PG&E Bankruptcy and Wildfire Liability: Time to End Government-Sanctioned Monopolies?

• Pacific Gas and Electric (PG&E) is filing for Chapter 11 bankruptcy protection, raising serious questions about who will shoulder its $30 billion of liabilities associated with the 2017 and 2018 wildfire seasons.
• PG&E’s insurance isn’t enough to cover its liabilities for wildfires for which it’s partly to blame, and regulators are currently examining how much of that cost can be passed on to ratepayers.
• Ratepayers in PG&E’s service territory have no choice in utility providers because of PG&E’s status as a government-sanctioned monopoly, prompting debate over whether it’s fair to hold them financially responsible for the company’s history of neglecting the risks associated with wildfires.

Recent fires

According to The New York Times:

“Fire investigators determined PG&E to be the cause of at least 17 of 21 major Northern California fires in 2017. It is also suspected in some of the 2018 wildfires that have been described as the worst in state history, including one that killed at least 86 people and destroyed the town of Paradise.”

While all of California’s utilities have lobbied for protection against wildfire liability, PG&E has been the most aggressive in that endeavor. Last year, the state’s investor-owned utilities won a legislative shield from having to bear the cost of 2017 fires, which allows them to pass the cost of wildfires to their customers in the form of higher rates. Now they’re seeking the same for last year’s fires. 

Monopoly status

PG&E, along with some other investor-owned utilities in the U.S., is granted an electricity monopoly for a particular region, and then is guaranteed a rate of return for the infrastructure investments it makes. PG&E’s rates are among the country’s highest.

The original intention of this model was for government regulators to look after consumers’ best interests where a vital resource – electricity – was concerned. However, a growing chorus of experts sees California’s model straying into what Nobel Prize laureate George Stigler describes as “regulatory capture,” wherein oversight agencies are dominated by the industries they regulate.

Climate change

Energy experts say PG&E’s bankruptcy is one of the first major financial casualties from climate change, and it won’t be the last. Decades of data show that declared natural disasters are becoming more frequent, especially fires, and that human-caused climate change is one of the primary drivers of the increase in wildfires.

Indeed, in its Securities and Exchange Commission filing announcing its bankruptcy plans, PG&E specifically identified climate change as one of the causes of its current predicament. The company further called out “the potential for future catastrophic wildfires, stemming in part from climate change” as one of the “fundamental issues and challenges PG&E faces.”

Fallout

Perhaps ironically, PG&E’s bankruptcy filing could threaten some renewable energy contracts that developers hold with the utility. Indeed, the bankruptcy could put California’s ability to meet its broader climate-change goals at risk.

California law requires the state to get 60 percent of its electricity from climate-friendly sources by 2030 and 100 percent by 2045. Developers say meeting those targets depends on financially viable utility companies that can sign long-term contracts to buy electricity from solar and wind farms or from other clean energy facilities.

What do you think?

Is it time for state governments to stop granting electric utilities effective monopoly status? Do you favor some other solution? Tell your reps what you think, then share your thoughts below.

—Sara E. Murphy

(Image Credit: iStock.com / Anne Belden)