Legislation could limit fire costs for utilities

Facing wildfire lawsuits that could cost it $17 billion, Pacific Gas and Electric Co. may soon be given a bankruptcy stress test by California regulators to determine just how big a financial blow the utility can survive.

The test is a piece of draft legislation approved by a conference committee Tuesday night in Sacramento that would let utility companies pass on to their customers costs arising from wildfires sparked by power lines, provided the companies acted reasonably in maintaining their equipment. If they didn’t act reasonably, the companies and their shareholders would have to swallow the costs.

But the draft, which was publicly released Tuesday afternoon with just four days left in the legislative session, contains a big exception.

Before forcing a utility to cover the costs of settling wildfire suits, regulators at the California Public Utilities Commission would first have to decide how much the company could afford to pay before “materially impacting its ability to

provide adequate and safe service.” Anything above that amount would be passed on to customers.

The co-chairman of the committee, Sen. Bill Dodd of Napa, said that the proposed legislation, hammered out during weeks of intense negotiations, was far from perfect. But with its provisions to increase the removal of drought-killed trees from forests and its tougher penalties for utilities that break state rules, it represented the most progress the committee could make before the current legislative session ends Friday. The proposal now faces votes in the Senate and Assembly.

“We ran out the clock,” said Dodd, shortly before the committee approved the language, which will be incorporated into his bill, SB901. “I think what we have before us is the best we can do today.”

The new language did nothing to assuage PG&E critics who have already accused state legislators of trying to bail out the utility.

California fire investigators have so far blamed PG&E’s equipment for sparking 16 of the fires that tore across Northern California in October. In 11 of those cases, investigators said they found evidence that PG&E violated state safety laws.

Consumer advocates insist that any costs arising from the company’s negligence be paid by PG&E and its shareholders, not customers. More than 200 lawsuits have been filed against the company following the fires.

“This is a bailout in sheep’s clothing,” said Mark Toney, executive director of The Utility Reform Network consumer group, in a press release Tuesday. “Consumers are looking to the Legislature to protect them from utility-caused wildfires, and make sure they are not left holding the bag for billions in liabilities. The conference committee’s legislation doesn’t do either.”

Officials at PG&E, California’s largest utility, said Tuesday they were studying the language, which may still change.

“This issue is critical to our customers, the state and PG&E,” company spokesman James Noonan wrote in an email. “PG&E appreciates the committee’s consideration of legislation to address these proposals.”

PG&E and the state’s other utility companies have for months pushed Sacramento to change the state’s liability rules, which hold utilities responsible for any financial damages from fires started by their equipment. The committee gave up on the idea this month, saying there wasn’t enough time left in the legislative session to resolve such a complex and contentious issue.

Concerned that wildfire suits could push PG&E back into bankruptcy, however, the committee proposed allowing utilities to issue bonds to pay off lawsuit settlements, with the bonds paid back slowly over time by the companies’ customers. PG&E estimates that a typical residential customer would pay an extra $5 per year for every $1 billion in wildfire recovery bonds issued.

Under the language issued Tuesday, the Public Utilities Commission could authorize use of the bonds if it determined that a company acted reasonably in maintaining its equipment.

The commission would take into account such factors as whether the utility adequately anticipated and addressed wildfire risk, whether circumstances beyond the company’s control contributed to the damage, and whether weather conditions helped start the fire or fed its intensity. October’s fires erupted during a fierce windstorm that blasted much of Northern California.

PG&E plunged into bankruptcy once before, during California’s electricity crisis of 2000-’01, when rampant manipulation of the state’s recently restructured electricity market drove up wholesale power costs. The company emerged from bankruptcy three years later.