Amid Blackout and Fire Chaos, Will State Move to Take Over PG&E?

Even as PG&E shut off power this week to hundreds of thousands of Northern California residents in an attempt to prevent a wildfire during extreme weather conditions, a blaze broke out anyway in Sonoma County — and now, there are questions about whether the utility's equipment may have caused it.

Those questions, in turn, are raising larger questions about the path forward for California and its largest utility, which is already mired in bankruptcy proceedings after causing devastating fires in 2017 and 2018.

On Friday, after touring the Sonoma County fire area, Gov. Gavin Newsom insisted that the state has no current plans to try to purchase PG&E — but left the possibility open.

"The situation is untenable," said Michael Wara, director of the Climate and Energy Policy Program at Stanford University. "I think we're rapidly approaching a moment where the state is going to have to act in some way to intervene in this, just because voters are going to demand it. It's going to be very hard to resist. But I think there aren't a lot of good choices."

On Thursday, PG&E reported a malfunction on a high-voltage power line near the suspected start point for the Kincade Fire, a problem that occurred just minutes before the blaze started Wednesday night and apparently involved the failure of a piece of equipment on one of the utility's transmission towers.

The 230-kilovolt transmission line had remained energized during the onset of high winds that had prompted the utility to shut down much lower voltage distribution lines in parts of 17 counties. Among the places blacked out by the public safety power shutoff was the area where the Kincade blaze started.

Cal Fire is still investigating what sparked the fire, which has now burned more than 21,900 acres and dozens of structures in northeastern Sonoma County. But fears that PG&E could be at fault sent its stock into a tailspin.

That's in part because of the bankruptcy proceedings: PG&E is still sorting out how much money it owes to victims of past wildfires, and any new liabilities would essentially jump to the front of the line, ahead of those past debts, said professor Jared Ellias of UC Hastings College of the Law.

A 'Nightmare Scenario'

"The nightmare scenario is you have several more fires," while PG&E is still in bankruptcy, Ellias said, "and the liability just keeps adding up and adding up and adding up."

Bankruptcy law, he said, "is pretty harsh on this point: If you owe money to somebody for a debt that's incurred while you're in bankruptcy, you have to pay them in order to leave bankruptcy."

That could have implications for not just past victims but also for the financial future of the company, Ellias said. That's because shareholders who invested in the company before it filed for Chapter 11 protection have been betting that they can still make money off the utility's monopoly.

"Their bet was that the pre-bankruptcy fire liability number was going to come in relatively low and that there wouldn't be any fires, creating new fire claimants, while PG&E was in bankruptcy," he said.  "The recent news suggests that investment thesis is at least in question."

Wara agreed, noting that PG&E will need huge cash investments in order to exit bankruptcy and that investors are getting more and more nervous as problems mount. The utility will also need to convince the bankruptcy court that its reorganization plan is feasible and that the company won't end up back in Chapter 11.

"This latest development just raises further questions about how feasible PG&E's current structure is," said Ellias.

But that's not the only problem that the latest equipment failure raises, Wara said, because regardless of whether PG&E started the Kincade Fire, they still bet wrong when they decided not to cut power to the transmission line that failed.

Even Bigger Blackouts Coming?

PG&E officials said this week that their weather forecasts for that area didn't reach the threshold for shutting down the line  and CEO Bill Johnson said the 43-year-old transmission tower had been inspected four times in the last two years and was in "excellent condition."

Wara said the incident does not bode well for Californians who want to see their lights stay on.

"This means the power shutoffs, if anything, need to be broader than they have because they need to involve these (transmission lines)," he said. "That's going to make the (public safety power shutoffs), yes, even more politically unacceptable than they already are."

Newsom is already hearing anger about the shutoffs and has been vocal about his own frustration this week. And according to a KQED/Change Research Poll, voters are angry not just at PG&E but at Newsom as well.

On Friday, after touring the Kincade Fire, Newsom again slammed PG&E for what he called "years and years of greed ... and mismanagement."

He pledged to ensure that PG&E exits bankruptcy with a sustainable restructuring plan. He added he will not accept a decade of preemptive large-scale blackouts – something PG&E chief Johnson told the CPUC last week is possible.

"It took decades to get here, but we will get out of this mess. ... We will do everything in our power to restructure PG&E by the time they get out of bankruptcy," he said. But the governor balked at questions over whether the state is considering taking over the troubled utility.

Risks Involved in a Public Takeover

Still, both Ellias and Wara said the latest turn of events raises the possibility that state lawmakers and Newsom will feel pressure to intervene in some way — though both warned that any public involvement comes with huge risks.

"The problem is that any real alternative would require a lot of money. Like, you can't just put PG&E into a state agency and that will magically solve the problem," Ellias said.

Wara added that the transmission tower's failure shows how little anyone really knows about how to fix this problem. He warned against a complete state takeover, noting that it would open up taxpayers to enormous liabilities that could take resources away from schools or other important public programs.

But he said that at the least, the Kincade incident will move California closer to having that conversation.

"What I would encourage people to think about is what amount of risk the public really wants to accept. And whether there are ways to take on some of the risk, but not all of the risk, and to gain control over the situation ... but doesn't commit the public, the state's balance sheet, to funding this risk in perpetuity," Wara said.

Ultimately, though, he said, "We may not have a choice, right? Whether we like it or not."