By Jason Fordney

While the wildfires that ravaged California last year have long burned out, the financial implications for Pacific Gas and Electric are just beginning to surge as the utility works to reduce the impact on shareholders.

PG&E last week reported first-quarter profits of $468 million ($0.91/share), compared with $544 million ($1.06/share) in 2017, falling short of expectations of Wall Street analysts. The utility reported $21 million in wildfire-related costs in the quarter under “items impacting comparability.”

Central to PG&E’s woes is the legal concept of “inverse condemnation,” which makes a utility potentially liable for wildfire-related property damage caused by utility equipment even in cases when that equipment has passed inspections and utility negligence isn’t proven.

During an earnings call and presentation Thursday, PG&E CEO Geisha Williams said the current treatment of the company’s wildfire responsibility is “a strict liability approach that presumes a commensurate cost recovery path for investor-owned utilities that just isn’t true.” She said that utilities cannot raise rates without regulatory approval, so applying inverse condemnation to utilities “undermines the premise” of the concept.

California’s courts have set a precedent of applying the state’s inverse condemnation provisions to IOUs, and a state trial court last week denied PG&E’s challenge of inverse condemnation related to the 2015 Butte Fire.

The state’s IOUs have banded together on the wildfire issue, pressing on legislative, regulatory and legal fronts to change the approach to inverse condemnation. Newly introduced legislation would revise wildfire liability provisions by allowing utilities to recover wildfire costs through rates if they conform to state-regulated safety plans. (See Calif. Legislation Shields Utilities from Wildfire Costs.)

Fitch Ratings downgraded PG&E’s stock in February because of wildfire risk. Utility liability for wildfires over the last 10 years has created worries among state lawmakers and the California Public Utilities Commission over the potential for IOU bankruptcies. (See Picker Seeks Guidance on IOUs, Aliso Canyon.) PG&E awaits other legal rulings regarding inverse condemnation associated with the 2017 fires, and the utility says climate change is playing a larger role in the conditions that led to the massive blazes.

The utility said that is has been working to harden its systems against wildfires, increasing its spending on vegetation management to $440 million in 2017 from $190 million in 2013, increasing inspections in high fire risk areas and acquiring two helicopters to assist in wildfire response, with plans to acquire two more. It plans to add 200 new weather-monitoring stations this year.

Williams also discussed the growth of community choice aggregators (CCAs), which has left remaining bundled customers to foot the costs for legacy contracts. The issue is becoming more prevalent as CCAs grow. She said the California energy landscape is in a period of “dynamic change,” mentioning climate change, CCA growth, increasing use of electric vehicles, and growth in carbon-free and renewable energy resources.