Fight over PG&E’s liability in Wine Country fires is just beginning

As reported in the San Francisco Chronicle on 21 June 2018, Pacific Gas and Electric Co. and its parent company, PG&E Corp., reported Thursday that they will take a $2.5 billion charge to cover expected losses from October’s deadly Wine Country wildfires.  PG&E is blamed for sparking some of the most destructive blazes in California history, and warned investors that the financial pain may just be beginning. The damage charge, which will be recorded in the current quarter, is larger than PG&E Corp.’s 2017 profit of $1.66 billion. But PG&E executives said that it represents just the low end of the utility’s potential losses from the fires; the final amount could be much higher. In Australia, there were numerous large court cases against power companies in the aftermath of Black Saturday fire.

The following article, written by David R. Baker, appeared in the San Francisco Chronicle on 9 June 2018.

Firefighters were still struggling to contain the flames scorching the North Bay last October when residents first started lining up to sue Pacific Gas and Electric Co. State fire officials had already named PG&E’s power lines as possible ignition sources for the dozens of fires that erupted during a windstorm on Oct. 8, destroying more than 8,800 buildings across Northern California and killing 45 people. But they cautioned that their investigation was just getting under way.

Many survivors, however, were convinced that the culprit was PG&E. Eight days after the fires began, at least 175 people gathered at the Santa Rosa Hyatt to hear from three law firms preparing to take on the utility. In the months that followed, more than 150 individual suits would be filed against PG&E. Investigators with the California Department of Forestry and Fire Protection, or Cal Fire, are now finally releasing their reports on the causes of the fires. In every case so far, Cal Fire has traced the flames back to PG&E’s equipment.

Even more damning, in 11 of the 16 fires for which Cal Fire has issued reports, investigators found reason to believe that PG&E had broken state safety rules. They sent their findings to the district attorneys in the counties involved to explore possible prosecution. Cal Fire still has not named a cause for the biggest blaze that night — the Tubbs Fire, which raced from Calistoga to Santa Rosa, leveled whole neighborhoods and killed 24 people. The Cal Fire reports issued to date, however, could lead to criminal charges against PG&E, which was convicted on six felony charges following the fatal 2010 San Bruno gas pipeline explosion.

Even some of the lawyers now suing the company, however, consider criminal charges unlikely.  Instead, the agency’s findings could give the survivors suing PG&E a way to hold the utility liable for economic damages caused by the fires, even in the instances in which Cal Fire did not accuse the utility of doing anything wrong. Under a legal concept called inverse condemnation, California utilities can be made to pay economic damages for fires tied to their equipment, regardless of whether they followed the state’s safety regulations.

Furthermore, by raising the possibility of wrongdoing, the reports could end up blocking PG&E’s ability to pass along any of those costs to its more than 5 million customers. California regulators have refused to let utilities incorporate wildfire lawsuit costs into their rates when negligence is involved. PG&E and the state’s other big utilities have been waging a lobbying campaign in Sacramento to change the state’s liability laws and shield them from wildfire lawsuits, or at least let them make their customers pay the costs. That effort may now be moot.

“I think that is now off the table,” said Patrick McCallum, a Sacramento lobbyist who lost his own home in the fires and has been trying to thwart PG&E’s push on liability laws. He leads a campaign called Up from the Ashes funded by some of the lawyers suing PG&E. “In my opinion, there are not the votes in the Legislature today to change inverse condemnation or strict liability,” McCallum said. “These reports show the Legislature and their staff what others have known, that there’s a history of mismanagement at PG&E.”

PG&E said it will continue pushing for liability changes, as well as work with state officials on fire prevention measures. “Liability regardless of negligence undermines the financial health of the state’s utilities, discourages investment in California and has the potential to materially impact the ability of utilities to access the capital markets to fund utility operations and California’s bold clean energy vision,” the company said.

The stakes for PG&E are high. Damage estimates from all of the Northern California wildfires, viewed together, stand at nearly $10 billion, according to the California Department of Insurance. Wall Street analysts don’t believe liability for the fires would bankrupt PG&E, but it would at the very least raise insurance prices for the company, and its customers would bear that extra cost. PG&E Corp., the utility’s parent company, made a $1.7 billion profit last year, on $17.1 billion in revenue. PG&E in December suspended its dividend to stockpile money, should it be held responsible for the fires.

