PG&E warns of at least $2.5 billion in liabilities from North Bay fires
Pacific Gas & Electric Co. warned investors Thursday it anticipates being held liable for at least $2.5 billion in damages for October’s Northern California wildfires — and could be on the hook for billions more.
The San Francisco-based utility said $2.5 billion is the low end of its potential liability based on a growing number of lawsuits — now approaching 200 — filed against the company. PG&E executives did not set a ceiling for its exposure, stating there are too many unknowns to make a reasonable estimate.
Insured losses from the fires are estimated to reach $10 billion, and some industry analysts have said the total could climb to as much as $15 billion. That far exceeds the approximately $840 million in insurance coverage PG&E listed in a financial filing Thursday. It also is significantly larger than the fines and settlement costs imposed on PG&E from the 2010 San Bruno natural gas pipeline explosion, which exceeded $1.9 billion.
“We have concluded that we are likely to incur a financial loss with respect to certain fires,” PG&E CEO and president Geisha Williams said Thursday in a conference call.
PG&E has been trying to build support in the state Capitol for legislation that would constrain its potential liability, arguing the fires were caused by an unprecedented mix of weather events related to climate change. Williams recommitted to fighting the state policy known as “inverse condemnation,” which could make PG&E liable for damage linked to its equipment regardless of whether it is found negligent or at fault for the fires. She called California’s treatment of wildfire liability a “flawed construct” and “simply bad public policy.”
“Our goal is to change the state’s approach to inverse condemnation,” she said. “As we’ve continued to reiterate, we will pursue all legal avenues to see that it is addressed.”
That job got tougher, Williams acknowledged, after Cal Fire announced that PG&E equipment triggered 12 Northern California wildfires, which killed 18 people and destroyed thousands of structures. On eight of the fires, investigators found evidence the utility violated state code by failing to clear brush around its power lines and maintain equipment.
“Things will likely be more difficult for us on the legislative front, given the negative media and the headlines,” Williams said.
Excluded from Thursday’s $2.5 billion figure is the Tubbs fire, the most deadly and destructive of the October wildfires. Cal Fire has yet to issue a cause for that blaze, which killed 22 people and destroyed more than 3,300 homes in Sonoma County. PG&E executives on Thursday also disputed Cal Fire’s determination that the company’s equipment is responsible for the Atlas fire, which killed six people and damaged or destroyed more than 900 structures in Napa and Solano counties. Asserting the fire had multiple ignition points, company officials are awaiting the release of Cal Fire’s evidence and detailed investigative reports before reaching a conclusion of probable financial loss.
“That could change, but that’s where we’re at right now,” said John Simon, PG&E’s executive vice president and general counsel.
Jason Wells, the utility company’s chief financial officer, said PG&E will take a $2.5 billion pre-tax charge in the current fiscal quarter ending June 30 so it can begin building a reserve for fire losses, even if it doesn’t expect to make payments any time soon. Another $375 million pre-tax charge also is part of PG&E’s second-quarter filing for insurance policy recovery purposes.
The company does not currently require any new debt or equity after a previous decision to suspend investor dividends, which will save PG&E about $1 billion a year. Wells added that the company will continue to pursue passing these costs onto its customers through rate increases — a practice rejected by state regulators last year after San Diego’s investor-owned utility tried a similar strategy to defray wildfire liabilities.
“Today’s charge will not result in any near-term financing need and does not currently require the use of cash,” Wells said. “However, as we look at more permanent financing solutions in the future, I want to emphasize we will continue to prioritize the health of our balance sheet, as well as the interest of our shareholders.”
PG&E shares have tumbled 42 percent since the wildfires. Its stock closed at $40.53 Thursday, up 53 cents a share.