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PG&E pitches $6B for 'de-risking' assets in fire-prone California

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PG&E pitches $6B for 'de-risking' assets in fire-prone California

A little more than a year after a series of devastating wildfires, several of which have been linked to power lines owned by Pacific Gas and Electric Co., scorched Northern California's wine country, the PG&E Corp. utility is planning to invest roughly $6 billion through 2023 in "de-risking our assets" in highly fire-prone areas of its service territory, PG&E Corp. President and CEO Geisha Williams told financial analysts Nov. 5 on a third-quarter earnings call.

Under the proposed wildfire safety program, the regulated utility, known as PG&E, intends to increase "situational awareness" in high-risk regions by adding about 600 cameras and 1,300 weather stations and operating a new wildfire safety center 24 hours a day during peak wildfire season, Williams said. The utility also is eyeing "targeted infrastructure hardening" across 7,000 miles, including through installing insulated power lines and strengthened poles while increasing clearances between its equipment and vegetation across 25,000 miles of power lines.

"We believe that our proposal sets forth an appropriate level of risk reduction while balancing the cost to our customers, recognizing that we must strike a balance between the two," Williams said. PG&E plans to further detail the proposed program in its 2020 general rate case application in mid-December.

The proposed increase in wildfire safety spending comes as PG&E awaits the results of still-pending state wildfire investigations and legal proceedings involving more than 3,000 individual plaintiffs as of Oct. 30, according to the utility, which has said its wildfire-related liabilities could exceed $10 billion. Through the third quarter, costs related to the October 2017 Northern California wildfires, net of insurance, totaled nearly $2.28 billion.

As required by a bill Gov. Jerry Brown signed into law in September, PG&E, along with California's other regulated utilities, plans to file a state-mandated wildfire mitigation plan in February 2019. The measure, Senate Bill 901, also provided utilities with limited financial shelter from fire damages caused by their electrical equipment by allowing them to issue securitization bonds to finance some wildfire costs.

The law did not address California's "inverse condemnation" doctrine, under which courts hold utilities liable for wildfire damages sparked by their equipment, whether or not they were negligent. PG&E will continue to push for a reform of inverse condemnation in the 2019 legislative session, Williams said.

In its forthcoming general rate case, the utility plans to propose annual capital expenditures, including costs for wildfire safety, of up to roughly $7 billion per year from 2020 through 2023, compared with $6.5 billion in 2018 and roughly $6.4 billion in 2019. PG&E forecasts 7% to 8.5% annual growth in its rate base to between $52 billion and $56 billion by 2023, despite an exodus of its retail electric customers to alternative suppliers known as community choice aggregators, or CCAs, affecting California's three investor-owned utilities.

While defections to CCAs are adding up, Williams praised a recent decision by the California Public Utilities Commission to boost the exit fee that corrects a "cost shift" to remaining customers. Under California's CCA model, customers become automatically enrolled by the new agencies formed by local governments to procure power. Traditional utilities continue to physically deliver that power, maintain transmission and distribution lines, and manage billing, metering and customer service.