Green energy and litigation are bankrupting PG&E in California

Out in California, Pacific Gas and Electric (PG&E) is in a lot of financial trouble. That’s unusual because the energy business is largely a very stable industry and nearly recession-proof. But the recent wildfires are threatening to break their financial backs. Not because of fire damage to their equipment, but because they’re being blamed for starting a number of the fires. On top of that, standing contracts with green energy providers are draining them of cash as well. (Daily Caller)

Pacific Gas and Electric (PG&E) may shed more than $40 billion worth of power purchase agreements after the California utility was driven into bankruptcy by liabilities for sparking deadly wildfires, The Wall Street Journal reports.

PG&E wants the U.S. Bankruptcy Court in San Francisco to rule whether the company must honor $42 billion worth of contracts with about 350 different energy suppliers, mostly solar and wind plants.

The court’s decision could have a major impact on California’s renewable energy industry and power makeup. Many green energy suppliers only do business with PG&E, California’s largest utility. Shedding those contracts would likely drive those companies under and cripple California’s ability to meet energy goals set by the state government.

The question of if or how PG&E “caused” the wildfires is a strange situation, to say the least. You can read this report from June of last year that explains how that was supposed to work. There’s a lot of talk in the press about improper maintenance or faulty equipment, but in nearly every case the sparks that allegedly started the fires were caused by trees or branches being blown onto the power lines by high winds. How much tree trimming is PG&E responsible for?

If their transformers were exploding or the insulators on the lines were worn out and leading to sparking I could see blaming them. But they’re getting tagged with a $30 billion fine because storms blew trees over and took down their lines? I realize that everyone always wants to find somebody with deep pockets to blame after a tragedy, but this sounds a bit beyond the pale. Maybe the state could take some responsibility and work on making their countryside a bit less like a tinderbox every year.

The other half of their problem is that they’re locked into contracts to buy energy from solar and wind farms. California’s state government has issued a mandate that they must get to 60% renewable energy by 2030 and 100% by 2045. That’s left PG&E stuck buying $40B in energy from renewable firms, a lot of which they don’t even need. In fact, during peak renewable production periods they’ve been forced to sell energy off (at a loss) to neighboring states.

Put all of this together and one of the biggest energy companies in the nation has just filed for bankruptcy protection. They’re asking the court to let them out of the contracts with the wind and solar producers. If that doesn’t work, they may wind up going under. Perhaps that’s for the best and their investors can take their business to states without such a litigious and corrosive business environment.