In a move prompted by the strict liability restrictions on California utilities from the state's use of inverse condemnation, Pacific Gas and Electric Co. (PG&E) and its parent company plan to record a $2.5 billion pre-tax, noncash accounting charge for wildfire liabilities for the second quarter.
In a regulatory filing with the U.S. Securities and Exchange Commission (SEC) Thursday, PG&E said the charges reflect "reasonably estimated losses" at "the lower end” of the possible range.
The accounting charges apply to 14 of the 21 wildfires that ravaged Northern California last October; California Department of Forestry and Fire Protection, aka Cal FIRE, investigators have alleged causes for 16 fires. PG&E said current information is insufficient to estimate a reasonable upper range.
PG&E CEO Geisha Williams reiterated that action in the state legislature is needed to remove the "flawed concept" of inverse condemnation, which she said places the major public utilities in the role of being "backstop insurance providers" for wildfires even if the companies followed all applicable rules and regulations.
"As an investor-owned utility in California, our goal is to change the state's approach to inverse condemnation as California is currently an outlier," Williams told financial analysts during a call to discuss the SEC filing. "We're working to align California with other states so utility customers and shareholders are not financially harmed."
Williams said PG&E is continuing to battle inverse condemnation on the legislative, regulatory and legal fronts.
She said multiple legislative approaches are being debated, and the state Assembly Utility and Energy Committee on Wednesday passed two more wildfire-related bills. On the legal front, PG&E has filed with the state Supreme Court on its Butte wildfire legal cases from 2015.
Williams repeated the often used phrase that last fall's wildfires in both Northern and Southern California represented a "new-normal" in a state that has long dealt with severe wildfire risks. "Last year's wildfires saw an unprecedented conflict of weather-related conditions including years of drought resulting in millions of dead trees, a record-setting wet winter that spurred vegetation that created abundant fuel after record-setting heat” last summer.
The fires collectively covered 245,000 acres and destroyed 8,900 structures, killing 44 people. As of June 18, PG&E and its parent have received 200 complaints on behalf of 2,700 plaintiffs in legal filings related to the fires. Many of the lawsuits apply inverse condemnation among multiple legal theories for liability, according to PG&E.
In answering analysts' questions on the charge, CFO Jason Wells acknowledged that there are still "many unknowns." For insurance recoveries in 2Q2018, PG&E is recording $375 million in pretax payments.
Insurance coverage is based on treating each fire as an individual event, and PG&E will try to recover the collective value from its multiple policies, Wells said. He emphasized that despite the incomplete information, PG&E felt it was important to communicate to the market now, even though the facts may change.