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Is Pacific Gas and Electric the first corporate climate casualty?

This article is drawn from the Energy Weekly newsletter, running Thursdays. Subscribe here.

The big news this week is the misfortunes of California utility Pacific Gas and Electric, which has filed for bankruptcy to protect itself from more than $30 billion in damages related to California’s voracious wildfires. CEO Geisha Williams resigned over the weekend, so the company can figure out next steps.

The irony is stark: One of the true pioneers in the clean energy transition could be one of the first corporate victims of climate change. 

It stems back to the state’s liability laws: PG&E’s high-transmission lines have been fingered as the fire starters for more than one of the devastating fires, which have been exacerbated by an ongoing drought. Which, of course, are being exacerbated by the effects of global warming.

Quite simply, the utility wasn’t financially prepared for this. Although other states don’t have the same way of handling damages related to a utility’s equipment, the situation should be a wake-up call about the need for serious policy overhaul and for business insurance policies — for every sector — that account for ways climate change could reshape the world around us.

It’s obviously too early to say, with authority, what exactly will happen to PG&E as a result of this development. The lights certainly aren’t going to go out for its 16 million customers. But here are five very real possible outcomes:

1. There could also be shakeups at Southern California Edison and San Diego Gas & Electric, although they have managed to shield themselves (so far) from similar liabilities. It definitely will change the nature of negotiations with those utilities for new projects. (New York Times)

2. PG&E has the right to renegotiate big power purchase agreements, but there’s really no precedent in the era of corporate renewables procurement. That could be really bad news for some of the most prominent developers. In other words, there could be a ripple effect — one that could affect corporate buyers as well. (Greentech Media, PV Magazine)

3. It could delay the timeline for California’s zero-carbon electricity transition. As much as this east-coaster hates to admit it, PG&E was a real innovator and risk taker when it came to shaping programs — initiatives for energy efficiency, energy storage and electric vehicle infrastructure that many of its industry peers later sought to emulate. Who will be willing to take those risks in the future? (Grist, Sacramento-Bee)

4. It could be a catalyst for more microgrid projects. As the legacy grid infrastructure becomes more vulnerable to climate conditions — including fires, windstorms and floods — localized projects that make communities and companies less vulnerable to disruptions sure look more appealing. Of course, that could be a harbinger of a whole new wave of cybersecurity and liability issues related to commercial and industrial projects.

5. Mainstream investors finally may realize that climate risks are real financial risks. Over the past four months, PG&E’s stock price has been in freefall: its market capitalization is around $3.5 billion, compared with about $24 billion in September. Who got clobbered? Apparently, investors who pay attention to environmental, social and governance (ESG) issues got themselves out in time. Bloomberg reports that of the 1,200 funds that use ESG metrics, just 34 were PG&E shareholders. “People get comfortable with risks that have never been a problem before, then all of a sudden it is,” Henry Peabody, a fund manager with Eaton Vance, told the news organization.

This will take months to play out, so stay on the line.

Source: GreenBiz