Markets

PG&E power outage could cost the California economy more than $2 billion

Key Points
  • In an unprecedented move, PG&E enacted large-scale power cuts in Northern and central California as a preventative measure aimed at curbing wildfires.
  • In January, PG&E filed for bankruptcy protection, saying it's facing more than $30 billion in liabilities after it was determined that its power lines sparked last year's devastating Camp Fire.
A customer shops for groceries at La Tapatia Market during a blackout in Napa, California, on Wednesday, Oct. 9, 2019.
David Paul Morris | Bloomberg | Getty Images

The economic impact of PG&E's preventative power cuts could be upwards of $2 billion, according to some estimates.

The state's largest utility company began cutting power for customers in Northern and Central California on Wednesday as a precautionary measure aimed at preventing the outbreak of wildfires. Amid peak fire season and forecasts of wind gusts of up to 45 mph this week, PG&E announced the planned cuts on Monday for as many as 800,000 customers, totaling about 2.7 million people.

The preventative measure — which forced some businesses and schools to close — could have big economic repercussions.

Michael Wara of the Stanford Woods Institute for the Environment estimated that the economic cost of the power shutdown could reach $2.5 billion.

"If one sums residential and small C&I [commercial and industrial] losses, the total is $2.5 billion in outage costs. If one assumes only residential customer impact, $65 million," he said in a tweet on Tuesday. He arrived at his estimate using the "Interruption Cost Estimate Calculator" created by the Lawrence Berkeley National Laboratory and Nexant, which compiles data on the estimated costs of power interruption.

Power outages often hit local businesses the hardest since they don't always have the same large-scale infrastructure and power generators that bigger businesses might have. A day of lost business can also have a greater impact on their bottom line, since it's a larger portion of annual revenue. Since the power cuts are concentrated in "suburban/rural" areas, Wara did not include "large C&I customers."

The dollar impact could be much higher if power isn't restored in a timely fashion. PG&E officials said every inch of power line would have to be inspected before resuming service, and on Tuesday officials warned that it could take up to five days.

"Outages (weather event plus restoration time) could last longer than 48 hours. For planning purposes, PG&E suggests customers prepare for outages that could last several days," the company said in a statement.

Getting ahead of a potential fire with large-scale power cuts is a new course of action for the embattled utility company.

In January, PG&E filed for bankruptcy protection, saying it's facing more than $30 billion in liabilities after it was determined that its power lines sparked last year's devastating Camp Fire, which killed 86 people and was California's deadliest fire on record. The power company was also deemed responsible for 12 of the fires that tore through Northern California in October 2017, according to state fire officials. Shares of PG&E plunged after hours Wednesday following a decision by the judge presiding over the case that the fire victims and the company's bondholders could submit alternate restructuring plans for the utility.

Last year was not only the deadliest fire on record for California, but with more than 1.6 million acres destroyed, it was the worst in terms of sheer scope. Many are saying it's only going to get worse as climate patterns shift and California's housing shortage forces residents into precarious areas. Droughts also contribute to the danger, since dry timber is more likely to fall on a power line and spark a fire.

Checking the lines for dry wood is a large-scale operation. As Axios pointed out and the San Francisco Chronicle first reported, as of late September PG&E had completed less than one-third of its tree maintenance work.

Restaurant owner Emily Schiffman checks her phone behind a candle-lit bar at Reel and Brand in Sonoma, California, on October 9, 2019, during a planned power outage by the Pacific Gas & Electric (PG&E) utility company.
Brittany Hosea-Small | AFP | Getty Images

"The safety of our customers and the communities we serve is our most important responsibility, which is why PG&E has decided to turn power off to customers during this widespread, severe wind event. We understand the effects this event will have on our customers and appreciate the public's patience as we do what is necessary to keep our communities safe and reduce the risk of wildfire," PG&E's senior vice president of electric operations Michael Lewis said in a statement ahead of the intended power outage.

Officials have expressed frustration that in the heart of Silicon Valley — some would say the center of innovation in this country — a safer large-scale utility operation isn't available and that PG&E hasn't taken faster steps to update its outdated infrastructure.

But some are looking to capitalize. Solar power company Sunrun tweeted that customers could "take back control" of their homes by switching over to its Brightbox service, which provides solar battery storage that would in practice work even when the main grid is knocked out.

Ultimately, while power cuts are an inconvenience — and sometimes disastrous for certain segments of the population — many residents recognized that the cuts were ultimately in their best interest.

"The reality is that we want to protect people. We want to make sure people are safe. This is what PG&E thinks is in the best interest of their customers and ultimately for this region and the state," Gov. Gavin Newsom said, according to the Los Angeles Times.