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California Burning: The Fall of Pacific Gas and Electric



California Burning: The Fall of Pacific Gas and Electric PDF

Author: Katherine Blunt

Publisher: Portfolio

Genres:

Publish Date: August 30, 2022

ISBN-10: 059333065X

Pages: 368

File Type: EPub, PDF

Language: English

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Book Preface

It’s hard to say exactly when PG&E Corporation began its fall. Like the erosion of any great institution, it happened slowly, and then all at once as the weight of past mistakes became too much to bear. Few could have foreseen the extent of the consequences when California’s largest and most powerful utility, a regulated monopoly with Gilded Age roots, caused a series of wildfires that killed more than a hundred people and razed hundreds of thousands of acres of vineyard and forest. The abject devastation revealed the company’s systemic problems: chronic mismanagement, criminal neglect, existential risk. Its future had never looked so uncertain.

None felt that uncertainty more than the victims of the company’s negligence. In California, utilities bear the cost of property damage and other liabilities if their power lines cause fires. The extent of the damage pushed PG&E to seek bankruptcy protection. It owed billions of dollars to those whose homes and families had been in the path of destruction, payments that would have helped them rebound. But hedge funds had swooped upon the company’s distress, laying claim to most of the cash it had left. So PG&E decided to compensate victims with shares in the company itself.

Because of that decision, PG&E’s former chief executive, an unflappable utility veteran named Bill Johnson, found himself face to face with a fire victim in a fluorescent-lit hearing room at the California Public Utilities Commission. It was February 25, 2020, an unusually warm winter day in San Francisco. The hearing was one of several the agency would hold as its staff considered the implications of PG&E’s bankruptcy case, a federal proceeding that also required the involvement of state regulators. Johnson, who had been hired to lift PG&E out of the depths of crisis, appeared to field questions about the company’s checkered safety record and its plan of reorganization, part of which involved funding a trust with equal parts cash and stock that would be slowly liquidated to pay fire victims over time. An hour of interrogation felt like three, the questions plodding and stoic. Then the victim, Will Abrams, spoke up.

Abrams, a management consultant with square glasses and small silver hoops in each ear, had spent months poring over thousands of pages of legalese, disappearing between Little League games and school functions to teach himself the language of PG&E. He was an interloper among the lawyers who had come prepared to interrogate Johnson about the technicalities of restructuring. When it was his turn, he signaled that his questions would be different.

Johnson, a former Penn State offensive lineman who, in his midsixties, still looked the part, hunched over the dais as Abrams explained why he cared enough to show up. PG&E had wronged thousands of Californians, few of whom had the inclination to battle a utility in the throes of bankruptcy. But Abrams had the uncommon resolve of a lone crusader. He had taken up the fight not just for himself, but for all who would soon hold shares in the company through the trust. He offered Johnson a metaphor: A man burns down someone’s house and has only enough money to cover half the rebuilding costs. So he offers an investment opportunity, rife with risks, to cover the other half.

“Doesn’t strike me as really fair,” Abrams said. “Is that fair?”

Johnson responded carefully. “Fairness is often in the eye of the beholder,” he said.

For Abrams, the irony was just too bitter. He had lost nearly everything late one October night in 2017, when a wildfire raced down a wooded canyon toward his neighborhood north of Santa Rosa, in California wine country. He awoke with his family in the early hours of the morning to a house billowing smoke. More than two years later, his young son was still in therapy for panic attacks, his family still in a rental house. PG&E’s bankruptcy had kept them in limbo.

The fire that upended their lives was one of eighteen that ravaged Northern California that fall as gale-force winds and tree limbs battered PG&E’s aging power lines, a consequence of branches growing too close to live wires. The lines sparked on contact, giving birth to infernos that killed twenty-two people. The winds returned the following fall to shake a power line in the foothills of the Sierra Nevada. Sparks flew as part of it broke. Within hours, the deadliest wildfire in California history had leveled the nearby town of Paradise. Eighty-four people burned to death.

