Today, Explained - When your power company is a felon

Episode Date: January 17, 2019

What if your utility were a felon filing for Chapter 11 bankruptcy? You would be one of 16 million in California. KQED’s Marisa Lagos lays out Pacific Gas and Electric’s woes and Vox’s Umair Irfan says this is just the beginning of our power problems. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Support for this Thursday, January 17th, 2019 episode of Today Explained comes from HelloFresh. They've got pre-measured ingredients and easy-to-follow recipe cards that come straight to your door. And you can get $80 off your first month by going to HelloFresh.com slash Explained80 and entering the promo code Explained80. That's HelloFresh.com slash Explained80 and the promo code explained80. Every month, you get a bill from your utility. There's no two ways around it. Pay it or the lights go out. But what happens when the utility can't pay the bills?

Ask California. Ask Pacific Gas and Electric. One of the nation's largest utilities is on the brink of bankruptcy. PG&E, supplying power and gas to 16 million, plans to file for Chapter 11 as it faces billions in potential liabilities from wildfires. PG&E stock took a beating on Wall Street today, dropping 52% after the bankruptcy news came out.

After a bankruptcy, PG&E will have a hard time borrowing money, and that may mean higher rates for consumers and less money for green energy projects. PG&E is California's biggest utility. They have about 20,000 workers. Marisa Lagos hosts the Political Breakdown podcast at KQED in San Francisco. They are a big publicly traded company that's basically been in existence for 150 years in some form, giving gas and electric power to people in California. And this is actually the second time in less than 20 years that this company is filing not for bankruptcy, because bankruptcy would be like we're going out of business. It's

bankruptcy chapter 11 protection. So they're basically asking a court to come in and be in charge of reorganizing, restructuring the company, and deciding with all the debts that they have out there sort of looming over them, who's first in line, who's last in line, and who pays when their bills don't pencil out. And why exactly is it doing this? It feels like sort of a last resort. They're doing this because they're facing really unprecedented potential liabilities because of the wildfires that have hit California over the past two years. To back up just one second, I mean, they are a regulated company, so they are guaranteed a rate of return by the state. They make a 10.5% profit no matter what. So historically, utilities have been like really good places to park your money, right? If

you're a shareholder, you're guaranteed 10.5% and everyone needs power and gas. And so they're usually pretty reliable companies to invest in and to be customers for. But basically in 2017, after years of drought in California, a series of wildfires broke out mainly in sort of the Napa region, so wine region, and devastated a bunch of communities up there. There are now reports that downed power lines and exploding transformers are being investigated as one possible cause here for at least some of these fires. That's right, David. PG&E, that's the utility company here. And you can see them behind me reinstalling downed power lines. Now, the company says in a statement that

there were equipment issues at the time the fire here started caused by, quote, hurricane strength winds. But that's just one possible cause for the 22 fires burning in California right now. And that alone would have been a really big hit to PG&E. It was. I mean, they spent the last year essentially warning that they could go into bankruptcy if the state didn't change some of its liability laws. In the meantime, their stock price fell. And then a couple of days after the midterm election, what ended up being the most deadly and devastating fire in state history broke out up in Butte County. And what we saw at Pleasure, what a name right now.

But what we just saw, we just left Pleasure for Paradise. And what we just saw at Paradise is just, you know, it's just not acceptable. The fire in the foothills of the Sierra Nevada mountains north of Sacramento has burned 109,000 acres. More than 6,700 structures have been destroyed, mostly residential homes. And that, I think, was sort of what PG&E executives see as the death knell, because if they're held responsible for that, which there's a lot of indications they could be for sparking that fire, and if they're held responsible for all the fires that we know that they sparked in 2017, and the biggest one is still under investigation, they say that they could face over $30 billion

in liabilities, which is almost double what the company's worth right now. And then Sunday, their CEO, Geisha Williams, stepped down. And then on Monday, they announced that in two weeks, they're going to file for Chapter 11 protection and basically hand this whole mess over to a bankruptcy court. How exactly did PG&E start this fire, if they indeed did? Great question, and one that I think needs some historical context. Essentially, you know, they have a huge service area, and they have to serve equipment up to the legal standard the state requires and just sort of the common sense standard that says you probably don't want to

