Who pays for fire damage?

Lawmakers reached a rational compromise on how to split costs between utilities and ratepayers.

Aby a legislative committee as part of a wideranging wildfire prevention and response package late Tuesday will make no one truly happy — neither the utility companies that wanted more protection against liability for fire damage, nor the advocates who wanted ratepayers to have no financial exposure.

But it is an improvement that clarifies what utilities must do to prevent fires and, if their equipment starts a fire anyway, when they may pass on wildfire costs to ratepayers. SB 901 should pass because, as imperfect as it is, we need more clarity and fairness in dealing with the massive firestorms that have become a staple of California’s year-round wildfire season.

When power company equipment starts a fire, current law requires the utility to pay for damage done to private property. If the utility was not negligent, it could easily absorb claims by passing the costs on to ratepayers or residents.

But last year the California Public Utilities Commission, which reviews rate increase requests, refused to allow San Diego Gas & Electric to pass on its costs related to wildfires in 2007 that were sparked by power lines. The PUC said the utility hadn’t been completely prudent with its equipment — which is not ideal behavior, but far from negligent. The decision is being appealed, but concerns about future wildfire claims persuaded lawmakers to grapple with how to better balance costs. The goal was a system that didn’t put an unfair burden on ratepayers or expose utilities to financial ruin.

The new rules allow regulators more discretion to award “proportionate blame” in wildfires, so that neither ratepayers nor utilities get stuck with the entire bill. This is reasonable in cases when a downed power line wasn’t the only factor in a fire. There is one part of the legislation that bears watching and, if needed, should be amended: a provision giving regulators the option of forcing ratepayers to bear some of the costs of wildfire damage if doing otherwise might force a utility into bankruptcy. Legislators reasoned that the public would end up paying even more money if Southern California Edison or Pacific Gas & Electric went broke.

It will be up to the PUC to determine through an independent stress test if a utility’s claim to be on the verge of bankruptcy is real. That’s a little worrisome, given the PUC’s history of being insufficiently skeptical of utilities’ financial assertions.

As much as we hate the idea of letting the state’s three large investor-owned utilities off the hook even a little, we understand that maintaining their fiscal health is in our collective best interest and just as important as making sure the freeways don’t crumble and the aqueduct continues to deliver drinking water. This bill would give the state a bit more assurance that future firestorms don’t take the power down with them.