The California Legislature passed a sweeping proposal to address wildfires despite warnings that the legislation would raise energy bills for customers across the state.
Amid calls from PG&E for a legislative response to wildfires that killed more than a dozen Californians and destroyed thousands of homes over the last year, lawmakers approved a bill that makes it easier for utility companies to recover wildfire costs from ratepayers. The measure also designates $1 billion in cap-and-trade money to the removal of dead trees and brush that fuel blazes, among many other major changes to state law.
“This was not easy,” said Senate President Pro Tem Toni Atkins. “It’s not perfect. We made sure that the victims of 2017 are going to be as whole as possible. I think we did the best we could to get as far as we could.”
The sweeping proposal formed quickly this week after months of hearings and intense lobbying that pitted some of the most powerful players at the state Capitol against one another. They agreed on one thing: the outcome would carry serious repercussions for California businesses and residents.
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In the end, the bill drew support from PG&E, the California Association of Counties, the Silicon Valley Leadership Group, the California Professional Firefighters, the State Building and Construction Trades Council, the California Forestry Association and dozens of other groups.
AARP California, the California Farm Bureau Association, Sierra Club California, Western States Petroleum Association and several additional advocacy groups remained opposed.
Discussions at the Capitol began after the firestorm in wine country last year left PG&E with up to $15 billion in liability, according to estimates from stock analysts. Utilities and electrical workers spent millions urging lawmakers to change state law to lessen the industry’s legal responsibility for property damages from wildfires or risk forcing the company into bankruptcy.
Under existing “strict liability” and “inverse condemnation” laws, utility companies are typically responsible in court for providing compensation for property damages if its equipment causes a fire, regardless of whether any negligence is proven.
If utilities do nothing wrong, the California Public Utilities Commission typically allows customer rates to rise to offset losses for property damages. But last November the CPUC rejected a request by San Diego Gas and Electric to recoup nearly $380 million, and the ruling alarmed power companies.
The homeowners insurance industry fought back against the utilities, contending that any changes to inverse condemnation that left them holding the bag would lead to higher premiums or no coverage at all in fire-prone areas. Insurers feared they wouldn’t be able to continue to sue utility companies to recover payouts to policyholders.
After dedicating weeks of hearings to the liability law, Sen. Bill Dodd, D-Napa, said the Legislature would not change the inverse condemnation law in the court system this year.
“The Legislature had no appetite to change our Constitutionally bound liability laws, which then allowed the conversation to focus on better fire prevention,” said Nicole Evans, a spokeswoman for three major insurance trade associations. “These laws provide an essential counterbalance to the utilities’ ability to seize private property in providing electricity.”
But the final bill, put together by a wildfire conference committee Dodd heads, took another avenue to reduce the utility companies’ financial burden for property damages that many argue will hurt ratepayers.
The proposal lawmakers approved Friday instructs the California Public Utilities Commission to determine whether a utility company behaved responsibly, complied with new plans to prevent fires or if extreme conditions exacerbated the extent of the damages. The bill allows the commission for the first time to split costs between ratepayers and utility shareholders based on its findings.
State regulators would also have to consider PG&E’s “financial status” and limit costs from the 2017 wildfires that ultimately fall on shareholders to the maximum amount the utility can pay without harming customers or affecting its ability to provide service.
Any excess costs that the commission determines PG&E shareholders cannot afford from the blazes last year could be tied into bonds that are paid by ratepayers over time. All utility companies would be allowed to seek similar bonds to finance recovery costs for future fires under certain conditions.
Ratepayer advocates, manufacturers, agricultural groups and the state’s largest oil industry association quickly rallied against the proposal, calling it a “bail-out” for utilities that cause fires out of negligence.
“Our biggest concern is that manufacturers already pay industrial electricity rates that are more than 80 percent higher than the rest of country,” said Gino DiCaro, a spokesman for the California Manufacturers and Technology Association. “The fact that ratepayers would be on the hook for billions of dollars would be a problem for growth going forward.”
The Utility Reform Network said lawmakers were concerned about PG&E’s financial troubles, but didn’t seem to care as much about how the change would hit ratepayers.
“In some parts of PG&E’s service territory, shut-off rates for households that can’t afford their energy bills are already 20 percent,” said Tom Long, the group’s legal director. “If this bill passes, shut-offs will only get worse.”
Sen. Jerry Hill, D-San Mateo, agreed.
“The tragedy of our response is that it’s focused more on Wall Street profits and utility shareholders instead of what’s right for Californians,” Hill said.
Dodd contended that rate increases for utility customers were unavoidable after the 2017 fires. He argues that the bonds would allow ratepayers to slowly pay off costs for fires, instead of being hit with a massive increase all at once. And any rate hikes are hypothetical — the CPUC could refuse to allow PG&E to raise rates or attain bonds, he said.
He and other legislators felt they needed to take action to prevent PG&E from going bankrupt, and he said the potential bonds charges from last year’s fires would be minimal. In bankruptcy, ratepayers would still face higher bills and homeowners would struggle to get their claims paid, Dodd said.
“It means so many of our constituents who are uninsured or underinsured will likely not recover from wildfire devastation and quite frankly colleagues, we just cannot allow that to happen,” Dodd said.
Holding up a map that showed the parts of the state under the greatest threat of wildfire, Assembly Republican Leader Brian Dahle said, “You’re going to burn if we don’t do something fast.”
The bill also bans utility companies from funding executive salaries or bonuses with ratepayer money and sets new standards for the corporations to improve infrastructure to prevent fires.
The Senate supported the bill with an overwhelming 29-4 vote. The Assembly approved it 45-10, sending it to Gov. Jerry Brown.
Neil Kalton, a stock analyst for Wells Fargo, said his company believes PG&E could go bankrupt if the law didn’t change and the company was blamed for additional wildfires this year.
PG&E also threatened that it would not be able to attract as much money from investors for clean energy projects to meet the California’s climate goals without changes to the law.
“If a company is looking to invest in clean energy projects and the question is, do I invest in a project in California or do I go to another state where utilities are financially strong and stable?” said Steve Malnight, a senior vice president of strategy and policy for PG&E.
After the votes, PG&E issued a statement saying it appreciated the governor and lawmakers for their work on the “growing threat of climate-driven wildfires.”