When Johnson met Abrams in the hearing room in San Francisco, he had been CEO for ten months, enough time to grow accustomed to the hostility that permeated most any conversation about PG&E. He tried to defuse it with dispassion, staying calm and collected as he acknowledged the company’s past failures and explained its plan to rectify them. He took the same approach with Abrams, who struggled to keep his emotion in check as he asked why victims should have to shoulder the risks that endangered the future of PG&E itself. The company’s share price was sliding to a near-record low, having fallen more than 75 percent from its peak as investors realized that wildfires were not only hugely expensive but also potentially inevitable. Johnson was matter-of-fact. It was a complex situation, he said, made more so by the number of players involved. Attorneys. Investors. Politicians. Judges in two federal courts. Abrams sighed and prepared to pack up his notes.

“What can you do, as an executive, to ensure that these issues that victims are bringing up—that dramatically affect their lives—are at the forefront of how PG&E moves forward with a plan of reorganization?” he asked.

Johnson, whose soft voice offset his hulking figure, raised a finger, brow furrowed behind rounded glasses. He told Abrams he had visited Paradise five times after it was destroyed. Once, he said, he toured the area by bus with the company’s board of directors, mostly New York financiers unfamiliar with the rural expanses of Northern California. During the ride, local officials played a recording of a 911 call from the Heffern family—grandmother, mother, and daughter. The women had huddled together in a bathtub and pleaded for help as the flames approached. They began to scream. Then the line went silent. The local sheriff showed a photo of their remains.

“If you think I am unaffected by this, by the victims and this treatment, you are wrong,” Johnson said. “I’m going to do everything I can to make this right.”

If it was an earnest promise, it was also a tired one. Each of Johnson’s predecessors had pledged to do the same after a series of crises that had defined the past two decades for PG&E. None had succeeded.

Johnson was shepherding PG&E through its second bankruptcy in fifteen years. The reasons for the round trip were inextricably tangled. A series of executives had sought to please investors and politicians, often at the expense of customers. By the time the company confronted the risks of its aging electric grid, the problems were staggering. A protracted drought, exacerbated by climate change, had decimated its service territory, a heavily wooded region roughly the size of New England. One spark could set a whole forest on fire.

California lawmakers and regulators also failed to hold PG&E accountable, even as wildfire risk spread. They treated the company as a tool in their quest to preempt the long-term effects of climate change with ambitious renewable energy mandates. In doing so, they failed to recognize that a changing climate had made PG&E’s power lines an immediate threat to the state.

PG&E’s failure isn’t just a California story. It is, in many ways, a harbinger of challenges to come as climate change exacerbates the vulnerability of the grid, built decades ago to serve a different era of electricity demand. Aging power lines across the West pose greater risks as drought-parched forests become more prone to catastrophic wildfires. And in the East and South, more destructive storms threaten to leave millions of people in the dark for days. In one way or another, all of the nation’s investor-owned utilities are challenged to satisfy shareholders while making their infrastructure safer and more resilient. The very nature of the business creates tension between private interests and the public good, and PG&E is far from the only one that has struggled to strike the right balance.

Johnson, new to PG&E and to California, had been tasked with fixing what had broken, but he didn’t answer to himself. The many people who had made a marionette of the company still held the strings as it worked to complete its most complex restructuring yet. Two months after meeting Abrams, Johnson announced he would step down as soon as the bankruptcy plan was approved. Abrams, meanwhile, had nowhere else to go.

Contents

Cast of Characters

Prologue

Part I

One \ INDICTMENT

Two \ BUILDING A MONOPOLY

Three \ DEATH MARCH

Four \ MARKET FAILURE

Five \ TRANSFORMATION

Six \ SAN BRUNO

Seven \ NO FREE LUNCH

Part II

Eight \ THE TRIAL

Nine \ FIRE SIEGE

Ten \ CHAPTER 22

Eleven \ BLACKOUT

Twelve \ A FRAGILE DEAL

Thirteen \ TWICE CONVICTED

EPILOGUE

Acknowledgments

A Note on Sourcing

Notes

Index


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