Update: PG&E formally initiated proceedings under Chapter 11 of the federal bankruptcy code on January 29, 2019.
California’s largest utility, the Pacific Gas & Electric Company (PG&E), today announced its intention to file for reorganization under Chapter 11 of the federal bankruptcy code, citing its exposure to wildfire liability claims of $30 billion or more. As NRDC warned months ago, potential adverse consequences include a loss of state oversight and damage to significant clean energy programs critical to reaching California’s climate goals.
All Californians sympathize deeply with the victims of our recent catastrophes, which caused dozens of deaths and wreaked unprecedented destruction across the state. However, victims’ interests aren’t served by pushing utilities into bankruptcy because that will convert wildfire sufferers into one more class of frustrated creditors pursuing inadequate funds. The same goes for utility customers, who always end up paying more in the aftermath of bankruptcies.
Another substantial casualty could be billions of dollars of funding for PG&E’s nation-leading clean energy initiatives, which are designed to help fight the effects of climate change, like these tragic wildfires. For example, PG&E is the state’s largest investor in energy efficiency, demand management, low-income energy services, greenhouse gas management, clean technology innovation, and electric vehicle infrastructure, with annual commitments approaching $1 billion. Other threatened initiatives involve grid upgrades, programs to support small-scale “distributed” (local) resources, and technology innovation.
We will fight to preserve clean energy programs, which are not only reducing climate-warming emissions, they are lowering customer bills and cleaning our air. California can and should maintain clean energy progress during utility bankruptcy proceedings.
Déjà vu but different
PG&E has made a bankruptcy filing before, although for very different reasons. At the height of California’s electricity crisis, the utility opened Chapter 11 proceedings in 2001 and didn’t emerge from federal supervision until 2004. Throughout that time, NRDC helped protect clean energy investments in alliance with PG&E and numerous allies in filings with the federal bankruptcy court, and we are prepared to do so again.
To reduce the likelihood of future utility bankruptcies across the state, however, the California legislature should revisit judge-made law in California that holds utilities liable for wildfire damage regardless of whether their conduct is negligent or unreasonable. California is the only state that has established this “strict liability” doctrine for wildfire damage, and utility customers are among those with the largest stake in a shift back toward the legal mainstream, in which liability and any resulting increases in utility bills require a finding of unreasonable or negligent conduct. The same can be said of state legislators and regulators, whose authority over utility operations and priorities is greatly reduced during federal bankruptcy proceedings.
Liability reform isn’t all that is needed, of course; we have to recognize that climate change increases the probability of destructive wildfires as well as extreme weather events, and we have to rethink how we design our communities and insurance systems to reduce both individual and collective exposure, even as we double down on efforts to reduce the greenhouse gas emissions that are making everything worse on this and so many other fronts.
Climate change is dramatically altering the world we know. The damages caused by the California wildfires represent one example, which also shows the potential for great harm to institutions and people upon whom we rely for essential goods and services. All levels of government and business need to press even harder now for policies to address this mounting peril.