The Horrors Created by PG&E
There is a growing sense of importance for protecting the environment and some companies are helping the cause while others are preventing its success. One company that has displayed negligence with environmental concerns, similar to BP with their 2010 oil spill, is Pacific Gas & Electric (PG&E), a California-based utility company that provides natural gas and electric energy to the majority of California. Through improper management, work that could have prevented the deadly fires were delayed for years.
Wildfires are nothing new to the state but they are becoming more common and more destructive. This is partially due to lower levels of precipitation and having the warmest years ever recorded causing the forests to dry. California faced 21 wildfires in the fall of 2017 and PG&E was responsible for seventeen of them. Out of those seventeen, nearly half were referred to prosecutors for various legal violations.
The worst wildfire in the history of California, known simply as “Camp Fire” began burning in the morning of November 8, 2018. Although it is still under investigation, PG&E reported a malfunction in a transmission line as well as a circuit in the area about 15 minutes before the fire began, according to authorities. If PG&E is found to be at fault for starting the Camp Fire which burned for nearly a month, they will be responsible for the scorching of 153,336 acres, destruction of 18,793 buildings, and deaths of 85 people.
Beginning in 2013, PG&E had plans to replace much of the old system that is thought to be at fault for starting the Camp Fire. There was safety work that was supposed to be conducted until it was pushed back to 2014, 2015, 2016 and work that was supposed to begin June, 2018 has yet to begin. Although fire is never completely preventable, simple steps like this could have been taken to drastically reduce the chances.
PG&E being liable for disasters is nothing new and not limited to just their electric business. In 2010, there was a natural gas explosion in a San Francisco suburb that killed eight people. The company was fined $1.6 billion and forced to pay another $900 million in lawsuits.
This is almost nothing compared to the $15 billion in damages from 2017 as well as the possibility of another $15 billion from Camp Fire alone and is a huge issue because the insurance policy PG&E has is for just a mere $1.4 billion.
To help PG&E, as well as other investor-owned utilities, pay for damages caused by wildfires, California Senator Bill Dodd introduced a new bill named Senate Bill 901 or SB 901. It would allow for utilities to issue bonds and be repaid by charges to customers, after approval by California’s Public Utilities Commission. Governor Brown signed the Bill into law on September 21, 2018 .
Although the bill was introduced with good intentions and will help other companies in the future, it may be too late for PG&E. Moody’s has just cut their credit rating for the company to D which is well below investment grade. This is due to the fact that there is a high uncertainty of whether creditors will fully recover their investments.
To help manage the costs, PG&E filed for Chapter 11 bankruptcy protection; when an organization attempts to reorganize its business, including its assets and liabilities. This raises many questions, such as, who will be the ones to cover the costs and how will this help prevent future fires. Many of the questions don’t have answers yet.
Let’s say the bankruptcy is granted by the courts. Although this will help the company, it will hurt those affected by the fires who won’t receive the money they deserve in the short term. The liabilities will be forced onto the 16 million customers for years to come. This will result in an estimated $5 per customer for every $1 billion in bonds. Many people are not happy about the possibility of this, as it is seen as a major bailout for the company. Not only will this affect customers, but it could also hurt those who supply PG&E. Solar and wind farms may have to accept lower prices, which could undermine the growth of the sustainable electricity production. One of the only groups to benefit from a bankruptcy would be the employees. The International Brotherhood of Electrical Workers Local 1245 actually supports the bankruptcy as a way to ensure employees are treated fairly. However, the company just announced their plan to deny workers $130 million in bonuses due to protests.
If the bankruptcy is not accepted, then the utility may be taken over by the state or broken up to be managed by several cities. San Francisco, home of PG&E, is one city that has expressed interest in buying the utility company. This should be prohibitively expensive, as the market cap of the company is about $6 billion, compared to the high of $35 billion over a year ago. Mark Toney, Executive Director for The Utility Reform Network, a utility watchdog group, says that a split-up could be troublesome because it might lead to service disparities and a two-tier system, wherein rural areas are forced to pay more than San Francisco and other urban areas. The governments would also have to take on all the potential liabilities these utility companies may face. With global warming, the fires are only going to get worse as the forests dry even more.
The only thing that is certain for the company is that nothing is being ruled out yet. For many, we will have to wait until the court makes a decision, which could take years to settle this difficult decision. Blue Mountain, the hedge fund, just nominated 13 highly qualified people to take over the board of directors for PG&E and hopefully get them back on track as a successful, law abiding and ethically responsible company. Investment analysts are happy with the recovery that PG&E is making as they have a majority hold rating and more buy ratings than 30 days ago.
If you are looking for ways to help those affected, there are many different options available and I encourage you to find one that best fits your goals. Some are as simple as text message to donate.
Company Profile, www.pge.com/en_US/about-pge/company-information/profile/profile.page.
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