(Reuters) - California’s wildfires could deal a blow to the state’s ambitious climate goals if they inflict too deep a financial wound on utilities, seen as crucial to greening up the grid, according to state officials.
The state is relying on Pacific Gas & Electric (PG&E) and its two other big investor-owned utilities to double purchases of renewable energy over the next decade and invest billions of dollars to help electrify the transportation sector, part of California’s nation-leading plan to cut carbon emissions by 40 percent below 2020 levels by 2030.
But PG&E (PCG.N) now faces untold billions of dollars of potential liabilities related to the recent wildfires, the deadliest in California history, if an investigation determines its equipment caused them, posing a threat to the utility’s solvency and its clean energy agenda.
The company experienced an outage on a transmission line on Nov. 8 near where the so-called Camp Fire, which destroyed a town and killed dozens of people, is thought to have started. PG&E has since warned it could face liability exceeding its insurance coverage if its equipment is fingered.
“I am concerned,” Mary Nichols, chair of the state’s powerful air quality regulator, the California Air Resources Board, said on Thursday when asked about the impact of wildfire liabilities on clean energy infrastructure investment.
“Electric utilities have a wonderful ability to mobilise resources and expertise in the electric area... It’s a role that we have advocated for, encouraged them to play, and we’ve been very pleased by their response.”
Bill Dodd, a Democratic state senator who sponsored legislation that passed in August making it easier for utilities to recover fire damages from ratepayers, said it was important to California’s green efforts to shield PG&E.
“A bankrupt or financially crippled utility would negatively affect California’s ability to meet its nation-leading climate-change goals,” he said.
California law currently holds utilities responsible for any fire damage related to their equipment. Dodd’s law would give regulators broad powers to shield a utility from fire-related costs, but it is set to come into force in 2019 and does not cover fires in 2018.
As part of its effort to meet state climate requirements, PG&E has more than 250 contracts for renewable power that represent $57 billion in investment, according to spokeswoman Lynsey Paulo. Last year, the state delivered 33 percent of its energy from renewable resources, an amount it is required to raise to 60 percent by 2030.
PG&E is also a critical player in California’s plan to electrify everything from passenger cars to heavy-duty vehicles. In its latest annual report, PG&E said it expects to invest more than $1 billion through 2020 on grid improvements that would, in part, support the widespread adoption of electric vehicles and integration of larger amounts of renewables.
Much of that money is raised from outside investors.
“They borrow large amounts of cheap capital so that they can build infrastructure and provide services that the state of California thinks it needs,” California Public Utilities Commission President Michael Picker said in an interview, noting the state’s “large appetite for decarbonising.”
Swami Venkataraman, a senior vice president with credit rating agency Moody’s Investors Service, said the price tag for such borrowing would soar if PG&E’s finances deteriorated as a result of the aftermath of the fires.
“It’s sort of hard to imagine a bankrupt or even financially weak entity being able to do this efficiently and at the least cost possible to the residents of California,” he said.
PG&E’s stock has lost half of its value since the fire started on Nov. 8 on fears that the utility could go bankrupt if it is eventually found to be responsible.
Asked about the Camp Fire’s threat to PG&E’s climate initiatives, spokeswoman Paulo said the utility was currently focused on helping customers recover and rebuild.
But the utility has linked its financial fortunes to the state’s climate goals in the past.
“California’s investor-owned utilities are critical to meeting these clean energy goals, and we will require access to affordable capital in order to help,” Chief Executive Geisha Williams said on a conference call with investors on Nov. 5, days before the Camp Fire started.
Reporting by Nichola Groom; editing by Richard Valdmanis and Bernadette Baum