Much still hinges on whether Cal Fire blames the Tubbs Fire on PG&E’s equipment. The company has claimed that a power line installed and owned by a private property owner started the blaze. Gerald Singleton, one of the attorneys suing PG&E, estimates that the Tubbs Fire alone accounts for close to half of the liability PG&E could face. “If the Tubbs report comes back, and they say, ‘No, remarkably, PG&E’s equipment wasn’t involved,’ then PG&E no longer has an immediate financial problem,” said Singleton, with the Singleton law firm.

PG&E said in its first-quarter financial report that it could need to raise money to deal with the fallout. Already, it has spent $259 million on repairs and service restoration. It has approximately $840 million in liability insurance — far short of what it might be required to pay.

The findings issued to date should make it easier for insurance companies, fire departments, cities and others to sue PG&E for losses caused by the fires, a process known as subrogation. Insurance companies will seek to recoup at least some of the claims they paid out to policyholders, the same way auto insurers after an accident will pay their customers first, then seek reimbursement from the at-fault party or his insurer.  “It’s part of the normal process on how issues like this are resolved, making sure that the responsible party pays for the damage they cause,” said Mark Sektan, vice president with the Property Casualty Insurers Association of America. Sektan said any result from industry lawsuits against PG&E “will be a couple years away. Where it will help homeowners who have insurance is that when the insurers receive a settlement, they will refund whatever deductible the homeowner has paid.”

A glass sculptor who lost his life’s work in Napa’s Atlas Fire, Clifford Rainey is among many victims who are suing PG&E. Rainey also lost the Napa home he shared with his partner, Rachel Raiser, a floral designer, who also lost her studio. “We’re in a pickle financially,” Rainey said, noting that he had no insurance on his art studio. “The only way I can see to get any compensation is through one of these lawsuits.” So Friday’s news that Cal Fire investigators have determined that the Atlas Fire started with a PG&E power line gives him hope that he and Raiser will one day be able to rebuild. But he fears that PG&E power lines will remain unsafe, despite the finding. “It’s amazing that in California we still have these power cables above ground,” he said. “I’m from the U.K., and across most of Europe, electrical wires are always underground. In Napa, where I live, the power cables actually weave through trees. I cringe.”

Chronicle staff writers Kathleen Pender and Nanette Asimov contributed to this report.


Why isn’t the bond market more worried about climate change?

Paul Somerville and Thomas Mortlock

In December 2017, the credit rating agency Moody’s warned U.S. cities and states to prepare for the effects of climate change or risk being downgraded. It explained how it assesses the credit risks to a city or state that’s being impacted by climate change — whether that impact be a short-term “climate shock” like a wildfire, hurricane or drought, or a longer-term “incremental climate trend” like rising sea levels or increased temperatures. It also takes into consideration communities’ preparedness for such shocks and their activities adapting to climate trends.

A recent report by Charles Donovan and Christopher Corbishley of Imperial College predicts that countries disproportionately impacted by climate change could have to pay an extra $170 billion in interest rates over the next 10 years. The following article by Henry Grabar, which appeared on Slate on Oct. 28 2017, explains why the bond market is not more worried by climate change.

The article draws examples from recent flooding in US cities and the infamous National Flood Insurance Program. Parts of the US like Miami, New Orleans and New York are feeling the effects of sea level rise now during extreme weather events, in part because of the low-lying topography and high population density of these coastal areas. In Eastern Australia, shorelines have – until now – broadly been able to keep pace with a rising tidal prism because of antecedent sediment conditions and a relatively steep coastal hinterland.

However, high and rising coastal populations and expanding infrastructure (~ 85 % of Australia’s population currently lives near the coast) leave some big east coast cities like Newcastle, Brisbane and Cairns with significant exposure to higher sea levels in the coming decades.

We should perhaps be looking to examples in the US and elsewhere as a present-day ‘litmus test’ of financial markets response, and a window to the near-future time when sea level rise begins to have a more significant impact on some of the big east coast cities in Australia.

