“We Didn’t Start the Fire,” — Sincerely, PG&E (And Everyone Else)

“The work of Prometheus has advanced another stride. Mankind and its supper parties were no longer at the mercy of a few miles of sea-fog; sundown no longer emptied the promenade; and the day was lengthened out to every man’s fancy. The city folk had stars of their own; biddable domesticated stars…” — Robert Louis Stevenson, A Plea for Gas Lamps, 1878 It may come as a shock to many Californians to know that PG&E was once a glamorous company admired for its modernity and cultural advancement. In the late 1840s, historians recount how “San Francisco walked in darkness,” a rank reality that wasn’t fully remedied until PG&E paid for new electric street lighting in 1916. “A warm white light, the most brilliant that ever shown through a city thoroughfare after the sun had gone down, flooded the canyon of Market Street,” wrote the San Francisco Chronicle. “Light flowed everywhere, touched and enveloped everything… such was the wizardry of this marvelous light.” Today, PG&E is no longer a Promethean figure bearing light to the masses. (For anyone who’s experienced a Public Safety Power Shutoff, it’s more often the figure plunging them into darkness). At best, it’s seen as a lumbering albatross, too aged to respond to the new realities of a more combustible world. At worst, it’s framed as a skilled arsonist desperately in need of state receivership. In an age of rolling blackouts, fire tornadoes, and megafires, it’s tempting to take the first obvious suspect — in this case, a monopolistic utility company sprawling across 70,000-square-miles, half of which might as well be kindling — and throw the unlucky bastard in jail. But PG&E’s growing inferno didn’t emerge from a vacuum, and, as we follow the burn marks, it becomes less a question of, “Who gets the electric chair?” and more a question of, “Is there anyone left who isn’t culpable?”

