Legal barrage has PG&E on the ropes
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.”