­ney’s of­fice — which pros­e­cuted the San Bruno case — and the fed­eral mon­i­tor ap­pointed to over­see the com­pany.

His in­quiry is be­ing closely watched by at­tor­neys su­ing PG&E in the fire cases.

“I am wait­ing pa­tiently to see what PG&E is go­ing to say,” said Frank Pitre, one of the lead at­tor­neys for plain­tiffs in the North Bay fire lit­i­ga­tion. “Be­cause I want to test what they have to say, when I get a chance to cross-ex­am­ine their of­fi­cers and di­rec­tors un­der oath, to see whether or not what they say is matched by their ac­tions.”

PG&E’s an­swers to Al­sup’s ques­tions may re­veal some kind of “crim­i­nal reck­less­ness,” said Noreen Evans, a Santa Rosa at­tor­ney and for­mer state leg­is­la­tor who is also in­volved in the North Bay fire lit­i­ga­tion. And that could help plain­tiffs re­cover dam­ages that could, in turn, mo­ti­vate the com­pany to change its prac­tic-

es, Evans said.

“We’d like to make it too ex­pen­sive for PG&E to con­tinue burn­ing down North­ern Cal­i­for­nia com­mu­ni­ties,” Evans said. “Un­less some dis­trict at­tor­ney or the Cal­i­for­nia at­tor­ney gen­eral de­cides to take crim­i­nal ac­tion against PG&E — which I highly sug­gest they do — the only way we can change cor­po­rate be­hav­ior is through mak­ing it too ex­pen­sive to do it again.”

Al­sup’s in­quiry and the fire-re­lated law­suits could also be a key fac­tor in how PG&E’s share­hold­ers re­act. Shares of PG&E Corp., the util­ity’s par­ent com­pany, are about 54 per­cent be­low where they were on Nov. 8, the day the Camp Fire started.

“Le­gal un­cer­tainty will be a key point for in­vestors to watch,” Miller said. “With­out le­gal cer­tainty, reg­u­la­tory cer­tainty and po­lit­i­cal cer­tainty, in­vestors are go­ing to con­tinue to put a dis­count on PG&E rel­a­tive to its peers.”

Un­cer­tainty abounds on the reg­u­la­tory side as well.

The state util­i­ties com­mis­sion voted Thurs­day to di­rect PG&E to im­ple­ment about 60 find­ings from a safety au­dit con­ducted af­ter the San Bruno blast, which killed eight peo­ple and de­stroyed 38 homes.

But com­mis­sion­ers also voiced wide­spread sup­port for ex­pand­ing the in­ves­ti­ga­tion that pro­duced the au­dit to in­clude wild­fires. It’s not clear when that will hap­pen or how long the broad­ened in­ves­ti­ga­tion will take to com­plete. If PG&E equip­ment is found re­spon­si­ble in both the Camp and Tubbs fires, the com­mis­sion has a cou­ple of tools at its dis­posal, ac­cord­ing to Weiss­man.

It could bar PG&E from com­pen­sat­ing ex­ec­u­tives or di­rec­tors with funds re­ceived from ratepay­ers, Weiss­man said. Or it could pe­nal­ize the util­ity if it doesn’t re­struc­ture its board, he said, stress­ing that he is not ad­vo­cat­ing any par­tic­u­lar out­come.

Reg­u­la­tors could also take aim at the fran­chise al­low­ing PG&E to be the “monopoly provider of dis­tri­bu­tion and trans­mis­sion ser­vices,” he said.

“It is a le­git­i­mate ques­tion for the com­mis­sion to con­sider whether there’s a need to change that fran­chise in any way, to po­ten­tially ei­ther take it away from this com­pany ... or to con­clude that the com­pany has a choice,” he said. “Maybe it can be in the gas pipe­line busi­ness and maybe it can be in the grid busi­ness, but it’s gotta choose one.”

Loom­ing over all of PG&E’s chal­lenges is the pos­si­bil­ity it may face crim­i­nal charges from the 2017 fires.

Nearly six months ago, the Cal­i­for­nia Depart­ment of Forestry and Fire Pro­tec­tion for­warded its re­ports on the cause of sev­eral 2017 fires to dis­trict at­tor­neys in the af­fected ar­eas, in­clud­ing the hard-hit coun­ties of Sonoma and Napa. PG&E equip­ment was the cause in each case.

Of­fi­cials in both coun­ties told The Chron­i­cle they are still wait­ing for Cal Fire to re­lease its find­ings on the cause of the Tubbs Fire, which de­stroyed more than 5,600 struc­tures in Sonoma and Napa coun­ties and killed 22 peo­ple.

“When we eval­u­ate what, if any, ac­tion we take, we want to make sure that we re­view all of the re­ports re­gard­ing all of the fires that oc­curred here,” said Sonoma County Dis­trict At­tor­ney Jill Rav­itch. “We don’t want to ap­proach this piece­meal . ... We’re ba­si­cally in a hold­ing pat­tern.”

The pos­si­bil­ity of crim­i­nal charges in the Camp Fire won’t be clear un­til Cal Fire de­ter­mines the cause, which could take many months. But dis­clo­sures from the com­pany about equip­ment that mal­func­tioned near where the fire started helped prompt law­suits by at­tor­neys and plain­tiffs who al­ready blame the com­pany.

For Camp Fire survivor Wal­ter Heard, last month marked the sec­ond time in four years his Par­adise home burned down. The first time was an iso­lated in­ci­dent due to faulty PG&E equip­ment, he al­leges.

Heard was ini­tially re­luc­tant to join a law­suit but ul­ti­mately de­cided “some­thing needs to be done” to hold PG&E ac­count­able. He’s among 35 fam­i­lies who sued the util­ity in Butte County last week.

“Their pock­ets are ob­vi­ously pretty deep — they have all th­ese great, nice, new trucks and stuff, but what’s hap­pen­ing to the equip­ment out here?” he said. “I want them to make things safe for the peo­ple.”

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