3/17/2025 A Sample Pre-Mortem

If you follow our LinkedIn posts you’ve seen reference to Pre-Mortems, which represent a useful way of exploring the future. Instead of presenting a range of scenarios, a Pre-Mortem “explains” a particular outcome, whether good or bad. It’s a psychologically powerful way of making a potential outcome “more real.” It’s not easy to do, and with the crop of new AI models (LLMs) in the last couple of weeks we wanted to see how easy it might be do to a useful Pre-Mortem. We asked the LLM to explain why PacifiCorp (a large utility here in the PNW that we know well) went bankrupt in 2030. It first responded with a long list of variables that might possibly contribute to a utility having problem, but when asked to specifically write a pre-mortem it did a darned good job! It was generated by Gemini’s 2.0 Flash Thinking model. We’ll be doing a lot more work along these lines to leverage AI tools to better communicating climate risks. Thoughts, Suggestions, Feedback welcome!

Response Part 1:

Imagine it's 2031, and we're looking back at the news of PacifiCorp's bankruptcy the previous year. Here are some potential reasons that could have led to this outcome:

Financial Catastrophe:

• Massive Unforeseen Liabilities: A series of catastrophic wildfires, far exceeding insurance coverage and regulatory allowances, resulted in billions of dollars in legal settlements and infrastructure rebuilding costs. These could have been linked to climate change-induced extreme weather events that PacifiCorp was unprepared for.
• Failed Energy Investments: PacifiCorp made significant investments in a new technology or energy source that ultimately failed to deliver as promised, leading to massive write-downs and stranded assets. Perhaps a bet on carbon capture or a new type of nuclear reactor didn't pan out.
• Soaring Fuel Costs: A sudden and sustained spike in the price of natural gas or coal (if they were still heavily reliant on these) made their energy production costs unsustainable, and they were unable to pass these costs onto consumers quickly enough or at all due to regulatory constraints.
• Unsustainable Debt Burden: Years of accumulating debt, perhaps due to infrastructure upgrades or acquisitions, finally became unmanageable, especially if interest rates rose significantly in the late 2020s.
• Credit Downgrade Spiral: A major credit rating downgrade triggered covenants in their debt agreements, requiring immediate repayment or significantly increasing borrowing costs, leading to a financial death spiral.

Regulatory and Policy Failures:

• Unfavorable Regulatory Changes: New environmental regulations or mandates for rapid renewable energy adoption imposed costs that PacifiCorp couldn't absorb or pass through to ratepayers without significant political backlash and regulatory pushback.
• Failure to Adapt to Clean Energy Transition: PacifiCorp was too slow in transitioning to renewable energy sources and missed out on crucial subsidies and incentives, leaving them with outdated and increasingly expensive fossil fuel assets.
• Political Interference: Unstable or unpredictable energy policies in the multiple states they serve (Oregon, Washington, Utah, Wyoming, Idaho, and California) created significant uncertainty and made long-term planning and investment difficult.
• Inability to Recover Costs: Regulators refused to allow PacifiCorp to recover significant costs associated with necessary infrastructure upgrades or climate change adaptation measures.

Market and Technological Disruptions:

• Widespread Adoption of Distributed Generation: A massive increase in rooftop solar, battery storage, and microgrids significantly reduced demand for PacifiCorp's centralized power, eroding their revenue base.
• Energy Efficiency Gains: Unexpectedly rapid advancements and adoption of energy efficiency technologies dramatically lowered overall energy consumption in their service areas.
• Competition from New Energy Providers: New, more agile energy companies or cooperatives emerged, offering cheaper and greener energy options, siphoning away PacifiCorp's customer base.
• Cybersecurity Attack: A massive and prolonged cyberattack crippled their grid operations and customer service, leading to significant financial losses and reputational damage.

Environmental and Social Factors:

• Climate Change Impacts: Increasingly frequent and severe extreme weather events (heatwaves, droughts, storms) strained their infrastructure, increased operational costs, and led to more frequent and prolonged outages, damaging their reputation and potentially leading to legal action.
• Water Scarcity: Prolonged droughts in the Western US significantly impacted their hydroelectric power generation capabilities, forcing them to rely on more expensive alternatives.
• Social License Erosion: A growing public backlash against their environmental practices or perceived lack of commitment to clean energy led to increased regulatory scrutiny and difficulties in obtaining permits for new projects.

This pre-mortem exercise highlights a range of potential vulnerabilities and external pressures that could have contributed to PacifiCorp's hypothetical bankruptcy by 2030. By considering these possibilities now, stakeholders might be better equipped to identify and mitigate these risks in the coming years.

Response Part 2

The year is 2031, and financial analysts are still dissecting the stunning collapse of PacifiCorp in late 2030. The seeds of its demise, many now believe, were sown in the mid-2020s.

Despite growing calls for decarbonization, PacifiCorp in 2024 remained heavily reliant on its coal-fired power plants, particularly in Wyoming and Utah. While they had made some investments in wind and solar, the pace was criticized as too slow by environmental groups and increasingly by investors concerned about long-term stranded asset risk.

The summer of 2026 proved to be a turning point. An unprecedented heatwave gripped the Pacific Northwest and Intermountain West for weeks. PacifiCorp's grid, already aging in parts, buckled under the record demand. Widespread rolling blackouts frustrated customers and led to significant political pressure. This event exposed the utility's underinvestment in grid modernization and its vulnerability to extreme weather events, a trend scientists had been warning about for years.

Then came the devastating wildfire season of 2028. A series of massive blazes in Oregon and Northern California were directly linked to PacifiCorp's aging transmission lines and inadequate vegetation management. Lawsuits piled up, quickly escalating into billions of dollars in potential liabilities. Insurance coverage proved insufficient, and regulatory bodies began to question PacifiCorp's safety protocols.

Compounding these issues was a quiet revolution in distributed energy. By 2029, the cost of rooftop solar panels and battery storage had plummeted. Coupled with government incentives and growing consumer awareness, there was an explosion in adoption across PacifiCorp's service areas. Homes and businesses increasingly became "prosumers," generating their own electricity and reducing their reliance on the traditional grid. PacifiCorp's revenue streams began to erode as its customer base, particularly the most energy-conscious and affluent, started to disconnect.

Desperate to adapt, in early 2030, PacifiCorp announced a bold plan to accelerate its transition to renewable energy and invest heavily in grid upgrades. However, the company's balance sheet was already strained by the wildfire liabilities and declining revenues. Attempts to raise capital through bond offerings were met with skepticism from investors, who saw the writing on the wall. Credit rating agencies downgraded PacifiCorp's debt multiple times throughout the year, citing the increasing financial risks and the uncertain future of their traditional business model.

The final blow came in October 2030. A major credit downgrade triggered clauses in PacifiCorp's existing debt agreements, requiring immediate repayment of a significant portion of their outstanding loans. Unable to secure the necessary funds in the tightening credit market, and facing mounting legal bills and dwindling revenues, PacifiCorp had no choice but to file for Chapter 11 bankruptcy protection on November 15th, 2030, sending shockwaves through the energy industry and leaving millions of customers in a state of uncertainty about the future of their power supply. The once-stable utility giant had succumbed to a perfect storm of climate change impacts, technological disruption, and regulatory pressures.