start huge wildfires. So in the case of Butte County, the campfire, it seems likely that one of their huge transmission towers, I mean, it looks like one of those might have basically come down during high winds or some of the equipment in that tower. In the case of the 2017 fires, similar things. Most of the investigations that have come out from state fire investigators and Blam PG&E say that essentially high winds caused a tree branch to either fall into a power line or a tree came down and fell into a power line. You know, they have pretty strict guidelines from the state regulators in terms of how much space they need between their power lines and any trees or brush. And so the question becomes, did they do the maintenance that they not only are required to do, but have basically asked the

state for money to do and pass those costs on to people like me who pay their electric bill through PG&E. And so it becomes not just like a question of, okay, did your equipment cause this, but did you do everything in your power to prevent it, especially when you said that you were doing that and we gave you the money to do it? And do we know if they did or not? They don't have a great track record of safety, either in power or gas. PG&E is actually a felon. They were put on probation for violating federal gas line laws.

And so they're supposed to not break any more laws for five years. And they have been blamed in about a dozen of the 2017 fires for not just starting them, but being negligent in the sense that they didn't do what they had to. And this is a company that's also famous for a neighborhood exploding on its watch once, right? Yeah, back in 2010, on a weekday evening, a neighborhood about five or ten minutes south of San Francisco just went up in flames. Parts of San Bruno, California, were turned into a raging inferno around dinnertime Thursday evening.

Flames roared some 60 feet into the air as block after block in this residential neighborhood were engulfed. And at the time, you know, we all thought maybe it was a plane crash that's really close to the airport here. I mean, it was such a big explosion. But it was a high-pressure natural gas line that ruptured, caused the explosion, and then fueled the spectacular blaze. It leveled a neighborhood, killed eight people. I was actually on scene. I worked at the San Francisco Chronicle then.

I got there, you know, within the hour, and there were people just standing there. It was like bare feet and bathrobes or their slippers looking down because they had just had to evacuate so quickly. I live very close to the fire, too. We just ran out with what we had on. Where the hell is the fire department? We're on Claremont in San Bruno.

I've been out here for 15 minutes. There's no fire department here. The local utility company, Pacific Gas and Electric, says they will be accountable if it's determined they were at fault. And what ended up coming out through a series of federal investigations and lawsuits was that basically PG&E didn't know what was under the ground. And it also came out that they had basically redirected money thatE had with state regulators that was really a black mark on both the state and the utility. And it was really sort of the beginning of a reckoning for this company and for state regulators that's lasting to this day. shake out if PG&E successfully, you know, files for Chapter 11 bankruptcy and the court grants it and goes in to assess its liabilities, will wildfire victims not see any money? I don't think no money. You know, we're talking still about a multi-billion dollar corporation.

It does seem likely that not all wildfire victims will be made whole, or at least the insurance companies won't. You know, we're talking about two different things here, which is people are suing them for punitive damages, which is different than filing an insurance claim and trying to get your insurance company to rebuild your house. But the victims we've talked to are pretty angry, and I think feel like this is, if nothing else, going to delay their ability to seek justice, if not prevent it or curb it. And there's not any way, you know, in the world that we're ever going to prevent every fire from happening. But I think you do have to ask for a company that has a history of redirecting its safety money into profits that has a reputation among even some of the people inside the company of sort of valuing shareholders over safety. Don't they hold some responsibility? Because if that spark never, you know, lit,

86 people would still be alive and the town of Paradise would still be standing. Fires are just the tip of the iceberg when it comes to the climate change challenges utilities face. More in a moment on Today Explained. Sweet potato and black bean tacos with avocado crema and cilantro. Not many tacos can boast that they're rich in vitamin A, but HelloFresh's are full of it thanks to tender roasted cubes of sweet potato. They're joined by black beans

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That's HelloFresh.com slash Explained80 and enter the promo code Explained80 to get $80 off your first month. Omer Irfan, you report on energy and the environment for Vox. How exactly does a utility like PG&E work? It's a private company, but it gets a bunch of money from the state, and now the state's going to step in and mediate all its debt? Well, it is a regulated utility.

