Share Name Share Symbol Market Type
Pacific Gas and Electric Company NYSE:PCG NYSE Common Stock
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  +$0.00 +0.00% $7.71 - - - 0 09:34:08

PG&E's Big Blackout Is Only the Beginning

12/10/2019 9:20pm

Dow Jones News


Pacific Gas and Electric (NYSE:PCG)
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By Katherine Blunt and Rebecca Smith 

PG&E Corp.'s decision to shut off power to more than two million Californians this week represents a new reality: It now plans to pull the plug as a desperation measure whenever its equipment threatens to spark destructive and potentially deadly wildfires.

Gov. Gavin Newsom reacted with outrage after PG&E plunged swaths of Northern California into darkness, saying that the disruption that ensued shouldn't happen again.

But even as the company was slowly restoring power Friday, a fast-moving fire in Southern California forced thousands to evacuate the foothills just outside Los Angeles, underscoring the danger of wildfires fanned by high winds. Southern California Edison had shut off power to 20,644 customers by midday Friday, though by Saturday morning only 870 customers were in the dark.

California's three big investor-owned utilities now have regulatory permission to cut off power to parts of their service territories during strong winds to reduce the risk of their electric lines causing wildfires, after at least 21 fires linked to utility equipment killed more than 100 people and burned tens of thousands of homes in recent years.

The Wall Street Journal detailed in April how PG&E intended to use the outages, known as public safety power shut-offs, to reduce wildfire risk, a strategy that carries consequences for medically vulnerable populations who rely on electric devices to survive, and businesses that could lose customers and inventory.

Such outages are unlikely to end soon because utilities are liable under California law for wildfire damage caused by their equipment, even if they aren't negligent. That makes fires a serious threat to drive the companies into insolvency.

None have employed the shut-off strategy as bluntly as PG&E, which is scrambling to trim trees near power lines and upgrade equipment across its 70,000-square-mile service territory, after a protracted drought this decade turned millions of acres of forest into a tinderbox.

PG&E provides gas and electric service to 16 million people, or roughly one in 20 Americans. It cut power for days this week to nearly 800,000 homes and businesses across 34 counties, the only U.S. utility to have ever initiated a weather-related shut-off of such size and duration. Because the average California household has 2.96 people, according to census data, the number oaffected likely exceeded 2 million, though PG&E has not offered a more precise estimate.

The company trails its peers in technology to track winds and isolate the areas where equipment is at highest risk of sparking fires. It is also running far behind on several of its most important safety efforts, records show, including this year's tree-trimming campaign, which is less than 50% complete.

For now, it said it would broadly employ shut-offs as a last resort when it determines that the chance of its equipment sparking fires is high enough to justify prolonged outages.

"We must have zero risk of a spark," said PG&E Chief Executive Bill Johnson. "We will very likely have to make this kind of decision again in the future."

Southern California Edison, part of Edison International, and San Diego Gas & Electric, a unit of Sempra Energy, have used shut-offs much more selectively, limiting them to smaller areas identified as extreme risks.

PG&E has said that the scope of its recent outage was mainly because of the potential for widespread wind, not its lack of preparedness. It plans to reduce shut-offs by installing better monitoring technology on its power lines, but cautions that the process, like its tree-trimming efforts, will take years.

That timeline doesn't sit well with Mr. Newsom. He rejected the notion that Californians should accept shut-offs as part of their lives, saying the company's "greed and mismanagement over the course of decades" had created conditions that "no state in the 21st century should experience." Mr. Johnson said during a news conference he hadn't delved into all the governor's claims, but if he did "he might have some slight disagreements."

Already in bankruptcy, PG&E may have little choice. The company sought chapter 11 protection in January, citing more than $30 billion in potential liability costs tied to wildfires. If it is found liable for another major fire during bankruptcy, it would further threaten its efforts to put together a viable restructuring plan, already complicated as it seeks to pay fire victims, insurance companies and others.

California isn't the only place that has faced a crisis involving power lines and wind-whipped wildfires. Australia has grappled with the issue after bush fires on a single day in February 2009 killed 173 people. A royal commission investigated the fires and came up with 67 recommendations to reduce risk.

Notably missing from the list: shutting off electricity. The commission concluded that intentional blackouts create other public-safety risks and disproportionately affect elderly, medically dependent and low-income individuals.

In California, PG&E's outage has raised questions about the role of the state in setting ground rules for shut-offs. Earlier this month, Mr. Newsom signed a law that will require utilities to craft more detailed plans.

"I believe PG&E took way too aggressive of a stand to cover themselves from liability," said state Sen. Bill Dodd, the author of the legislation, whose wine country home was among those blacked out this week. "This cannot be allowed to happen again."

Elizaveta Malashenko, deputy executive director for safety policy at the California Public Utilities Commission, said it has concerns about PG&E's ability to execute power shut-offs. She cited the company's constraints in targeting specific power circuits, as well as its problems providing basic information to customers.

When PG&E announced plans to cut power this week, its website crashed and remained out of commission for two days as residents rushed to check whether they would be affected.

"They can't really, at this point, operationally limit the impact," Ms. Malashenko said.

As of last month, PG&E had completed only 30% of its pledge to trim trees along 2,455 miles of power lines, it disclosed in court filings, in part because it has had difficulty finding enough workers. And it had removed fewer than 40% of the roughly 50,000 dead or dying trees that threaten to fall into live wires, according to a presentation to state regulators.

PG&E has been trying to improve its ability to closely monitor weather throughout its service territory and surgically shut off power. As of last month, it had installed more than 600 weather stations placed on electric poles to track local wind speeds and it has installed more than 200 devices to segment its power lines in a way that enable more targeted shut-offs.

Its monitoring system isn't nearly as precise as the one employed by San Diego Gas & Electric. SDG&E has installed 190 weather stations as well as segmenting devices on every circuit to dramatically reduce the number of customers affected during any given blackout throughout a 4,100-square-mile service territory roughly 6% the size of PG&E's. On Friday, it had initiated a shut-off that affected fewer than 400 customers.

SDG&E's efforts began after the 2007 Witch Fire, a 197,000-acre blaze that killed two people and destroyed more than a thousand homes. California regulators ruled in 2017 that SDG&E couldn't pass $379 million in costs from the Witch Fire and two other blazes to its ratepayers. That decision set a precedent that has greatly increased the financial risk for the state's utilities.

Caroline Winn, SDG&E's chief operating officer, said that when the utility first proactively cut power in 2013, it experienced the sort of backlash PG&E is now facing. It took years for the company to reconfigure its grid and expand its weather monitoring network, which now allows its meteorologists to leverage a decade of data when assessing wildfire risk.

"We had to build that situational awareness," she said. "It has allowed us to be much more surgical when we do shut-offs."

Write to Katherine Blunt at Katherine.Blunt@wsj.com and Rebecca Smith at rebecca.smith@wsj.com

 

(END) Dow Jones Newswires

October 12, 2019 16:05 ET (20:05 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.

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