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California, Power Companies & Wildfire

Posted By Administration, Tuesday, June 12, 2018

Pacific Gas & Electric (PG&E) and several other power companies are getting blamed for many of the wildfires that have swept California in the last couple of years. The California Department of Insurance says the fires from October to December of last year generated over 45,000 claims

The fires caused almost $12 billion in damages.

State investigators say four wildfires that broke out just North of Sacramento last year were caused by contact between trees and PG&E power lines. In three of those investigations officials said there wasn’t enough distance between the trees and the PG&E equipment.

A news release issued by PG&E says it is looking forward to reviewing those reports but, “Based on the information we have so far, we believe our overall programs met our state’s high standards.”

Lawsuits from these fires are just a few of the hundreds of lawsuits faced by PG&E. California law says they — and the other main power companies in the state, Edison International and Sempra Energy — are responsible for the claims and the damages even if they followed all the rules.

The state’s utilities have all spent considerable time trying to get the “follow all the rules” part of the law changed.

If found guilty of causing the fires PG&E could face $15 billion in claims — including those from the Northern California wine country fires — and Edison is looking at $4 billion from fires in Southern California.

The fires, the causes and all have officials in California’s Legislature and utility companies scrambling for solutions. One is a proposal to set up a fund to offset the legal costs and damage claims. Dollars for the fund would come from shareholders, ratepayers and revenue from the cap-and-trade program, or even from the state’s general fund.

It’s in the preliminary stages but would relieve the utilities if they were found to not be negligent in an incident or if it was determined they acted appropriately if a fire erupts.

Allison Torres of Sempra said, “We are aware of the proposal but are not prepared to speculate on what the outcome will look like. We will continue to stay engaged on the topic for the benefit of our customers.”

PG&E and Edison both acknowledge being aware of the proposal and say it would help a lot because the utility won’t have to absorb all of the damage costs at once which could raise the cost of borrowing money and could cause financial distress for the firm.

The fund — if it eventually gets established — could mean faster payouts and compensation for people who don’t have full insurance coverage or who don’t have any coverage.

As it stands now, the utility firms cannot pass the fire damage costs onto ratepayers. This means the utility companies have some powerful supporters. Among them are the employees of the companies and the unions representing many of them.

Hunter Stern is a business representative for the International Brotherhood of Electrical Workers Local 1245. It represents 20,000 workers in California and Nevada. He said, “Our employers are now at financial risk, because the damage associated with these fires is literally billions and billions of dollars.” 

Advocates for ratepayers and the victims of wildfires like the current system and its penalties for the utility companies. State Sen. Jerry Hill is one of them. He said the system in place now is a very good incentive for utilities to trim trees and invest in company infrastructure.

“They should not get a get out of jail free card,” he said.

Get out of jail free card or not, the current system is likely not sustainable. Experts say PG&E will likely — assuming it doesn’t settle for the full $15 billion — be able to survive last year’s damages. But the company only had $17 billion in revenue in 2017 so another hit like that and it could end up bankrupt.

That brings forth a whole new series of troubles for the Golden State.

By the way, creative solutions like the one being proposed are not unheard of in California. The California Earthquake Authority was created in 1996 when homeowners couldn’t find insurance after the Northridge quake. Insurance companies help set it up.

As an FYI, here are some interesting wildfire statistics for California:

 

Wildfire Causes in 2016 — most have not been solved.

Undetermined — 78%

Miscellaneous — 47%

Debris burning — 45%

Vehicle — 28%

Electric power — 27%

Equipment use — 26%

Arson — 24%

Lightning — 20%

Campfire — 13%

Playing with fire — 6%

Smoking — 5%

Railroad — 2%

 

Wildfire damages in acres & their causes in 2016 (approximate) — campfires caused the most damage.

Undetermined — 38,000 acres

Miscellaneous — 2,000 acres

Debris burning — 4,000 acres

Vehicle — 56,000 acres

Electric power — 2,000 acres

Equipment use — 2,000 acres

Arson — 18,000 acres

Lightning — 1,000 acres

Campfire — 132,000 acres

Playing with fire — 1,000 acres

Smoking — 1,000 acres

Railroad — 1,000 acres

 

Wildfire damage in dollars in 2016 (approximate) — arson causes the most dollar damages.

Undetermined — $11 million

Miscellaneous — $3 million

Debris burning — $2 million

Vehicle — $16 million

Electric power — $1 million

Equipment use — $500,000

Arson — $116 million

Lightning — $2 million

Campfire — $11 million

Playing with fire — $2 million

Smoking — $2 million

Railroad — $2 million

 

Source links: Insurance Business America, PropertyCasualty360.com, Carrier Management, Insurance Journal — link 1, link 2, PEW Charitable Trusts

Tags:  California  Insurance Content  Insurance Industry  Insurance News  Power Companies & Wildfire  Weekly Industry News 

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