A Century of Stockpiling Gasoline There is one figure that we identified as a repeat suspect over the years, and that figure is Smokey Bear. Smokey Bear may be the most recognizable firefighter in America. Unfortunately, he was also the mouthpiece for a century-long misinformation campaign spread by the U.S. Forest Service. For decades, Smokey cheerfully reminded the public of “our most shameful waste” — unchecked wildfires — with his heroic slogan: “Only YOU can prevent wildfires.” When Teddy Roosevelt first created the federal Forest Service in 1905, ecology wasn’t at its most developed stage. Few people other than Native Americans understood the value of natural wildfires, which periodically cleared the forest of dead matter, pests, and ground vegetation. Many species, including the Ponderosa — the most widely distributed pine in North America — adapted to wildfire and developed thick bark to withstand flames. But, thanks to the Forest Service’s ceaseless anti-fire campaign, an astounding 300 million acres of western forests carry unnaturally heavy fuel loads today. This gasoline pile is further compounded by an unchecked beetle population, which killed off more trees from 2000 to 2015 than in the entire century prior. Ironically, wildfire suppression’s greatest achievement is the creation of an incredibly flammable forest. Combine this with an ever-lengthening fire season, and it looks like we might need ten more Smokey Bears to complete his original task. The Growing Wildland-Urban Interface Another growing problem is nature lovers. People who hate nature aren’t endangering the forests: they’re safely sequestered in a luxury apartment high-rise far away from any flammable biomass. It’s the nature lovers, the people who want to bring a piece of it home to them, who want the cabin with a view, who want to see the starry sky again, that are encroaching closer and closer to fire. In the 1980s, CAL Fire, a paramilitary force responsible for putting out California’s blazes, spent an average of $61 million (2018 USD) per year on fire suppression. That number has now ballooned to roughly $450 million per year, and, in years of megafires, easily climbs into the billions. One reason why fire suppression has grown so expensive in recent years is that there are simply more assets to burn. The wildland-urban interface (WUI), regions where developers erect structures next to or within undeveloped natural area, is the hottest new area for housing development. Since 1990, around 60% of new homes in the US were built on WUI land, and one third of all existing homes fall into this category. Every one of these developments is a high-risk area. One forester was appalled to see so many steep hillsides decorated with dry shrubs and cluttered with Pacific madrone just waiting to catch flames. In May 2020, Austin, after getting ranked third on a list of residential cities most at risk for wildfire, became the first major city to adopt new building codes for development projects outside its urban core: in other words, two-thirds of the city that was exposed to flammable brush and vegetation. A Fire Comes to Paradise The enchanting forest town of Paradise, California certainly fell under the high-risk category. The community was an early magnet for those looking to “get off the grid” in the 60s, and had the added benefit of a thick forest canopy for those looking to cultivate marijuana. “You saw hummingbirds and butterflies,” said one resident. “We’d sleep out under the stars. You never felt more safe than out there in the mountains.” On November 8th, 2018, an early morning windstorm snapped a “C hook” from PG&E’s aging Caribou-Palermo transmission line. The falling line ignited a small fire on Camp Creek Road, a remote road inaccessible by firetruck. Winds were so strong that helicopters were quickly buffeted away, until the fire eventually spread at a rate of 70 football fields per minute. Nearly the entire town of Paradise, just six miles away, was incinerated in the course of four hours. There were 86 fatalities. 18,000 structures leveled. 153,000 acres gone. And 40,000 refugees fled to a neighboring Wal-Mart parking lot that they used as a makeshift emergency shelter. It was the single biggest insurance loss-event of 2018, resulting in insured losses of 12 billion USD. One insurer, Merced Property & Casualty Co., was overwhelmed by the costs and eventually liquidated by the state. A subsequent investigation revealed that the average life expectancy of transmission lines was sixty-five years. The “C hook” in question was approximately ninety-seven years old — no one could say for certain as PG&E couldn’t produce original records. “Without climate change, the consequences of failure of a transmission line are relatively modest. It falls down, causes a fire, and the fire department puts it out,” said Michael Wara, Director of the Climate and Energy Policy Program at Stanford University. “The system has been maintained with some preventative maintenance, but also with a philosophy that it can run until it breaks. The thing is the costs have changed. The risks have changed.” Who Pays for a Wildfire? The problem is, who will finance the new risk? In the case of the Camp Fire, the answer was obvious: PG&E. After pleading guilty to 84 counts of manslaughter, PG&E reached a settlement with the fire victims for $13.5 billion. From October 2018 to January 2019, PG&E’s market value slid from about 25 billion USD to 9 billion USD, and its stock price slid from nearly $50 a share to $7.16 a share, before recovering slightly to $14.99 upon announcing bankruptcy. The Camp Fire bankruptcy left PG&E saddled with $38 billion in debt, nearly double its liabilities before the event. The company was placed on probation and directed to reinvest in its infrastructure. The astonishing cost spooked state legislators, who quickly cobbled together a $21 billion wildfire insurance fund (paid for by the utilities and ratepayers) in the hopes of insulating utility companies from future catastrophes. What’s significant about the fund is that it caps a utility company’s risk. California operates on a system of strict inverse condemnation laws: if your equipment’s involved, you pay for it, no matter what. And in a season that’s already produced five of the six largest wildfires in California’s history, utilities are simply pulling the plug during storms rather than face new liabilities. The fund, however, allows qualifying companies to cap their liabilities to 20% of the utility’s transmission and distribution equity rate base for that year on a rolling three-year basis. In other words, so long as it’s not negligent, PG&E’s liability is capped at 2.7 billion for the next three years. If losses exceed that, the fund eats the rest, and if the fund is exhausted, the remainder is passed onto ratepayers. Catastrophic modeling is optimistic in that it predicts the fund will last for ten years. Preventative risk measures are equally important. Wara recommends the creation of a new state agency that is exclusively devoted to reducing wildfire risk. Rather than expecting firefighters to respond to fires and prevent their likelihood, Wara suggests making it someone’s explicit job. “A new state agency could set annual and long-term goals on several key fronts: fire hardening individual homes in high-risk areas, safeguarding communities as a whole, and reintroducing prescribed burns in wildlands.” Still, insurers aren’t exactly leaping forward to renew their services. “Insurers are acting as you would expect where the risk is going up,” said Dave Jones, senior director at the Nature Conservancy and a former California insurance commissioner. “They’re adjusting their pricing and deciding in some cases that the risk is too high. We’re marching steadily towards a future where the wildfire risk is uninsurable.” A Return to Community Co-Ops? Some constituents dream of having Governor Gavin Newsom take the helm, claiming that “public power is generally cheaper, safer, cleaner — with some exceptions — and more reliable.” This may be true, but it’s hardly surprising given that municipal utilities generally operate in small, urban territories that aren’t much of a fire risk anyways. One reason PG&E appears uniquely nefarious is because it operates in a territory filled with trees and is seventeen times larger than its next largest competitor. Public or private, our thoughts and prayers go out to any utility company that hopes to manage that territory while escaping the label of “recalcitrant criminal.” Still others veer towards the idea of microgrids and a return to community-run co-ops, much like the mom-and-pop teams that first brought power to rural communities when power companies refused to provide service. “I’ll never forget the first day they turned the electric on,” said one farmer. “I waited till dark to do my chores. I had the barn all lit up like a Christmas tree. Oh, that seemed nice, especially the stable — you didn’t have to look where you was goin’.” Unfortunately, these virtuous enterprises survived entirely through loans from the federal government, a concept which seems like a strange fever dream at this point. Ultimately, until every stakeholder is collectively engaged in reducing risk — whether it’s PG&E performing basic maintenance upgrades, construction companies following sensible building codes, or everyday citizens resisting the urge to play with pyrotechnic devices — it’s unlikely that a silver bullet will reveal itself soon. Prometheus suffered 1,000 years for playing with fire: did you think we’d get off easy? About Colbeck: Colbeck is a strategic lender that partners with companies during periods of transition, providing creative capital solutions to meet their evolving needs. You can reach the team at inquiries@colbeck.com.


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