Minneapolis-based Xcel Energy has acknowledged that its Texas-based subsidiary Southwestern Public Service Co. likely caused the giant Smokehouse Creek Fire in the Texas panhandle. The conflagration erupted late last month, the largest wildfire in Lone Star State history. The fire was largely contained as of yesterday afternoon.
Both the utility holding company and wildfire experts at Texas A&M University identify electric power lines downed in high winds as the source of the fire. The company says it has found no evidence its facilities caused a second fire, the Windy Deuce Fire, although that is disputed by some independent fire experts.
In a statement quoted in the Washington Post, Xcel said its power lines “appear to have been involved in an ignition of the Smokehouse Creek fire.”
The Smokehouse Creek Fire so far has devastated over a million acres, or more than 1,560 square miles (1 square mile = 640 acres). At least two people have been killed along with thousands of cattle in a key ranching area. The fire also touched territory in Oklahoma.
Investor-owned Xcel rejected some charges that company was negligent in maintaining and operating its transmission and distribution system. The Wall Street Journal reported, “Xcel, which serves parts of eight Western and Midwestern states, is already dealing with litigation related to its likely role in a 2021 fire in Colorado and its failure to implement a power shut-off as winds picked up.”
Wildfires have become major challenges to utilities that operate in often arid rural areas, the latest major threat to an industry in fundamental transition. The 2018 northern California Camp Fire, caused by downed Pacific Gas & Electric power lines, swept over 240 square miles and killed 82, destroying the town of Paradise. The fire cost an estimated $16.5 billion in damages and pushed PG&E into its second bankruptcy filing in the 21st Century. PG&E ultimately pleaded guilty to 84 charges of involuntary manslaughter for the deaths in Paradise.
In 2021, the Marshall Fire near Boulder, Colo., an exurban fire, covered over nine square miles, killed two, and caused at least $2 billion in damages during high winds. Some analysts have attributed at least a portion of the fire to Xcel’s Public Service of Colorado, which the company has denied.
Last August, a series of fires swept Hawaii’s island of Maui during high winds, causing over 100 deaths, covering 26.5 square miles, with over $5 billion in damages. The most severe of four Maui fires, the Lahaina Fire, was the deadliest in the U.S. since 1918’s Cloquet fire in northern Minnesota, which killed 453 people. The costs may push Hawaiian Electric Industries into bankruptcy protection.
The financial and human impacts of utility-related wildfires have caused legendary U.S. investor Warren Buffett to rethink his investments in electric companies through Berkshire Hathaway Energy (BHE, neé MidAmerican Energy Holdings Co.), long a Buffett favorite. In his latest letter to his shareholders, summarizing 2023, the “oracle of Omaha” pours cold financial water over utilities, blaming “forest fires” in large part, including the potentially enormous costs of undergrounding electric transmission as an preventative.
He writes, “At Berkshire, we have made a best estimate for the amount of losses that have occurred. These costs arose from forest fires, whose frequency and intensity have increased – and will likely continue to increase – if convective storms become more frequent.”
Buffett adds, “It will be many years until we know the final tally from BHE’s forest-fire losses and can intelligently make decisions about the desirability of future investments in vulnerable western states. It remains to be seen whether the regulatory environment will change elsewhere.”
The letter is critical of utility regulation, noting that “the regulatory climate in a few states has raised the specter of zero profitability or even bankruptcy (an actual outcome at California’s largest utility and a current threat in Hawaii). In such jurisdictions, it is difficult to project both earnings and asset values in what was once regarded as among the most stable industries in America.”
Buffet says the travails of the investor-owned utilities may cause their demise: “Certain utilities might no longer attract the savings of American citizens and will be forced to adopt the public-power model. Nebraska made this choice in the 1930s and there are many public-power operations throughout the country. Eventually, voters, taxpayers and users will decide which model they prefer.”
The always frank Buffett says his 2014 big swing on utilities was a miss: “When the dust settles, America’s power needs and the consequent capital expenditure will be staggering. I did not anticipate or even consider the adverse developments in regulatory returns and, along with Berkshire’s two partners at BHE, I made a costly mistake in not doing so.”
In California, the latest PG&E rate hike is creating the another political firestorm for the long-reviled local electric and gas company. The California Public Utilities Commission last Thursday (Mar. 7) approved a $516 million rate hike that will add about $5/month in April to the average customer charge for electricity.
In California, the latest PG&E rate hike is creating the another political firestorm for the long-reviled local electric and gas company. The California Public Utilities Commission last Thursday (Mar. 7) approved a $516 million rate hike that will add about $5/month in April to the average customer charge for electricity.
The rate hike came on top of a 13% jump in January. Both rate increases are part of PG&E’s wildfire cost recovery program, which is designed to raise $2.49 billion, which includes undergrounding overhead electric transmission lines, as well as some natural gas safety measures. In 2010, a ruptured PG&E gas pipeline exploded in the city of San Bruno, killing eight and injuring 58. In 2016, PG&E was convicted of six felony charges and sentenced to five years’ probation.
The reaction to the latest rate increase was immediate and fierce. The San Francisco Examiner quoted Dennis Herrera of the San Francisco Public Utilities Commission, “PG&E’s rate increases will affect San Franciscans as long as this private utility continues to control the power grid in the city.” San Francisco has long been trying to buy PG&E. Herrera said, “PG&E is thwarting that while raking in $2 billion in profits last year on the backs of ratepayers.”
California has the second highest electric rates in the U.S., behind only Hawaii, according to ChooseEnergy.com. California’s average residential rate is 29.41 cents/kWh, compared to Hawaii’s 43.53 cents/kWh. The lowest U.S. rate is in North Dakota at 10.74 cents/kWh. PG&E’s average residential rate, before the latest hikes, was 45 cents/kWh.
In 2023, PG&E had revenue of $24.428 billion, compared to $21.680 billion in 2022. 2023 earnings were $2.671 billion ($1.05/share) compared to $1.837 billion ($.84/share) in 2022.
–Kennedy Maize