Berkshire Shows Unusual Risk Appetite in Wildfire Court Fight

By Joel Rosenblatt | September 20, 2023

Berkshire Hathaway Energy Co.’s PacifiCorp has been battered in an unprecedented court fight over the utility’s failure to prevent massive wildfire destruction in Oregon.

The largest grid operator in the western US faces the risk that it will have to pay billions of dollars in damages following a jury’s finding that it was grossly negligent in a series of fires in September 2020. The ongoing litigation has also spooked investors, hurting PacifiCorp bonds and the company’s credit rating.

The high stakes PacifiCorp faces in the final chapter of its battle with fire victims in 2024 shows why wildfires now pose an existential threat to the utility industry. Here’s what you need to know:

What makes the legal saga unusual, and what is PacifiCorp’s potential exposure?

The trial that PacifiCorp lost in June marked the first time a jury was asked to assess how much property owners in large-scale fires should be compensated for losses blamed on a utility’s equipment. In the past, other companies, including California-based PG&E Corp., have settled such claims rather than test their luck defending them before a jury.

Allegations that PacifiCorp failed to heed hazardous weather warnings and shut off power in its service areas before toppled power lines ignited blazes led jurors in state court in Portland to find the company liable and award an average of $5 million to each of 17 property owners.

The company said at the trial that it could end up on the hook for $11 billion — more than its net worth — and possibly get pushed into bankruptcy if owners of some 2,500 properties in the class-action case are awarded similar damages in future proceedings.

What’s next in the litigation?

Starting on Jan. 8, a series of three mini-trials will be conducted in which small groups of property owners will present their damages claims to new juries. The results of those proceedings will determine how much the company ultimately will have to pay.

Judge Steffan Alexander has ordered PacifiCorp to work with plaintiffs’ lawyers through mediation to try to reach a settlement ahead of each of the mini-trials. Alexander also has ordered the company to engage in “global” settlement talks following the last mini-trial in April.

Meanwhile, the company has vowed to appeal the June verdict and has said it’s confident it will prevail, though the appeal could take years to resolve.

How have PacifiCorp investors reacted as the court fight plays out?

The June verdict took investors by surprise and raised new fears about the scale of exposure utilities may be facing from wildfire litigation. PacifiCorp saw spreads on its investment-grade bonds widen significantly and its issuer credit rating was downgraded by S&P Global, which shifted its outlook for the utility and its parent company to negative from stable.

The bonds took another hit in early September when the company failed to persuade the judge to postpone damages proceedings until its appeals are resolved — effectively crunching the timeline under which it may have to pay up. The volatility of PacifiCorp bonds is unusual for a regulated utility, especially one run by Warren Buffett, known for his appetite for safe, sleep-at-night investments.
What are the prospects for PacifiCorp to reach a settlement?

PacifiCorp has said it remains open to settling its outstanding legal claims – when the terms are reasonable – and noted that it has already settled some suits stemming from the fires three years ago.

To lawyers representing fire victims the company’s public posture belies what they say has been an entrenched unwillingness to seriously negotiate a resolution. But Bob Julian, the lead lawyer in a fire suit separate from the Portland case that is also set for trial next year, says the company’s fighting stance might finally be relaxing.

Within the last week, he said, PacifiCorp has shown a new willingness to reach an accord. The company said in an August regulatory filing that claims against it from Oregon fires add up to more than $7 billion.

–With assistance from Allison Nicole Smith.

Top photo: Damage following wildfires in in Gates, Oregon, in September 2020. Photographer: Kathryn Elsesser/AFP/Getty Images

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