PG & ECalifornia's largest utility, announced on Monday that it was going to file a Chapter 11 protection application against bankruptcy at the end of the month, providing 15 days' notice required by law.
What compels the company to occupy this unsavory position is $ 30 billion increase in liability after a record deadly forest fires in 2017 and 2018 have burned large tracts of California. Investigators attributed more than 1500 fires to power lines and PG & E equipment between June 2014 and December 2017, according to the the Wall Street newspaper. And PG & E equipment is a major suspect in the Campfire, a fire in October that killed 85 people and almost destroyed 14,000 homesmaking it the deadliest and most destructive forest fire in the history of the state.
Monday morning, the public service owned by an investor had lost more than half of its resources. value of the action, with a market capitalization falling to $ 4.7 billion. The company employs 20,000 people and serves 4.3 million gas customers and 5.4 million electricity customers (whose service will not be interrupted for the moment).
We have just arrived at PG & E. Workers are building barricades in front of their building. The security officer said "no comment" when I asked why. The utility that just announced this morning is preparing to file for bankruptcy under Chapter 11. The CEO has resigned. pic.twitter.com/w73fWXx9S9
– Amy Hollyfield (@amyhollyfield) January 14, 2019
Bankruptcy is a major development in an ongoing confrontation between society and its regulator, the California Public Utilities Commissionand state legislators to know who bears the costs of these disasters.
While PG & E may now be struggling with huge damage, regulators limit the amount of that amount they can pass on to their customers via electricity and gas rates. However, we still do not know what the specific implications of bankruptcy are for clients. (The CPUC stated that no one was available to comment.)
But the downfall of a large public service is also an alarming example of how the effects of climate change may be weighing on US corporations and taxpayers today. And the risks are only growing.
Climate change forces utilities to change the way they do business
Once upon a time, public services were a relatively safe bet for shareholders. Public services are tightly regulated, they sell things that everyone needs and their customers are stable, if not growing. While some utilities placed bad wagers, those who stuck to their essentials – gas, water, electricity – tended to behave well. PG & E was an example.
"If you had asked for it a few years ago, I think people would have said it was a good investment," said Travis Kavulla, former president of the National Association of Commissioners of the United States. Public Regulatory Services and now Director of Energy Policy of the R Street Institute.
However, California is one of the few states to hold public services responsible for damage resulting from their equipment even during normal operations. This was not really a problem until several large fires began to be attributed to PG & E equipment. This surprised investors, who began to lobby lawmakers.
The state legislature of California passed a law last year, Senate Bill 901, which allowed PG & E to pay its customers the costs of its responsibility for the 2017 fires. PG & E estimated that it would cost an additional customer to an average customer. $ 5 a year for every billion dollars issued in bonds.
However, the law does not cover the fires of 2018 and it is unclear whether state lawmakers want to save public service. If the company can not transfer costs to its customers, PG & E investors must pay.
And this calculation is not exclusive to California. In the United States, the energy sector is vulnerable to climate change. Prolonged droughts have threatened the cooling water supply of power plants. Extreme weather events destroyed infrastructure, as we saw when Hurricane Maria enveloped the sun Porto Rico in the biggest blackout in the history of the United States. Rising temperatures are fueling the peak of electricity demand in places like Texas, pushing energy production capacity to the limit when reserve margins dwindle.
"By far the most important environmental factor affecting [electricity transmission, storage, and distribution] global climate change currently needs infrastructure, "said the US Department of Energy in its 2015 report Quadrennial energy balance.
The question now: how does a public service price in the risks of rising temperatures and staying in business? When a public service such as PG & E has to bear the costs of an unprecedented fire, it must actually become an insurance company, in addition to being a public service because it must manage and spread the risks of rare and devastating events.
"The answer, unfortunately, is that everyone was caught off guard by this episode and no one thought about it seriously," Kavulla said. "Do you socialize risk or do you expect private capital to support it?"
Fires still pose a growing threat to California and much of the western United States
Although forest fires are an integral part of forest ecosystems, human activity is a key factor in growing destruction wildfires like the ones we saw recently in the West. People get heated up 84 percent all fires, whether they are power lines that have broken down, vehicles that are down, or arson. This tripled the duration of the fire season and increased the area burned by seven times the number of fires caused by lightning.
But the devastation of these fires comes from more than sparks. California housing shortage and high real estate prices are forcing more and more people to live closer to the forested forests that are likely to burn.
More houses in and around forests mean more power lines running through trees. PG & E already operates 106,681 km of electricity distribution lines and 18,466 km of interconnected transmission lines over 70,000 square miles of land. This increases the risk of inflammation as well as the number of people and properties at risk. It is estimated that the only campfire caused more than $ 16.5 billion in property damage.
For example, while PG & E equipment may have triggered fires, it is located in areas of high fire risk because people live there. There are precautions the company can take – cutting trees, doing regular maintenance – but trying to reduce the risk of fire to zero would be terribly expensive. It can cost $ 1.4 million per mile to bury power lines in rural areas, compared to $ 174,000 per mile above the ground. These costs would ultimately be passed on to electricity consumers.
Fallen power lines connect the burnt remains of a house destroyed by fire at the Paradise camp in California. Umair Irfan / Vox
At the same time, decades of suppression of fires rather than allowing them to follow their course in forested areas paradoxically aggravated them. Over time, the fuel accumulates until reaching abnormally high densities.
And humanity's greenhouse gas emissions are heating up the planet, making some parts drier and more exposed to fire. Scientists have found that more than half of aridity in the forests of the western United States between 1979 and 2015 stems from the warming caused by humans. Drier forests are not only likely to burn; they are more vulnerable to parasites such as bark beetles. California is also suffering from a multi-year drought and the summers of 2017 and 2018 have brought record heat to the state.
Drought, warming and parasites converged to kill more 129 million trees across California.
With so many factors at play, it is difficult to determine who is to blame and, more importantly, who should pay for the wildfires. And President Trump threatened to cut relief funds from the Federal Emergency Management Agency for fire victims, blaming the state's forest management for fires, although most of the state's forestlands are maintained by the federal government and more federal acres burned in last year's fires. Newly elected governor of California Gavin Newsom must now balance all these competing forces.
"Over the coming months, I will work with the legislature and all stakeholders to ensure that consumers have access to safe, affordable and reliable service, well-treated fire victims and the ability for California to continue to make progress toward achieving its climate goals, "he wrote in a statement.