Pacific Gas & Electric won’t get liability protection for wildfires caused by its power lines in the future — at least not this year.
But California lawmakers are still considering a host of other bills that could help PG&E weather financial disaster, if it’s found at fault for the massive fires that caused tens of billions of dollars of damage last year.
That’s the state of play in Sacramento this week. With only two weeks until the end of the legislative session on August 31, a push from Gov. Jerry Brown for legislation to protect California residents from climate change-driven wildfires — and to save PG&E from potential bankruptcy — has lost one of its key components.
On Saturday, California Sen. Bill Dodd, the Napa Democrat who’s leading the state’s legislative response to last year’s deadly wildfires, told The Sacramento Bee that lawmakers are dropping plans to pass a law meant to reform the state’s use of a legal doctrine known as "inverse condemnation."
This doctrine, in use only in California and Alabama, holds utilities responsible for damages caused by their equipment, whether or not it’s at fault for the conditions that caused the damage.
Proponents of reform said it’s a critical step to protect PG&E and other California utilities from bearing outsized financial burdens to cover damages of wildfires that aren’t their fault. Keeping utilities healthy is also important for ensuring that California’s clean energy and carbon-reduction goals remain on track, and thus combating the climate change that’s creating conditions for ever more frequent and destructive wildfires.
But the proposal saw a lot of pushback from both sides of the political spectrum, with lawmakers concerned that it could allow PG&E to escape future wildfire liabilities. Insurance groups also protested, saying that the legal standard proposed could shift costs onto homeowners. PG&E, which spent $1.7 million on lobbying for inverse condemnation reform, met with legislative leaders on Friday and agreed to drop the proposal.
A long-term fix is off the table, but more pressing changes still in the works
The wildfire policy debates aren't over yet, however. Dodd, who co-chairs the committee convened by Gov. Brown to address wildfires, told The Sacramento Bee that all of the remaining pieces to comprehensive wildfire legislation are still under consideration. That includes several bills that will have much greater short-term importance for PG&E than the long-shot effort at inverse condemnation reform.
That’s because this reform would have applied only to fires in 2018 and onward — not the fires that devastated swaths of PG&E’s Northern California territory last year. And under existing law, PG&E’s liability for these fires could end up in the tens of billions of dollars.
PG&E has lost more than a third of its market value since last October, and in July reported a second-quarter loss of $984 million, driven by $1.6 billion in wildfire costs. But the utility’s exposure to liability from the fires, particularly the massive Tubbs Fire that devastated Napa and Sonoma Counties, could range as high as $15 billion, according to some estimates.
State fire investigators haven’t yet issued a report on the cause of the Tubbs Fire. But in June, CalFire did issue a report finding the utility’s power lines at fault for 12 fires that burned more than 150,000 acres and killed nine people. Of those fires, the agency referred eight of them to the appropriate county district attorney’s offices for review, “due to evidence of alleged violations of state law” for failing to clear brush around its lines and properly maintain its power equipment.
Amid the uncertain outcome of these investigations and legal actions, lawmakers have put forward several bills meant to protect PG&E from the threat of its liabilities overwhelming its finances and forcing it into bankruptcy — a threat that PG&E has made explicit since earlier this year.
These include AB 33 to fund liability through bonds, SB 819 to give state regulators more flexibility in how they adjudicate utilities’ efforts to prevent fires, SB 1088 to change the rules on clearing brush and trees, and a recent proposal to create a state wildfire insurance fund. It also includes a number of proposals from Gov. Brown that have yet to be assigned a bill. All may be wrapped into one, or several, packages over the next two weeks.
“The elephant in the room has been inverse condemnation,” said Rob Rains, energy analyst at Washington Analysis, which provided a side-by-side view of the different options now before lawmakers. While PG&E had hoped that inverse condemnation this year would provide its investors and creditors more confidence that it won't be hit by massive liabilities in the future, it's also eager for solutions to its more pressing problems, he said.
Breaking down the bills
The first bill, AB 33, would address PG&E’s looming financial crisis by allowing it to issue state-authorized bonds to recover costs for fiscal damages resulting from wildfire lawsuits and settlements. Ratepayers would be on the hook for paying back those bonds over time, which implies higher rates for PG&E customers. But its author, Assemblymember Bill Quirk (D-Hayward), has said that’s better than forcing the utility into bankruptcy.
This bill would go further than others under consideration in shoring up PG&E’s liabilities from last year’s fires, Rains noted. But it also has some problems from the utility investor perspective, including a “claw-back” mechanism.
AB 33 has also come under fire by ratepayer advocates, who call it an attempt by PG&E to avoid paying for its share of liability and for being written by a lawmaker whose son works for PG&E. It has also received sharp criticism from Sen. Jerry Hill (D-San Mateo), whose district was the site of the deadly natural-gas pipeline explosion in 2010 for which PG&E was eventually deemed criminally culpable. Hall said the bill gives the utility too much latitude to pass costs on to ratepayers.
Hall has an alternative bill, SB 819, that would take a smaller step in seeking to protect California utilities from excessive wildfire liabilities. The bill would do that by rewriting the state utilities code to allow the California Public Utilities Commission (CPUC) to let PG&E and Southern California Edison recover wildfire costs in future rate cases, even after an inverse condemnation ruling is made, as long as that spending was deemed “just and reasonable.”
This is important, Rains said, because according to the CPUC, the law as currently written doesn’t give them this authority today. CPUC President Michael Picker said as much, in a statement added to the CPUC’s November decision denying San Diego Gas & Electric’s request to recover $379 million in costs from the Witch Fire of 2007.
From the investor perspective, SB 819 would allow “some recovery, with a demonstration of prudence,” Rains said. But because it would apply to future rate recovery, not the immediate financial impacts for PG&E, “it does not take things far enough.”
The same critique could be applied to SB 1088, written by Sen. Dodd, which would allow utilities to “harden” their infrastructure against wildfires and other natural disasters, while also building the data that the CPUC could apply in determining whether or not those costs are prudent. This would allow utilities to recover costs incurred during wildfire prevention from the CPUC in a way that would inoculate those assets from a subsequent proceeding.
A new proposal from Assemblymember Chad Mayes (R-Yucca Valley) to create a California Wildfire Insurance Fund could also provide some longer-term support for utilities, Rains said. The fund would be run by a nine-member board appointed by the governor, and would collect money from investor-owned and municipal utilities and their ratepayers to tap to cover future wildfire costs.
Finally, some or all of the legislative language from the above list could find its way into SB 901, Rains said. This “shell bill” is expected to be the legislative vehicle for much of the legislation now before the wildfire committee. SB 901 also contains language drafted by Sen. Dodd that would order utilities to establish wildfire mitigation plans that identify criteria for de-energizing power lines.
Despite the time pressure, most observers expect some form of utility wildfire legislation to come to a vote before the session ends at the end of the month. “Nobody in the state capital wants PG&E or any other utility to go bankrupt,” Rains said. “My view is that California legislators understand that there’s a potential crisis on multiple fronts, and they want to address it in as comprehensive a fashion as possible.”