PG&E’s survival hinges on Wine Country fire reports

Utility crews begin the task of replacing the downed lines along Old Redwood Road in Santa Rosa, Ca. on Tuesday October 10, 2017. Massive wildfires ripped through Napa and Sonoma counties, destroying hundreds of homes and businesses on Monday morning. less Utility crews begin the task of replacing the downed lines along Old Redwood Road in Santa Rosa, Ca. on Tuesday October 10, 2017. Massive wildfires ripped through Napa and Sonoma counties, destroying hundreds ... more Photo: Michael Macor / The Chronicle 2017 Buy photo Photo: Michael Macor / The Chronicle 2017 Image 1 of / 12 Caption Close PG&E’s survival hinges on Wine Country fire reports 1 / 12 Back to Gallery

Now that California fire investigators have finally started naming the causes of last fall’s deadly wildfires, the fate of the state’s largest utility — Pacific Gas and Electric Co. — hangs in the balance.

PG&E already faces more than 100 lawsuits blaming it for the fires that swept through Northern California in early October, torching nearly 8,900 buildings and killing 45 people. Late last month, the California Department of Forestry and Fire Protection, or Cal Fire, issued reports on four of the least damaging fires, saying all had been caused by branches or entire trees hitting PG&E power lines during a wind storm.

In three of the instances, investigators concluded that PG&E may not have followed state regulations on trimming trees near electrical lines. They referred their findings to the district attorneys of Butte and Nevada counties for review.

If Cal Fire holds PG&E responsible for the most destructive fires — particularly the Tubbs Fire that leveled parts of Santa Rosa and killed 24 people — the 112-year-old company could face a major financial hit. Insurance claims from the fires total roughly $10 billion, far outstripping the $800 million in liability insurance that PG&E carries. Wall Street analysts consider bankruptcy of the company a possibility, albeit a remote one. The company’s stock price has already fallen by more than a third since the fires.

The crowning blow, however, may come from Sacramento.

Legislators have not forgotten the fatal 2010 explosion of an old PG&E natural gas pipeline beneath San Bruno, a blast that led to a $1.6 billion fine from state regulators and a felony conviction from a federal court jury. State Sen. Jerry Hill, a Democrat whose district includes San Bruno, has warned that if Cal Fire investigators blame the Wine Country fires on negligence by PG&E, he may try to break up the company, which serves nearly 16 million people across Northern and Central California.

“That’s a serious consideration,” Hill said Friday. “They may be too big to succeed.”

The company, which employs about 20,000, has survived an existential threat before. PG&E filed for bankruptcy in 2001 at the height of the California electricity crisis, reorganizing and re-emerging three years later.

Photo: Paul Chinn / The Chronicle PG&E crews work on Vintage Circle in the heart of in the...

Wall Street analysts doubt that being held liable for damages from the Wine Country fires could, by itself, drive PG&E back into bankruptcy. PG&E Corp., the utility’s parent company, made a $1.66 billion profit last year, on $17.14 billion in revenue.

“They could weather this, by issuing debt or equity,” said Andy Smith, energy and utilities analyst for Edward Jones. “They could survive it.”

But Smith won’t entirely rule out the possibility of bankruptcy.

PG&E is waging a fierce and very public battle against a legal doctrine known as inverse condemnation, under which California utility companies can be held liable for fire damage tied to their equipment even if they followed the state’s safety rules.

Photo: Carlos Avila Gonzalez / The Chronicle A PG&E worker watches as a trencher removes dirt from a trench as...

PG&E and the state’s other electric utilities want the Legislature to exempt them from inverse condemnation, or at least let them pass on those costs to their customers. Although Gov. Jerry Brown in March expressed vague support, saying that the state needed to “update liability rules and regulations for utility services,” no such legislation has passed to date.

Smith said that if PG&E does face a huge legal bill from the Wine Country fires, the company could decide to file for bankruptcy as a way of forcing Sacramento to deal with the inverse condemnation issue. Or bankruptcy could result if Hill and other state officials decide to “make an example” of PG&E.

“It’s a remote possibility,” Smith said of bankruptcy. “But I couldn’t say with 100 percent certainty that it wouldn’t happen.”

PG&E has argued in court that the Tubbs Fire may have been started by someone else’s wires, installed on a private property.

In response to Cal Fire’s finding that trees or branches hitting power lines sparked the fall fires in Butte and Nevada counties, PG&E said: “Based on the information we have so far, we believe our overall programs met our state’s high standards.”

PG&E officials say that without a change to inverse condemnation, the state’s electric utilities will become, in effect, insurers of last resort for wildfires. They consider the current system neither fair nor financially sustainable.

“It is so broken that I’m optimistic there will be some sort of change,” said Geisha Williams, CEO of PG&E Corp., at an annual shareholders meeting last month. “But what that change will look like, I don’t know.”

A judge overseeing many of the lawsuits against PG&E recently rejected the company’s legal arguments that inverse condemnation should not apply to it. Although the suits are proceeding, the attorneys involved are also waiting for the Cal Fire reports. The results could either add fuel to the lawsuits or undercut them.

“We believe it was PG&E’s lines and poles that caused it,” said attorney John Fiske, who represents the counties of Mendocino, Napa and Sonoma in their litigation against PG&E. “If for some reason it turned out that it was legally and factually not PG&E’s responsibility, then that could jeopardize recoverability for thousands of people.”

Should Cal Fire agree with PG&E that a private property owner’s electrical line started the massive Tubbs Fire, Fiske said he doubted the many people and public agencies that have sued PG&E in connection with the fire would hold the property owner liable for damages.

“The destruction is in the billions of dollars, so I don’t think anyone has any interest in that,” he said.

David R. Baker is a San Francisco Chronicle staff writer. Email: dbaker@sfchronicle.com Twitter: @DavidBakerSF