PG&E Faces Growing Risk of State Oversight as Fire Spreads

(Bloomberg) -- A sprawling Northern California wildfire has now destroyed more than 1,000 buildings, crossing a key threshold that puts PG&E Corp. at risk of heightened regulatory scrutiny and ultimately could set the utility further down a path toward a state takeover.

The Dixie Fire, which PG&E says may have been sparked by its equipment, is the second-largest blaze in state history, according to the California Department of Forestry and Fire Protection. If PG&E is found to have started it, the number of burned buildings is now high enough to allow regulators to place the utility into the second level of a six-step enforcement process that could lead to state takeover for repeated safety violations.

It could take months for state officials to determine whether PG&E caused the fire, considering the blaze is only 30% contained. For the utility to be placed into the next level of enforcement, regulators would also need to find that it didn’t follow state rules or prudent management practices. There would be multiple opportunities for the company to correct course before even reaching higher enforcement levels, let alone losing its license to operate.

The California Public Utilities Commission has made no findings or opened any proceedings related to the Dixie Fire, PG&E spokeswoman Lynsey Paulo said in a statement.

“We performed our work according to our procedures, and we are taking additional safety measures, over and above our 2021 Community Wildfire Safety Program and 2021 Wildfire Mitigation Plan, to help address the growing drought-intensified wildfire threat,” Paulo said.

PG&E shares rose 2.6% to close at $9.44 on Tuesday.

The California Public Utilities Commission is investigating PG&E’s potential role in the Dixie Fire, spokeswoman Terrie Prosper said. The Commission will continue to use its escalating enforcement process based on PG&E’s safety performance, she said.

A government takeover of a utility the size of PG&E -- one of the largest U.S. gas and electric companies -- would be unprecedented. But with months left to go in the California wildfire season, which typically doesn’t peak until later this month or September, PG&E has already been put on the first stage of a path that could ultimately lead to state control if the utility fails to reform itself.

“While PG&E remains relatively far from the final stages of the enforcement ladder, where it loses its right to operate in the state of California, the severity of the fire season continues to pose substantial risks to the utility without a clear picture of how it will eventually descend the enforcement ladder,” said Katie Bays, an analyst at FiscalNote Markets.

The Dixie Fire burning northeast of Sacramento is now the second-largest in state history, having charred more than 500,000 acres. It has been raging across Northern California for more than three weeks after a PG&E worker discovered a small fire at the base of a tree leaning against the utility’s power line near the start of the conflagration. PG&E has said it found no issues with the power line or the tree during recent inspections. The cause of the fire remains under investigation.

The California Public Utilities Commission placed PG&E into the first level of the process in April because of the utility’s failure to sufficiently prioritize clearing vegetation from its highest-risk power lines in 2020 under its wildfire safety plan. If moved to the next level, PG&E would be subject to additional oversight of its safety practices including increased inspections.

The utility agreed to be subject to the enforcement process as a condition of its emergence from bankruptcy last year. California wanted a way to keep tabs on PG&E after its equipment was blamed for wildfires in 2017 and 2018 that killed more than 100 people and destroyed more than 22,000 structures.

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