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PG&E defends vegetation management, hopes for 'reasonable' San Bruno trial date


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PG&E defends vegetation management, hopes for 'reasonable' San Bruno trial date

'svegetation management practices are among the industry's best and did not fallshort prior to a lengthy 2015 fire in Northern California, Chairman, President andCEO President Anthony Earley Jr. said May 4.

Duringthe company's first-quarter 2016 earningsconference call, Earley and other PG&E officials addressed the financialimpact of the Butte Fire in Amador and Calaveras counties, Calif.

TheCalifornia Department of Forestry and Fire Protection last month said it willseek to recover morethan $90 million in firefighting costs from PG&E, finding that the fire wascaused by a tree that came into contact with a PG&E power line. A reportfrom the agency said the company's vegetation management exposed weaker trees,one of which touched the power line and sparked the fire.

Basedon the Cal Fire report, the company has taken a charge of $381 million pretaxfor the first quarter of 2016, said Jason Wells, PG&E's senior vicepresident and CFO. That charge includes $350 million to reflect a low end ofthe range for property damage and another $31 million for other costs relatedto the fire. At this point PG&E is not able to estimate theupper end of the range, Wells said.

Californiahas a theory of inverse condemnation under which utilities may be liable for propertydamages without a finding of negligence when a power line is involved in afire, Wells said. PG&E has liability insurance for such claims, so thecompany expects to be able to recover a significant portion of those coststhrough insurance in the future. Wells said PG&E will show the insurancerecoveries as an offsetting positive item impacting comparability in the futureperiods as they are recorded.

The$381 million does not include accrual for any fire suppression or personalinjury issues, both of which would require a showing of negligence, Wells said.

WhilePG&E is in the early stages of discovery and is getting more information onspecific damage claims, "we have a good handle on all the damages relatedto structures, but some other components are more complicated, includingdamages to trees," Wells said.

Quantifyingdamages related to tree loss has many variables, he said, including the numberof trees that were burned, the species and size of the trees, along with thepre-fire health and post-fire value of the trees. PG&E is working on theseissues and will provide an updated estimate when the company has moreinformation, Wells said.

San Bruno trial, gastransmission case delays

Uncertainty,a common theme for the utility over the past half-decade, persists forPG&E, at this point in the form of the repeatedly postponed federalcriminal trial stemming from the 2010 SanBruno pipeline rupture and a long-delayed gas transmission andstorage case under consideration at the California Public Utilities Commission.

Justweeks before the criminal trial was slated to begin last month, federalprosecutors turned over roughly 100,000 pages of documents the utility hadrequested, company officials said during the earnings call.

Giventhe volume of information to review, PG&E asked for the trial start date tobe pushed back, and despite previously insistingon no further delays,the judge in the case agreed. PG&E expects to give the court an update onMay 5 on the document-review progress, and Earley said he hopes a "reasonabletrial date" will be set. Federal prosecutors have alleged the utilityviolated the federal Pipeline Safety Act when maintaining its pipes and relatedrecords. PG&E is also charged with obstructing a National TransportationSafety Board investigation into the company following the San Bruno incident.

Meanwhile,the PUC is still reviewing PG&E's gas transmission and storage case, whichcontinues to affect the company's ability to recover costs.

"Althoughwe'd hoped to receive a proposed decision in the first quarter this year, we'restill waiting," Earley said during the call.

PG&Eofficials noted that they expect some of the company's large-scale equity needsto taper off in the coming years. For one, PG&E expects to fully fund in2016 the $1.6 billion penalty the PUC imposedrelated to the deadly San Bruno explosion and fire, executives said. Further,the multiyear, $500 million right-of-waywork the company has undertaken to clear its gas transmissionpipeline tracts is expected to come to a close after next year, cutting down onthe utility's spending needs.

Optimism for CAISO expansion

PG&Eofficials were also asked to comment on the ongoing discussion aroundexpanding 's footprint.

GeishaWilliams, president, electric at PG&E, said expanding CAISO to a regionalentity will enable the grid operator to dispatch lower-cost renewable energyand take advantage of the West's load and supply diversity. "We'reoptimistic and very supportive of their efforts," she said.

Apotential issue could be who governs the broader regional area. Having aCalifornia focus, CAISO board membership is made up of Californians appointedby the state's governor. "As we look at a broader market itwill be interesting to see what the makeup of that board would be, what therepresentation would be from other states, and what the implications mighttherefore be on California," Williams said.

TheCalifornia Energy Commission and the governor's office are hosting a May 6 workshopabout the governance structure for a regional organization.