Gavin Newsom questions how to pay for retrofitting homes
When the Camp Fire destroyed the town of Paradise and killed 85 people last year, California legislative leaders vowed to make wildfires their top priority when they returned to work in December 2018.
Senate leader Toni Atkins, D-San Diego, told The Sacramento Bee wildfire issues would be “front and center” because “communities are being devastated,” while Assembly Speaker Anthony Rendon cited the state’s housing crisis and wildfires as the two biggest problems lawmakers would focus on going into the legislative session.
But midway through 2019, California lacks a comprehensive plan to deal with the growing threat. It is still grappling with how to address an estimated $30 billion in liability costs incurred by PG&E in the Camp Fire and wine country fires of 2017.
A few dozen bills are under consideration, but few have been signed, as lawmakers seek to juggle the interests of ratepayers, utilities and insurance companies.
Experts warn of major consequences if the state doesn’t act quickly to update wildfire liability standards, stabilize homeowner insurance costs, encourage residents to make their homes more fire resistant and create a fund that balances the needs of ratepayers, utility companies and wildfire victims.
Michael Wara, director of Stanford University’s climate and energy policy program, has briefed lawmakers on their options. He said the state could end up owning electric power lines and exposed to liabilities if it doesn’t act soon.
“People are rightfully very angry at the utilities, so you’re working to stabilize these companies that have done wrong. It’s a really difficult political situation to resolve,” Wara said. “In order to not have this situation spin even further out of control, the folks in Sacramento are going to have to spend some political capital on this. This is about solving the problems that are complex and not always a win.”
State Sen. Bill Dodd, D-Napa, has been a leading voice on the issue of wildfires in the last couple years. He authored a law last year to make it easier for utilities to pass on liability costs to ratepayers – a measure that left PG&E wanting more. Dodd also introduced a bill this year to create a statewide wildfire warning center that has yet to reach the governor’s desk. He called the pace of addressing the wildfires “frustrating.”
“Why it’s taken maybe a little bit longer is we’re really resolute on trying to make sure that ratepayers and victims don’t get raked over the coals,” Dodd said. “If we were OK with just putting this all on ratepayers, we’d be done by now. We really would. It is critically important that we find a way through this with most of the liability being paid by the shareholders, and not ratepayers.”
PG&E’s decision to file for bankruptcy in January has made it more difficult for California lawmakers to recover damages for victims, said Sen. Jerry Hill, D-San Mateo.
“We’re struggling with the bankruptcy,” he said. “We have been victimized by the system in a lot of ways, and PG&E has continued to take that easy road and not stand up to their liability.”
PG&E spokesman James Noonan said in a statement that the company “remains focused on resolving wildfire victims’ claims fairly and expeditiously.”
Behind the scenes, Newsom is working with lawmakers to get a bill onto his desk by July 12 — the final day before the Legislature takes a month-long summer recess. Newsom outlined this timeline during an April 12 news conference, saying he wanted to “get something big done” before the break.
In response, ratings agencies are pressuring the state to reduce risks for utility companies like Sempra within the next month. In a seven-page report circulated to lawmakers last week, S&P Global warned it would likely downgrade ratings of electric utilities, unless California took steps to reduce companies’ credit risks.
“Unless legislation passes that reduces the credit risks to California’s electric utilities, our current expectation would be to downgrade the utilities at or around July 12,” analyst Gabe Grosberg wrote in the report.
Sen. John Moorlach, R-Costa Mesa, called the July 12 deadline “arbitrary” and criticized the ratings agency for being “aggressive in what they think can be done by a state government.”
Still, he was disappointed by what he saw as a limited focus on wildfires in recent budget negotiations.
“Where’s the seriousness of it all?” Moorlach said. “I know the governor wants to get something done, but I’m not finding it. ... The Democrats aren’t showing a real priority to dealing with wildfires.”
So far, Newsom has created a strike force that outlined three major options for handling utilities’ liability costs.
He issued a March executive order to expedite wildfire prevention efforts. The budget he will soon sign has $127 million for federal air tankers and helicopter replacement and $236 million for wildfire prevention and recovery efforts. It also includes $10 million for Camp Fire recovery and $32 million to support local governments who lost property tax revenue.
“The governor has made expanding the state’s wildfire prevention, safety and mitigation capacity a top priority,” said a statement from Brian Ferguson, a spokesman for Newsom. “The administration is committed to working expeditiously to forge a path toward a safe, reliable and affordable clean energy future.”
Though Newsom has taken some concrete steps, he hasn’t promoted aggressive legislative proposals. Assemblyman Jim Wood, D-Santa Rosa, authored a bill that would’ve established a $1 billion fund for eligible homeowners to retrofit their houses to make them more fireproof.
When Newsom unveiled his revised budget in May, he acknowledged the importance of making homes more fire resistant but questioned how to pay for it. Asked if he anticipated getting something done this year, he punted the issue to top Democratic lawmakers.
“We’ll see what we can do, and I look forward to seeing where the leadership is and what their other priorities are,” Newsom said.
Wood’s proposal was amended last month to remove all of the money.
Patrick McCallum, a veteran lobbyist who lost his home and nearly lost his life to the 2017 Tubbs Fire, now serves as co-president of Up from the Ashes — an advocacy group representing wildfire victims. While he acknowledges that PG&E’s bankruptcy has created some complications, he wants utility companies and lawmakers to act more quickly.
“There are victims suffering now,” McCallum said. “PG&E and Edison need to step up, and the state needs to step up.”
A strong majority of Californians are also concerned. A recent poll from the Public Policy Institute of California found that 78% of residents worry about more expensive electricity bills due to utilities’ responsibilities for wildfire damage costs.
Californians are more divided on Newsom’s handling of the PG&E bankruptcy and utilities’ responsibilities, with 32% of adults approving of his performance on the issue, 30% disapproving and 38% unsure. The margin of error was 3.3 percentage points.
Mark Baldassare, president of PPIC, said the numbers reflect a desire from the public for lawmakers to stabilize utility rates and for the governor to more clearly explain what he’s doing to address the issue.
“The poll suggests it’s a topic which people feel may literally hit home,” Baldassare said. “It’s definitely something that speaks to the fact that the Legislature will need to act on this issue but tread lightly because it could have personal and political consequences. It also shows a lack of communication on the part of the governor at this point.”
Over the next month, lawmakers will seriously consider three recommendations from Newsom’s strike force that address California’s imminent wildfire liability threats.
One action the state could take is creating a “liquidity-only fund.” The fund would offer utilities a way to pay out wildfire damage claims while awaiting a determination from the state’s public utilities commission on cost recovery.
Another option for the state is to adopt a fault-based standard that would shift the risk of property loss to insurance companies and homeowners who are either under-insured or without insurance. But some worry this change would do less to hold utility companies accountable.
Finally, the state could create a catastrophic wildfire fund to spread liability costs more broadly among ratepayers, insurance companies and utilities.
Dodd said “it’s a little too early to tell right now” which, if any, of these options the state will choose.
“We’re getting continued analysis on each,” he added.
Newsom signaled last month that he’s reluctant to lower PG&E’s liability standard. Atkins, Rendon and Newsom wrote in a joint statement that it would instead pursue the liquidity fund option and allow cost recovery for electricity providers that “act responsibly and in the public’s best interest.”
Wara said it’s essential for lawmakers to act quickly.
“Next week, it’ll be go time...,” Wara said. “This month is going to be incredibly important. Ultimately, it’s really hard to have a state function effectively in the 21st century without affordable, reliable electricity. That is in jeopardy for the state right now. Make no mistake: We need to solve this problem or much worse things are going to happen.”