Early this month, when the annual king tide swept ocean water into the streets of Miami, the city’s Republican mayor, Tomás Regalado, used the occasion to stump for a vote. He’d like Miami residents to pass the “Miami Forever” bond issue, a $400-million property tax increase to fund seawalls and drainage pumps (they’ll vote on it on Election Day). “We cannot control nature,” Regalado says in a recent television ad, “but we can prepare the city.”

Miami is considered among the most exposed big cities in the U.S. to climate change. One study predicts the region could lose 2.5 million residents to climate migration by the end of the century. As on much of the Eastern Seaboard, the flooding is no longer hypothetical. Low-lying properties already get submerged during the year’s highest tides. So-called “nuisance flooding” has surged 400 percent since 2006.

Business leaders are excited about the timing of the vote in part because Miami currently has its best credit ratings in 30 years, meaning that the city can borrow money at low rates. Amid the dire predictions and the full moon floods, that rating is a bulwark. It signifies that the financial industry doesn’t think sea level rise and storm risk will prevent Miami from paying off its debts. In December, a report issued by President Obama’s budget office outlined a potential virtuous cycle: Borrow money to build seawalls and the like while your credit is good, and your credit will still be good when you need to borrow in the future.

Figure 1 (A) Even non-cyclonic heavy rain events can leave Miami Beach flooded, putting assets and people at risk. Source: National Weather Service (2015).
(B) Flooded homes in New Jersey after Superstorm Sandy made landfall in 2012. Source: AFP PHOTO/US Coast Guard.

The alternative: Flood-prone jurisdictions go into the financial tailspin we recognize from cities like Detroit, unable to borrow enough to protect the assets whose declining value makes it harder to borrow.   The long ribbon of vulnerable coastal homes from Brownsville to Acadia has managed to stave off that cycle in part thanks to a familiar, federally backed consensus between homebuyers and politicians. Homebuyers continue to place high values on homes, even when they’ve suffered repeated flood damage. That’s because the federal government is generous with disaster aid and its subsidy of the National Flood Insurance Program, which helps coastal homeowners buy new washing machines when theirs get wrecked. Banks require coastal homeowners with FHA-backed mortgages to purchase flood insurance, and in turn, coastal homes are rebuilt again and again and again—even when it might no longer be prudent.

But there’s another element that helps cement the bargain: investors’ confidence that coastal towns will pay back the money they borrow. Homebuyers are irrational. Politicians are self-interested. But lenders—and the ratings agencies that help direct their investments—ought to have a more clinical view. Evaluating long-term risk is exactly their business model. If they thought environmental conditions threatened investments, they would sound the alarm—or just vote with their wallets. They’ve done it before—cities like New Orleans, Galveston, Texas, and Seaside Heights, New Jersey were all downgraded by rating agencies after damage from Hurricanes Katrina, Ike, and Sandy. But all have since rebounded. There does not appear to be a single jurisdiction in the United States that has suffered a credit downgrade related to sea level rise or storm risk. Yet.

To understand why, it helps to look at communities like Seaside Heights, the boardwalk enclave along the Jersey Shore whose marooned roller coaster provided the definitive image of the 2012 storm. Seaside Heights was given an A3 rating from Moody’s in 2013, meaning “low credit risk.” Ocean County, New Jersey—the county in which Seaside Heights sits—has a AAA rating. In the summer of 2016, before Ocean County sold $31 million in 20-year bonds, neither Moody’s Investor Services nor S&P Global Ratings asked about how climate change might affect its finances, the county’s negotiator told Bloomberg this summer. “It didn’t come up, which says to me they’re not concerned about it.”

The credit rating agencies would deny that characterization—to a point. They do know about sea level rise. They just don’t think it matters yet. In 2015, analysts from Fitch concluded, “sea level rise has not played a material role” in assessing creditworthiness, despite “real threats.” Hurricane Sandy had no discernible effect on the median home prices in Monmouth, Ocean, and Atlantic Counties, which make up New Jersey’s Atlantic Coast. The effect on tourism spending was also negligible.

“We take a lot from history, and historically what’s happened is that these places are desirable to be in,” explains Amy Laskey, a managing director at Fitch Ratings. “People continue to want to be there and will rebuild properties, usually with significant help from federal and state governments, so we haven’t felt it affects the credit of the places we rate.”

