When your power company is a felon
Support for this Thursday January seventeenth two thousand nineteen episode of today. Explain comes from hellofresh. They've got premeasured ingredients and easy to follow recipe cards that comes straight to your door, and you can get eighty dollars off your first month by going to hellofresh dot com slash explained eighty and entering the promo code explained eighty. That's hellofresh dot com slash explained eight zero and the promo code explained eight zero. 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 Tilleke can't pay the bills as California, ask Pacific, Gas and electric? One of the nation's largest utilities is on the brink of bankruptcy. PGE supplying power and gas to sixteen million plans to file for chapter eleven as it faces billions and potential liabilities from wildfire. Pete any stock took a beating on Wall Street today. Dropping fifty two percent after the bankruptcy news came out. After a bankruptcy PGE will have a hard time borrowing money, and that may mean higher rates for consumers and less money for green energy projects. PGA is California's biggest utility they have about twenty thousand workers Resula goes hosts, the political breakdown podcast at in San Francisco. They are big publicly traded company that's basically been in existence for one hundred and fifty years in some form giving gas and electric power to people in California. And this is actually the second time in less than twenty years that this company is filing not for bankruptcy because bankruptcy would be like we're going out of business. Its bankruptcy chapter eleven 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 whose 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 liability is because of the wildfires that have hit California over the past two years tobacco. Just one second. I mean, they are a regulated company. So they are guaranteed a rate of return by the state. They make ten and a half percent profit. No matter what. So historically utilities have been like really good places to park your money. Right. If you're shareholder, you're guaranteed ten and a half percent 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 Nell 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 and E that's the 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 twenty two fires burning in California right now and not alone would have been a really big hit to PG knee. 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 start 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 of imbue county. And what we saw. At pleasure. What to name right now? But what we just saw. We just left pleasure. Powerless, and what we just saw at at paradise is just, you know, just not acceptable the fire in the foothills of the Sierra Nevada mountains, north of Sacramento has burned a hundred nine thousand acres more than sixty seven hundred structures have been destroyed mostly residential homes, and that I think was sort of what PG ni executive see as the death now 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 two thousand seventeen and the biggest one is still under investigation. They say that they could face over thirty billion dollars in liabilities. Which is almost double what the company's worth right now. And then Sunday their CEO guy should Williams step down. And then on Monday, they announced that in two weeks. They're going to file for chapter eleven protection. And basically him this whole mess over to a bankruptcy court. How exactly did PGN 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 communities that are in densely wooded areas, and there's been sort of long existing questions about whether they have maintained their 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 Buchanan, 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 two thousand seventeen fires similar things. Most of the investigations that have come out from state fire investigators and blame PG any 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 onto people like me who pay their electric Bill through PG any. And so it becomes on just a question of okay did your equipment caused 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 knee is actually a felon. They were put on probation for violating federal gasline 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 back in twenty ten 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 sixty feet into the air as block after block in this residential neighborhood were engulfed and at the time. We all thought maybe it was a plane crash. It'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 blades it leveled a neighborhood killed eight people. I was actually on CNN worked up the San Francisco Chronicle, then I got there, you know, within the hour, and there were people just standing there was like bare feet and bathrobes and their or their slippers looking down because they had just had to evacuate so quickly. To we just win out. We had on. Claremont and Bruno out here for fifteen minutes with no Firefox near 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, he's you need didn't know what was under the ground. And it also came out that they had basically redirected money that they told state regulators. They needed to charge rate payers four to use for safety upgrades and handed out over in profits to shareholders. And through the course of that discovery. In those lawsuits, we also learned about this very cozy relationship PG he 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. Is there any sense of how this will shake out if PG any successfully files for chapter eleven bankruptcy, and the court grants it and goes into 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 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. Not. 