It's regulated by the California Public Utilities Commission, but it's also an investor-owned utility, meaning that stockholders, people on Wall Street, own a share of the company. And the company also issues bonds, which other investors can also buy in as well. So you have a lot of different groups that have different slices of the company. The advantage of doing something like that, of course, is that you have that risk distributed among all those people rather than on just the customers. So that's the big issue here with the wildfire is, you know, who ultimately has to pay. Right now, the investor-owned utility, like they're trying to protect their shareholders and they want to pass that cost off to the customer, but the regulators want to say, no, no, no, you got to actually have your shareholders bear some of this cost. That's the whole reason we're letting you run this as a private company to begin with.

So it's just a matter of who's actually left holding the bag at the end of the day. And it's a very big bag, upward of $30 billion of liability. Right. Did PG&E do anything to avoid these liabilities? Were they proactive on climate change at all? I mean, PG&E did have a lot of clean energy initiatives. They were deploying renewable energy and were also investing in the infrastructure to support it.

A lot of utilities around the country were doing that, namely because renewable energy is pretty cheap. California also has state renewable energy goals. So a lot of utilities throughout the state were working towards advancing that. But the big issue is just in general that you have a lot of infrastructure that's exposed in these high-risk areas.

So you're running power lines into these forests that are getting extremely dry. Some of them are neglected. And so it's just kind of a disaster kind of waiting to happen. So it's not a matter of if but when you have a stiff enough breeze or you have an errant spark that triggers a massive fire like this. And what happens to PG&E even if their debt is restructured and California and the courts help them figure out, you know, what their payouts are, what they owe to people? These fires aren't going anywhere, and PG&E needs to stand back up and provide energy, right?

Right. That's the balancing act that both the utility and the utility regulators have to maintain. I mean, the regulator, they want to make sure that you provide power that is both affordable and reliable. And then taking a backseat to that is making sure that it's environmentally responsible. If you don't meet the first two criteria, you really can't worry too much about the other one. And that's difficult when you are facing higher risks. I mean, there's an upper limit to how much you can bill a customer for protecting them against future disasters. And in essence, you're essentially turning these utility companies into insurance companies because now they have to bear these catastrophic costs into their rate bases as well alongside building new power plants and new power lines.

So it's a difficult situation and I talked to a former utility official and he said to you know, utility execs haven't really been thinking about this for a long time. Like a lot of them are caught flat footed on this issue. And now they have to come up with a way because otherwise they will be liable in ways that they don't want to be. and climate change is wildfires in places like California or even like Oregon, Washington State. Is that the biggest concern or are there other things we should be thinking about too? There are a lot of other things to be thinking about. One thing to remember is that the utility sector, the energy sector uses a lot of water. You need to use water to generate the steam to run the turbines and you use a lot of water to cool power plants. The Union of Concerned Scientists put it this way,

that essentially if you imagine the Niagara Falls at its peak flow rate, and triple that, that's how much water per minute the utility sector in the United States uses. Just the United States. Just the United States. Not even thinking about the world. No. And it's an immense amount of water.

So imagine what happens when your region gets really dry, if you're in a water-stressed region and you can't take in water, or if that water gets too hot to be used for cooling. That's an issue as well. Or there are also issues with discharging water, after you use it to cool, you know, your power plant, that effluent water is going to be a lot hotter. There are limits to how much of that water you can actually dump back into a river. And so there are all these regulations that govern that. And as the climate changes, we're seeing those stresses get worse and worse. In other countries, we've actually seen them shut down nuclear power plants because it got too hot to use the water.

So there are other kinds of environmental stresses these utilities face. Okay, so we've got fires, we've got water shortages. I guess we didn't even touch on hurricanes and flooding. With more and more extreme weather on the way, what's like the worst case scenario for these like for-profit utilities? Government takeover? One official told me that bankruptcy judges have godlike powers. So there's a lot that you can do in terms of restructuring the utility. Some California legislators suggested, you know, making this a public utility rather than an investor-owned utility. The advantage of that, of course, is that, you know, you have an incentive for the utility to be much more transparent and upfront.

