PG&E may need to be restructured rather than rescued

Insurers coined the term “moral hazard” to describe the tendency of those insulated from consequences to take more risks. Moral hazard is the reason insurance plans come with deductibles and too-big-to-fail financial institutions are inherently dangerous.

In September, Gov. Jerry Brown signed a bill allowing Pacific Gas and Electric Co. to make its customers cover liabilities arising from last year’s Wine Country fires, including California’s most destructive wildfire to date. Less than two months later, the state had a new most destructive wildfire dwarfing previous records, and PG&E was acknowledging suspicious outages near its time and place of origin.

In case this illustration of moral hazard wasn’t clear enough, policymakers began discussing the dimensions of the next PG&E bailout while the latest devastating wildfire still burned.

The California Department of Forestry and Fire Protection has blamed 17 of last year’s Northern California fires, which caused 44 deaths, on PG&E power lines and other equipment. Investigators found that violations of state law by the utility may have played a role in 11 of them. Yet to be concluded is Cal Fire’s crucial investigation of the Tubbs Fire, which became the deadliest of the year’s blazes and the state’s most destructive so far when it swept into Santa Rosa.

Amid PG&E’s ensuing $2 million-a-month lobbying blitzkrieg, legislators formed a special committee that considered broadly excusing the utility from future fire liabilities. They ultimately stopped short of that but did produce a rescue package allowing PG&E to cover catastrophic costs stemming from the Wine Country fires through bonds to be paid off by its customers. The lifeline also allows the utility to charge ratepayers for future fires provided regulators find the company acted “reasonably.”

It’s a generous safety net, but PG&E may have found a hole. The bailout provisions apply to the 2017 fires and to future fires starting in 2019, but they leave out 2018 — the year that has now seen the state’s most catastrophic wildfire by far.

The Camp Fire, which at least doubled the overall death toll of the Wine Country firestorm and trebled the record destruction of the Tubbs Fire as it leveled

much of the town of Paradise, started in the Sierra Nevada foothills on the morning of Nov. 8 — coinciding, PG&E has acknowledged, with two outages in the area. The high-voltage line drawing scrutiny collapsed in a storm six years ago, the Bay Area News Group reported, and other blazes linked to PG&E lines threatened Paradise in 2017 and 2001.

Apparently suspecting a repeat offender, San Francisco-based U.S. District Judge William Alsup on Tuesday ordered PG&E to explain its role in the Camp Fire and the Wine Country conflagration. Alsup is supervising the company’s probation as a result of yet another deadly disaster, the 2010 gas pipeline explosion in San Bruno, and rightly wondering about the implications of “any wildfire started by reckless operation or maintenance of PG&E power lines.” The California Public Utilities Commission’s investigation of the company’s safety practices in the wake of the explosion is expected to be expanded to encompass the fires.

The latest fire has emboldened PG&E’s detractors in Sacramento, where the sweeping liability concessions the utility failed to win last year appear even more unlikely for the time being. State Sen. Jerry Hill, D-San Mateo, an avid PG&E critic since the utility blew up a neighborhood he represents, is considering proposals to break up or otherwise overhaul the utility.

But policymakers have also taken steps to soothe PG&E’s investors. Assembly Utilities and Energy Committee Chairman Chris Holden, D-Pasadena, told Bloomberg he plans to introduce a bill extending the 2017 bailout to 2018.

Though the next bailout, like the last, will be rationalized as heading off the risks of an unstable PG&E, the dangers posed by the utility in all its supposed stability are more immediate and dire. Restructuring this wayward company makes more sense than endless rescues from its havoc-wreaking recidivism.