There are three reasons for that. The first is that disasters tend to be good for credit, thanks to cash infusions from FEMA’s generous Disaster Relief Fund. “The tax base of New Orleans now is about twice what it was prior to Katrina,” Laskey says, despite a population that remains 60,000 persons shy of its 2005 peak. “Longer term what tends to happen is there’s rebuilding, a tremendous influx of funds from the federal and state governments and private insurers.” Local Home Depots are busy. Rental apartments fill up with construction workers. Contractors have to schedule work months in advance. Look at Homestead, Florida, Laskey advised, a sprawling city south of Miami that was nearly destroyed by Hurricane Andrew. Today it is bigger than ever. “If there was going to be a place that wasn’t going to come back, that would have been it.”

What emerges from the destruction, for the most part, are communities full of properties that are more valuable than they were before, because they’re both newer and better prepared for the next storm. Or as a Moody’s report on environmental risk puts it, “generally disasters have been positive for state finances.” But this is entirely dependent on federal largesse: After Massachusetts brutal winter of 2015, FEMA granted only a quarter of the state’s request for aid. Moody’s determined that could negatively impact the credit ratings of local governments that had to shoulder the cost of snow and ice removal.

Second is that people still want to live on the shore. “The amenity value of the beach is something you can enjoy every day of the summer,” says Robert Muir-Wood, the chief research officer at Risk Management Solutions. “People may say, ‘The benefits of living on the beach to my health and wellbeing outweigh the impact of the flood.’” That calculus is strongly influenced by affordable flood insurance policies, but it has not changed. In a way, despite the risks, the sea is a more dependable economic engine for a community than, say, a factory that could shut its doors and move away any minute.  Most bonds get paid off from property taxes. If property values remain high, bondholders have little to worry about. If, on the other hand, property values fall, tax rates must rise. If buildings go into foreclosure, or neighborhoods undergo “buy-outs” to restore wetlands or dunes, more of the burden to pay off that new seawall falls on everyone else.

Third: Most jurisdictions are large. New Jersey’s coastal counties also contain thousands of inland homes whose risk exposure is much, much lower. Adam Stern, a co-head of research at Boston’s Breckinridge Capital Advisors, argues that the first credit problems will come for small communities devastated by major storms.

Still, Stern said, his firm looks at these issues. “One of the things we try to get at when we look at an issuer of bonds that’s on the coast: Do you take climate change seriously? Are you planning for that?” Still, he said, bond buyers—like everyone else—discount the value of future money, and hence future risk. When could the breaking point for the muni market come? Stern predicts that will happen when property values start to discernibly change in reaction to climate risk. It’s a game of chicken between infrastructure investors and homeowners.

A global slowdown of tropical-cyclone translation speed and implications for flooding

Thomas Mortlock, Risk Frontiers.

As the Earth’s atmosphere warms, the atmospheric circulation changes. These changes vary by region and time of year, but there is evidence to suggest that anthropogenic warming causes a general weakening of summertime tropical circulation. Because tropical cyclones are carried along within the ambient environmental wind, there is an expectation that the translation speed of tropical cyclones has or will slow with warming.

Severe Tropical Cyclone Debbie, which made landfall near Mackay in March 2017, was an unusually slow event, crossing the coast at only seven kilometers per hour. Likewise, the “stalling” of Hurricane Harvey over Texas in August 2017 is another example of a recent, slow-moving event. While two events by no means constitute a trend, slow-moving cyclones can be especially damaging in terms of the rainfall volumes that are precipitated out over a single catchment or town (Fig. 1). A slow translation speed means strong wind speeds are sustained for longer periods of time and it can also increase the surge-producing potential of a tropical cyclone.

Figure 1. Flooding during TC Debbie; left – flood gauge in the Fitzroy River; centre – flooded runway at Rockhampton Airport; right – the flooded Logan River and Pacific Motorway. Source: Office of the Inspector-General Emergency Management (2017).

But have changes in the translation speeds of tropical cyclones been observed in the Australian region and can we draw any conclusions about any impact of these changes on related flooding?

A recent article published in the journal Nature by James Kossin of NOAA looks at tropical cyclone translation speeds from 1949 through to 2016, using data from the US National Hurricane Center (NHC) and Joint Typhoon Warning Center (JTWC), and finds a 10 percent global decrease. For western North Pacific and North Atlantic tropical cyclones, he reports a slowdown over land areas of 30 percent and 20 percent respectively, and a slowdown of 19 percent over land areas in Australia.