They serve the public interest rather than shareholders. And so if you're weighing the costs of doing things like trimming power lines or burying something to make it less vulnerable to sparking a fire, they err on the side of consumer protection rather than on the side of cutting costs. The disadvantage of that is that you end up making your customers your shareholders as well. So if you do have a major fire that gets blamed on the utility and they have to pay for it, well, it falls directly back to the customers and there's no investor or bondholder to help share that burden. I mean, it's hard to feel bad for the people who send you a bill every month

that you don't really want to pay. But is the future sort of grim for these companies that are now facing providing energy in the shadow of wildfires and hurricanes and floods and whatever else? The big issue, the reason why that they're facing these problems is that they didn't give it much thought. Now they can't afford not to think about this. Climate change is something that has to be integral to their planning over the long term and in the near term as well. I mean, ultimately, we do need power. I mean, I really do count on keeping my lights on and staying warm in the wintertime. But you need to be able to deliver it in a way that doesn't cause more harm than good. And that's really the difficult question here. I mean, when I was up in Paradise, California, after the campfire went through there, I mean, one of the things that struck me was that you saw these power lines running right between trees, right?

Like really close. Really close. Like I was looking at that and I was just like a stiff breeze would knock the power line into a tree. I mean, it's almost an impossible situation. I mean, you could trim the trees, you could, you know, try to bury the power lines, but it's a matter of when, not necessarily if, when you see a disaster that would strike. So the question is, then you also have to start thinking more broadly about where are people living? Are they living in these high risk zones? Is the cost of providing them power and the risk of providing them power into these densely forested areas even worthwhile at that point if we're facing the risk of providing them power into these densely forested areas even worthwhile at that point if we're facing the risk of sparking a fire. So those are all

the different questions you have to weigh. Similarly in Puerto Rico, we saw 80% of the island's utility poles knocked down after Hurricane Maria. Do you want to even bother to rebuild those utility poles at that point when you know that they're that vulnerable to a storm? It's a question that you really have to think about with a big picture mindset. And a lot of people aren't really willing to do that. The big push is to rebuild exactly the way things were, both in Puerto Rico and in California. People want to get back to their homes as soon as possible. And that does not reduce the risk. That puts you back in the same situation you started with. Have there been utilities that have done a better job of taking climate change into consideration?

Well, one big example of that might be Xcel Energy. It's a company headquartered in Minnesota, in Minneapolis. And they have operations in eight states serving 3.6 million customers. At the beginning of 2018, they announced that they wanted to cut their greenhouse gas emissions 60% below 2005 levels by 2030. But then by the end of the year, they upped that target to 80% by 2030. And then they want to get to 100% clean energy by 2050. They are one of the few utilities in the country that have set a target that aggressive on fighting climate change. And a big reason why is because the cost of renewable energy and clean energy has declined so precipitously. But it's also because their customers are demanding it.

It's not just households. It's big businesses. A lot of big companies have their own greenhouse gas targets and they want to buy clean energy. And cities, even entire cities, want to buy clean energy. And cities, even entire cities want to buy clean energy. And so they're pushing the utilities to deliver and build more power generation assets that are clean, that produces zero emissions. And in a way, that company is also insulating themselves from the future costs of climate change because they're saying that they are acting to help mitigate climate change. So if they are facing a lawsuit somewhere down the line that you didn't do enough, they can say, yes, we did. We changed our entire, you know, generation model and portfolio

to help reduce our impact on the planet. Excel is also an investor-owned utility. And so they also have to answer to shareholders. And so that's kind of their pitch to them, that we're planning for the future, building the generation portfolio of tomorrow in a world where temperatures are going to be rising, where the traditional coal and gas-fired power plants aren't going to be as reliable, and we need other alternatives. Umair Irfan covers the environment for Vox. I'm Sean Ramos for him. This is Today Explained. Thanks to HelloFresh for supporting the show today. They've got pre-measured ingredients that are fresh, and they have easy-to-follow recipe cards that come straight to your door.

They do the planning, the shopping, the prepping. Take advantage of $80 off your first month by going to HelloFresh.com slash Explained80 and entering the promo code Explained80. That is HelloFresh.com slash explained 80 and entering the promo code explained 80 that is hello fresh.com slash explained 80 and the promo code explained 80 for 80 off your first month