PG&E sees 'significant liability' in California wildfires

(Bloomberg) – PG&E Corp. expects to record a “significant liability” for losses stemming from fatal fires in California in October that state officials said were started by the utility giant’s equipment. The shares fell in early trading.

Related California proposes stronger laws to help wildfire survivors with insurance claims

The liability would come from fires that include Redwood and Nuns, each of which had fatalities, according to a regulatory filing released by the utility Monday. It does “not believe a loss is probable” for the Atlas and Highway 37 fires, though the filing said emerging facts could change that. The filing did not address the Tubbs fire, the most destructive in state history with 22 casualties.

PG&E equipment ignited some of the most destructive wildfires

California said on Friday what many in the state’s wine country suspected: that PG&E equipment ignited some of the most destructive wildfires. The state also found evidence of alleged legal violations by the utility in eight of the blazes.

“The implications of this for shareholders are not good,” said Michael Wara, director of the climate and energy policy program at Stanford University, after the state’s findings were released. “It appears that PG&E is going to bear some fault here.”

The shares fell as much as 5.2% to $39.30 at 7:47 a.m. in early New York trading.

Possible criminal charges

That evidence — which California’s fire agency has now sent to county prosecutors — could make or break PG&E in the dozens of lawsuits over the Northern California fires that altogether killed 44 people, consumed thousands of homes and racked up an estimated $10 billion in damages.

The alleged violations could also expose PG&E to criminal charges only two years after the San Francisco company was convicted of breaking safety rules that led to a deadly gas pipeline explosion in San Bruno, California.

The company said in a statement that it continues to believe “our overall programs met our state’s high standards.”

The California Department of Forestry and Fire Protection (Cal Fire) said in its Friday statement that PG&E equipment caused at least 12 of the wine country blazes, including the:

• Redwood fire that killed nine;
• Atlas fire that burned 51,624 acres and claimed the lives of six; and
• Nuns fire that killed at least two.

The agency is still investigating the cause of the Tubbs fire.

‘Failure of PG&E risk management practices’

Attorneys and politicians were already homing in on the alleged violations. They’re “a wholesale indictment of the failure of PG&E risk management practices,” said Frank Pitre, an attorney who represents fire victims suing PG&E. “ I don’t say that lightly.”

Since the blazes broke out, San Francisco-based PG&E has lost almost $14 billion in market value. The utility suspended its dividend and withheld its 2018 profit guidance because of the uncertainty over how much it might have to pay for damages. Under California law, utilities including PG&E and Edison International may be held liable for costs if their equipment is found to have caused a fire, even if they followed safety rules.

While the state reports can’t be used as evidence in court, the details in them may still provide fodder for lawyers to use in their cases against the company, said Steve Campora, a lawyer representing fire victims suing PG&E. Attorneys will interview witnesses identified in the reports, he said, calling them “a road map.”

Related: The aftermath of wildfires: Insurance coverage questions answered

California lawmakers were quick to blast PG&E. State Senator Bill Dodd, a Democrat from Napa, said the alleged violations referenced in the state’s report were “disappointing and deeply concerning.” He called on PG&E and other utilities to “step up” and maintain their power lines.

For its part, PG&E said in a statement that years of drought, extreme heat and millions of dead trees had created “a new normal” in California, contributing to more intense wildfires. It’s a climate change-fueled situation that requires “comprehensive new solutions,” the company said.

In a Friday interview, California state Senator Jerry Hill challenged the idea that global warming was to blame for the fires, saying “climate change and the new normal don’t ignite fires.”

Call to update wildfire liability rules & regs

PG&E Chief Executive Officer Geisha Williams has called the California law that holds utilities liable for wildfire costs “deeply flawed.” Along with California’s other investor-owned utilities, the company is lobbying the state’s lawmakers and regulators to change the law, which is based on a legal principle known as “inverse condemnation.”

California Governor Jerry Brown said in March that he would work with state leaders to develop policies this year to update wildfire liability rules and regulations for utilities. Brown has said the state is at higher risk for more severe and frequent fires due to climate change.

Lawmakers are said to be considering a plan for a compensation fund — possibly backed by the state and the power companies — that would help utilities shoulder billions of dollars of potential liabilities while offering relief to victims. Details, including the size, are still being worked out and the proposal — one of a number of options being considered — may not come together, according to people familiar with the discussions who asked not to be identified because they aren’t public.

Coalition of insurers want lawmakers to hold utilities accountable

In the meantime, PG&E faces battles both inside and outside the courtroom. While lawyers were digging into California’s findings on Friday, insurance companies began weighing in, too. Rebuild with Resilience, a coalition of insurers, called on lawmakers to hold utilities accountable for the fire damages they caused.

“Legislators should protect Californians’ pocketbooks and prioritize public safety over private profits,” the group said.

Related: For a look at PG&E’s liability after fires, watch San Diego Gas & Electric case