Will PG&E’s $2B grid cutbacks derail California’s clean energy buildout?

This is California Wire, a weekly newsletter from Jeff St. John on the state’s clean energy transition. Subscribe to get it every Thursday via Substack.

Hello, everyone! We’ve got a lot of postelection news to cover this week. But I want to start with another hugely important issue, one that poses an existential risk to California’s utilities and a significant threat to the state’s clean energy goals — as well as a serious challenge for its incoming governor. 

We’re talking, of course, about utility wildfire liability reform. Outgoing Gov. Gavin Newsom failed to broker a deal with lawmakers at the end of this year’s legislative session to protect the state’s major utilities from the potentially ruinous liabilities they face from fires sparked by their power lines. 

Shares of the parent companies of Pacific Gas & Electric and Southern California Edison dropped precipitously on that news. PG&E, still recovering from a 2019 bankruptcy after its equipment started the Camp Fire in 2018, responded by announcing a ​“strategic review” that included postponing about $2 billion in work planned for 2027. 

Last month, PG&E sent letters to some 25,000 customers warning them to expect delays in getting grid connections. Estimates range from one to six months for connecting housing developments and office buildings to ​“2027 and beyond” for city and county transportation and public works projects. 

Among those facing undetermined delays are more than 60 renewable and storage projects scheduled to be online by 2030 — which could add at least 15 gigawatts of capacity, according to a PG&E spokesperson.

This compounds the already substantial delays for clean energy developers that have been struggling to get connected to California’s transmission grid. In fact, it could undermine the financial prospects of a lot of solar projects, Jan Smutny-Jones, CEO of the Independent Energy Producers Association, said at an Oct. 28 hearing of the California Assembly Utilities and Energy Committee. 

Adding to the urgency is the fact that solar developers are under the gun to complete work by 2030 or lose out on federal tax credits thanks to revised deadlines in the tax and spending megabill passed by Republicans last year. ​“Miss that date, game over. It’s at least a 30% increase in the cost of those goods,” he said.

The new delays also threaten California’s goal of building 6 GW of new clean energy and storage by 2032. If projects can’t stay on schedule, the state may be forced to once again put off retiring more than 3 GW of aging, polluting coastal gas plants, Smutny-Jones said.

Mari Becker, PG&E’s vice president and treasurer, said the company has few other options if state leaders can’t protect utilities from the unbounded risk of bankruptcy in the wake of wildfires sparked by power lines. ​“Wildfire financial uncertainty leads to weaker credit, weaker credit leads to more expensive capital, and more expensive capital puts upward pressure on customer bills — and all of this constrains the investments that California needs,” she said. 

This conundrum isn’t lost on Alex Jackson, executive director of American Clean Power–California, the state branch of the trade group American Clean Power Association. ​“Our preferred outcome here is that the legislature goes back to the table,” he told me. 

At the same time, ​“we can’t just bank on a deal on wildfire to come together,” he said. ​“So I think we need to be proactive about a plan B.” Options include enlisting competitive transmission developers to construct projects on PG&E’s delayed list and letting solar and battery project owners construct the parts of the grid they need to connect via mechanisms like build-transfer agreements.

Assemblymember Cottie Petrie-Norris, the Democrat who chairs the Utilities and Energy Committee, offered another idea at last week’s hearing: tapping into a $325 million state ​“transmission accelerator” fund for competitive transmission projects.

But Fernando Valero, executive director of strategic issues at the Los Angeles Department of Water and Power, the state’s biggest municipal utility, responded by noting that wildfire liabilities burden investor-owned and publicly financed utility infrastructure alike. ​“It almost doesn’t matter what business model you have if we don’t get wildfire risk and the liabilities associated with it under control,” he said. 

My take

This is truly a problem from hell, and I won’t pretend to know how to solve it. California’s unique inverse condemnation legal doctrine, which holds utilities liable for fires caused by their equipment even absent utility negligence, makes every power line a potentially business-ending risk. At the same time, utilities do need to be held responsible when they are negligent. PG&E was found guilty of involuntary manslaughter in 2020 for causing the Camp Fire. 

Southern California Edison now faces a jury trial to determine its liability for billions of dollars of damages caused by January’s Eaton Fire, which could deplete the state’s $21 billion wildfire fund. Wildfire victims and consumer advocates outraged at the idea of the state intervening to limit utility shareholder payouts see PG&E’s $2 billion in spending cutbacks as a form of blackmail. 

But a state-mandated report issued this summer makes clear that failing to fix the status quo will leave utilities at risk of financial collapse — and that’s a direct threat to climate progress and energy affordability. I fear things are going to get uglier before we find any compromises. We may need a plan C and D along with a plan B. 

What else I’m watching 

The election is finally behind us. For California, that means we have certified a few foregone conclusions — but are also left with some uncertain outcomes. 

In the former category, Xavier Becerra, the Democratic candidate for governor, is officially governor-elect. His victory over Republican candidate Steve Hilton was never in doubt. Becerra, the former state attorney general and Biden administration secretary of health and human services, will need to hit the ground running — starting with wildfire liability reforms. Then, we’ll have to wait and see if his administration follows through on his free solar ​“power hour” proposal and how it handles other climate and energy priorities. 

Californians looking for real election nail-biters did have some big ballot propositions to chew on, including a contentious anti-billionaire tax measure that did not pass. There was also Proposition 45, a controversial plan to revise and restrict the state’s landmark environmental review law, the California Environmental Quality Act, or CEQA. 

California counts votes slowly, but according to tallies as of Thursday morning, Prop. 45 appeared to be on its way to defeat. 

Backers of the ballot measure, including state Republicans and business and homebuilder groups, say CEQA has been hijacked by anti-growth activists that use it to throw up interminable legal roadblocks to constructing vitally needed housing and infrastructure. PG&E and Southern California Edison supported the measure along with major clean energy developers such as NextEra Energy Resources and trade groups including American Clean Power—California, the California Energy Storage Alliance, the California Wind Energy Association, and the Large-Scale Solar Association. 

State democrats, labor groups, and major environmental organizations opposed the measure, arguing it would strip public protections against unchecked development, leading to exurban residential sprawl and — most notably in the current political climate — more data centers. It looks like fears Prop. 45 would weaken guard rails against unbridled development have outweighed the pro-growth arguments of its backers. 

Utility-scale dynamic duo: Solar and batteries

We don’t have precise data on which large-scale energy projects will be most impacted by PG&E’s decision to delay $2 billion in grid investments in 2027. But we can be pretty sure the vast majority will be either utility-scale solar or utility-scale batteries — or both paired together. Solar and energy storage are the two fastest-growing energy resources across the U.S. and the world, as well as an increasingly vital combo for tapping the sun’s power to cover grid demand peaks after dark. 

This chart, from the U.S. Energy Information Administration, compares how much solar, with and without batteries, is being built in the sunniest states of the U.S. West with installations in the country as a whole. Expect these ratios to start climbing in the years to come — and don’t forget Texas, which leads the country in both resources. 

One more thing

I hope you all had a happy Halloween with just the right amount of tricks and treats! This year, my wife and I wore Where’s Waldo costumes. So did Lily the corgi. But we couldn’t get her to keep her glasses on much past this very brief photo shoot.