The following is an extract from Kossin’s article, followed by some comments on the significance of his work for the Australian region. The full article and associated references are available here.

Kossin’s article – in short

Anthropogenic warming, both past and projected, is expected to affect the strength and patterns of global atmospheric circulation. Tropical cyclones are generally carried along within these circulation patterns, so their past translation speeds may be indicative of past circulation changes. In particular, warming is linked to a weakening of tropical summertime circulation and there is a plausible a priori expectation that tropical-cyclone translation speed may be decreasing. In addition to changing circulation, anthropogenic warming is expected to increase lower-tropospheric water-vapour capacity by about 7 percent per degree (Celsius) of warming. Expectations of increased mean precipitation under global warming are well documented. Increases in global precipitation are constrained by the atmospheric energy budget but precipitation extremes can vary more broadly and are less constrained by energy considerations.

Because the amount of local tropical-cyclone-related rainfall depends on both rain rate and translation speed (with a decrease in translation speed having about the same local effect, proportionally, as an increase in rain rate), each of these two independent effects of anthropogenic warming is expected to increase local rainfall.

Time series of annual-mean global and hemispheric translation speed are shown in Fig. 2, based on global tropical-cyclone ‘best-track’ data. A highly significant global slowdown of tropical-cyclone translation speed is evident, of −10 percent over the 68-yr period 1949–2016. During this period, global-mean surface temperature has increased by about 0.5 °C. The global distribution of translation speed exhibits a clear shift towards slower speeds in the second half of the 68-yr period, and the differences are highly significant throughout most of the distribution.

Figure 2. Global (a) and hemispheric (b) time series of annual-mean tropical-cyclone translation speed and their linear trends. Grey shading indicates 95 percent confidence bounds. Source: Kossin (2018)

This slowing is found in both the Northern and Southern Hemispheres (Fig. 2b) but is stronger and more significant in the Northern Hemisphere, where the annual number of tropical cyclones is generally greater. The times series for the Southern Hemisphere exhibits a change-point around 1980, but the reason for this is not clear.

The trends in tropical-cyclone translation speed and their signal-to-noise ratios vary considerably when the data are parsed by region but slowing over water is found in every basin except the northern Indian Ocean. Significant slowing of −20 percent in the western North Pacific Ocean and of −15 percent in the region around Australia (Southern Hemisphere, east of 100° E) are observed.

When the data are constrained within global latitude belts, significant slowing is observed at latitudes above 25° N and between 0° and 30° S. Slowing trends near the equator tend to be smaller and not significant, whereas there is a substantial (but insignificant) increasing trend in translation speed at higher latitudes in the Southern Hemisphere.

Figure 3. Time series of annual-mean tropical-cyclone translation speed and their linear trends over land and water for individual ocean basins. Source: Kossin (2018).

Changes in tropical-cyclone translation speed over land vary substantially by region (Fig. 3). There is a substantial and significant slowing trend over land areas affected by North Atlantic tropical cyclones (20 percent reduction over the 68-yr period), by western North Pacific tropical cyclones (30 percent reduction) and by tropical cyclones in the Australian region (19 percent reduction, but the significance is marginal).

Contrarily, the tropical-cyclone translation speeds over land areas affected by eastern North Pacific and northern Indian tropical cyclones, and of tropical cyclones that have affected Madagascar and the east coast of Africa, all exhibit positive trends, although none are significant.

In addition to the global slowing of tropical-cyclone translation speed identified here, there is evidence that tropical cyclones have migrated poleward in several regions. The rate of migration in the western North Pacific was found to be large, which has had a substantial effect on regional tropical-cyclone-related hazard exposure.

These recently identified trends in tropical-cyclone track behaviour emphasize that tropical-cyclone frequency and intensity should not be the only metrics considered when establishing connections between climate variability and change and the risks associated with tropical cyclones, both past and future.

These trends further support the idea that the behaviours of tropical cyclones are being altered in societally relevant ways by anthropogenic factors. Continued research into the connections between tropical cyclones and climate is essential to understanding and predicting the changes in risk that are occurring on a global scale.

