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PG&E facing $600mn hit from Kincade wildfire

7th May 2020 - Author: Charlie Wood

US investor-owned utility Pacific Gas and Electricity (PG&E) is staring down a possible $600 million loss if its equipment is found liable for the ignition which caused the devastating Kincade wildfire in 2019.

While it’s too early to say with certainty whether PG&E will be found liable, language used in the latest filings from the company suggest the likelihood is quite high.

The Kincade fire ignited on 23 October 2019 northeast of Geyserville in Sonoma County, California.

The fire consumed some 77,758 acres, resulting in at least 374 structures being destroyed, consisting of 174 residential structures, 11 commercial structures and 189 other structures, as well as another 60 structures damaged.

Investigations into Kincade’s origins are ongoing but it seems as though accusations of PG&E’s involvement are not entirely baseless and actually have an elevated chance of being proved correct.

In fact, PG&E has stated that it is “reasonably possible that they will incur a loss in connection with the 2019 Kincade fire.”

Adding that, “If PG&E Corporation and the Utility were to incur a loss in respect of the 2019 Kincade fire, PG&E Corporation and the Utility estimate that the amount of such loss could exceed $600 million (before available insurance).”

PG&E believes the $600 million estimate is right at the lower-end of “reasonably possible losses” and that it does not include any potential fines, punitive damages, compensation to state or federal agencies, and evacuation costs.

Significant payouts over recent wildfire seasons has seen PG&E’s insurance tower diminish.

For the period that the Kincade wildfire occurred in the company had $430 million of liability insurance coverage for wildfire events, after an initial self-insured retention of $10 million per occurrence, for the period from 1 August 2019 through to 31 July 2020.

In addition, the utility has another $1 billion in liability insurance coverage for non-wildfire events that runs across the date of ignition of the Kincade fire.

If PG&E is eventually found liable it seems certain that the $430 million of wildfire liability insurance coverage will all be paid out and recovered by the utility, marking another year where the entire wildfire liability tower is wiped out and re/insurers lose their total limits deployed to support PG&E.

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