Why California's planned power outages are the best of bad options
California's planned power outages to reduce wildfire risks are a net positive for state and local governments even with their many downsides, Moody's Investors Service says.
The risk of damage from wildfires is generally more severe for those governments than the significant economic and social costs of a shutoff, the rating agency said in a report Wednesday.
Pacific Gas & Electric’s shutoffs in early October — initiated to reduce the chance high winds would blow down live wires and start fires in bone-dry conditions — affected nearly 700,000 customers and decreased economic output by $400 million to $600 million, but that still pales in comparison “to the potential cost of wildfire-related damages, particularly in some of the more densely populated counties surrounding the Bay Area,” the report said.
Shutoffs can, however, pose credit challenges for governments, because they "will feel the brunt of lower revenues from stalled economic activity as well as the higher costs of dealing with both the impacts of the power disruptions as well as the costs of mitigation and adaptation,” Moody's wrote.
As major wildfires stirred by gale force winds sprung up throughout the state last weekend, the three largest investor-owned power utilities began planned power outages. PG&E’s shutoffs affected 940,000 customers, San Diego Gas & Electric shut off power to 20,000 customers and Southern California Edison left 25,000 customers in the dark, according to Moody’s.
PG&E has been widely criticized for its handling of the outages with the California Public Utilities Commission launching an investigation into the company’s use of the CPUC shutoff program that will look at whether the company has expanded wildfire mitigation efforts ahead of fire season enough to limit the use of shutoffs.
The California wildfires and outages illustrate how considerations of environmental, social and governance risk are connected and how they might affect credit, Moody’s said.
"As average temperatures rise, cities and counties will experience more frequent and severe weather conditions,” Moody’s said. “Longer droughts, warmer temperatures, stronger winds and vegetation density create conducive conditions for the outbreak of wildfires, increasing the vulnerability of a utility's electric transmission and distribution system and increasing the risk of significant reconstruction costs."
Longer shutoffs and higher costs to customers increase the potential for reputational risk for the utilities.
"Reputational damage can hurt credit quality because it can contribute to a more contentious relationship with regulatory authorities," Moody's wrote.