Significance for the Australian region

While an interesting piece of work, the results for the Southern Hemisphere and the Australian region, are less clear than for the North Atlantic and North Pacific basins.

The trend shown in Fig. 2b for the whole of the Southern Hemisphere is not significant and is clearly composed of two separate trends, each spanning around 30 years. Assuming a homogenous dataset, the time series may be reflecting the strong influence of inter-decadal climate forcing.

In the Southern Hemisphere, the role of multi-decadal climate-ocean variability, like the Pacific Decadal Oscillation (PDO) or the Indian Ocean Dipole (IOD) has a large influence on decadal-scale climate variability (particularly in Australia) and can mask a linear, anthropogenically-forced trend.

The paper also mentions that global slowdown rates are only significant over-water (which makes up around 90 percent of the best track data used), whereas the trend for the 10 percent of global data that corresponds to cyclones over land (where rainfall effects become most societally relevant) is not significant. Therefore, it is unclear, at a global scale, whether tropical cyclones have slowed down over land or not. The trend for the Australian region (Fig. 3f, Southern Hemisphere > 100 °E), for both over land and over water slowdowns (approx. -19 percent), is only marginally significant. Further work could analyse translation speeds in the Australian region using our Bureau of Meteorology tropical cyclone database.

As with previous studies of changes to tropical cyclone behaviour in Australia, results are unclear. The relatively short time span of consistent records, combined with high year-to-year variability, makes it difficult to discern any clear trends in tropical cyclone frequency or intensity in this region (CSIRO, 2015).

For the period 1981 to 2007, no statistically significant trends in the total numbers of cyclones, or in the proportion of the most intense cyclones, have been found in the Australian region, South Indian Ocean or South Pacific Ocean (Kuleshov et al. 2010). However, observations of tropical cyclone numbers from 1981–82 to 2012–13 in the Australian region show a decreasing trend that is significant at the 93-98 percent confidence level when variability associated with ENSO is accounted for (Dowdy, 2014). Only limited conclusions can be drawn regarding tropical cyclone frequency and intensity in the Australian region prior to 1981, due to a lack of data. However, a long-term decline in numbers on the Queensland coast has been suggested (Callaghan and Power, 2010) and northeast Australia is also a region of projected decrease in tropical cyclone activity, including cat 4-5 storms, according to Knutson et al. (2015).

In summary, based on global and regional studies, tropical cyclones are in general projected to become less frequent with a greater proportion of high intensity storms (stronger winds and greater rainfall). This may be accompanied with a general slow-down in translation speed. A greater proportion of storms may reach south (CSIRO, 2015).

The take home message? The known-unknowns are still quite a bit greater than the known-knowns.


CALLAGHAN, J. & POWER, S. 2010. A reduction in the frequency of severe land-falling tropical cyclones over eastern Australia in recent decades. Clim Dynam.

CSIRO and BoM [CSIRO] 2015. Climate Change in Australia Information for Australia’s Natural Resource Management Regions: Technical Report, CSIRO and Bureau of Meteorology, Australia, pp 222.

DOWDY, A. J. 2014. Long-term changes in Australian tropical cyclone numbers. Atmospheric Science Letters.

KNUTSON, T.R., SIRUTIS, J.J., ZHAO, M., TULEYA, R.E., BENDER, M., VECCHI, G.A., VILLARINI, G. & CHAVAS, D. 2015.  Global Projections of Intense Tropical Cyclone Activity for the Late Twenty-First Century from Dynamical Downscaling of CMIP5/RCP4.5 Scenarios. Journal of Climate, 28, 7203-7224.

KOSSIN, J.P. 2018. A global slowdown of tropical-cyclone translation speed. Nature 558, 104-107.

KULESHOV, Y., FAWCETT, R., QI, L., TREWIN, B., JONES, D., MCBRIDE, J. & RAMSAY, H. 2010. Trends in tropical cyclones in the South Indian Ocean and the South Pacific Ocean. Journal of Geophysical Research-Atmospheres, 115.

OFFICE OF THE INSPECTOR-GENERAL EMERGENCY MANAGEMENT 2017. The Cyclone Debbie Review: Lessons for delivering value and confidence through trust and empowerment. Report 1: 2017-18.