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 profit that has a reputation among even some of 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 Eighty-six, 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 salon tro, not many tacos can boast that they're rich in vitamin A. But hellofresh is are full of it. Thanks to tender roasted cubes of sweet potato they're joined by black beans and zesty avocado Crema for some of the most delectable veggie goodness to be found inside the fold of tortilla. You could say they bring their a game in every single way. If you haven't noticed support for the show today comes from hellofresh. They got three plans to choose from including classic veggie and family as well as the option to switch plans when your tastes change. Hellofresh has something for everyone. You can take advantage of their special offer for twenty nineteen eighty dollars off your first month when you go to hellofresh dot com slash explained eight zero and enter the promo code explained eight zero. That's hellofresh dot com slash explain. Eighty and enter the promo code explained eighty to get eighty dollars off your first month. Report on energy and the environment for vox, how exactly does utility like PG any work. It's a private company, but it gets a bunch of money from the state and now the state's gonna step in and mediate all its debt. Well, it is a regulated utilities 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 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 alternately has to pay right now. The investor owned utility like they're trying to protect their shareholders. And they wanna pass that cost to the customer. But the regulators want to say, no, you gotta actually have your shareholders bear some of this. Cost. That's the whole reason. We're letting you run this is 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 there's a it's a very big bag upward thirty billion dollars of liabilities. So right did PG any do anything to void these liabilities? They proactive on climate change at all I mean PG, and he did have a lot of clean energy initiatives. They were deploying renewable energy, and we're also investing in the infrastructure to support it a lot of utilities around the country. We're doing that namely renewable energies pretty cheap, California also has state renewable energy goals. So a lot of utilities throughout the state were working toward 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 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, even if they're debt is restructured and California the courts help them figure out, you know, what their payouts are what the ODA people these fires on going anywhere and PG needs to stand back up in 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 wanna make sure that you provide power that is both affordable and reliable and then taking a back seat 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 build 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 you power plants in new power lines. So it's a difficult situation. And I talked to a former Utah. Official and he points said to me that essentially, you know, utility haven't really been thinking about this for a long time. Like a lot of them were 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 in. When we think about this sort of intersection of utility companies and climate change is wildfires in places like California or even like, Oregon, Washington state. It is that the biggest concern or the other things we should be thinking about to. 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 states, not even thinking about the world. And and it's Anthony amount of water. So imagine what happens when you're region gets really dry. If you're in a water stress 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 that after you use it to cool, you know, your power plant that will effluent water is going to be a lot hotter. There are limits to how much of that water you can actually dump back in river. And so they're all these regulations that govern that and as a 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 stressors 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 four profit utilities government takeover? One official told me that bankruptcy. Judges have God like 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 advantage of that. Of course, is that, you know, you have an incentive for the utility to be much more transparent and up front they serve the public interest rather than shareholders. And so when you know, if you're weighing the costs of doing things, trimming, power lines or bearing something to make it less vulnerable to sparking a fire. They air on the side of consumer protection rather 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 Matt 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 are bondholder to help share that burden. I mean, it's hard to feel bad for the the people who send you a Bill every month that you don't really wanna pay put right is the future sort of grim for these companies that are now facing providing energy in the shadow of of wildfires and hurricanes and floods and whatever else the big issue. The reason why that they're facing problems 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 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. 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 knocked the power line into a tree. I mean, it's 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 empower 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 eighty percent of the island's utility poles knocked down after hurricane Maria. Do you wanna even bother to rebuild those utility poles at that point when you know that there 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 pushes to rebuild. Exactly the way things were both in Puerto Rico and in California people wanna get back to their homes as soon as possible and that does not reduce the risk that puts you back in the same situation. He started with. Have there been utilities that have done a better job of taking climate change into consideration a one big sample of that might be XL energy? It's a company headquartered in Minnesota in Minneapolis. And they have operations in eight states serving three point six million customers at the beginning of twenty eight teen they announce that they want to cut their greenhouse gas emissions. Sixty percent below two thousand five levels by twenty thirty. But then by the end of the year they up that target to eighty percent by twenty thirty. And then they want to get to one hundred percent clean energy by twenty fifty. 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 they cost of renewable energy in 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 wanna buy clean, energy and cities even entire cities wanna buy clean. Energy. And so they're pushing the utilities to deliver and build, you know, more power generation assets that are cleaned that produces euro emissions. And in a way that companies 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 know, you didn't do enough. They can say yes, we did. We changed our entire generation model in portfolio to help reduce our impact on the planet. Excels, also 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. Ervan covers the environment for vox. I'm Sean Rama's firm. This is today explained. Hellofresh for supporting the show today. They've got premeasured 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 eighty dollars off your first month by going to hellofresh dot com slash explained eighty and entering the promo code explained eighty that is hellofresh dot com slash explained eight zero and the promo code explained eight zero for eighty dollars off your first month.