Calif. utilities may be 1 fire from ruin
As PG&E Corp. plunged into bankruptcy last month, S&P Global Ratings slashed credit grades almost to junk status for California’s two other big electric utilities, owned by Sempra Energy and Edison International, and said they could go lower.
The reason: inverse condemnation. Under the state’s view of this legal doctrine, utilities can be held liable for any fires sparked by their equipment, even if they follow every safety rule. With deadly blazes getting bigger and more common, California’s two remaining big power companies could be just one fire away from ruin. Now they’re urging lawmakers to do something about it, and fast.
“This is a really serious issue that could absolutely impair the health of utilities in this state,” Pedro Pizarro, Edison’s chief executive officer, said in an interview. “I don’t want to speculate about bankruptcy, but this is serious. And the current approach is just not sustainable.”
So far, a fix has proved elusive. But there are potential routes out of the morass.
California lawmakers spent much of last year hunting for a solution. In August, they passed a bill designed to help utilities cover liabilities from a wave of fires in 2017. But it doesn’t offer aid for 2018 fires, a critical issue after November’s Camp Fire, the deadliest in state history. With PG&E’s equipment seen as a possible ignition source, the company estimated it was facing $30 billion in wildfire liabilities when it filed for bankruptcy.
California’s new governor, Gavin Newsom, assembled an advisory panel and told them to fast-track their efforts; he wants a report before July. Utilities and legislators are all offering ideas, but there’s no guarantee they’ll find a solution that will help the power companies without becoming a financial burden to the state, or raise the ire of ratepayers and voters.
The inverse condemnation doctrine is rooted in California’s constitution, so any direct changes would require a constitutional amendment, according to the state’s legislative counsel office. An amendment would need to win two-thirds majorities in both the state Assembly and Senate, and then be approved by voters. Given the public anger at PG&E, that avenue is closed, legislators say.
“There’s no sense of anyone planning to do that, at least in the Democratic caucus,” said State Sen. Jerry Hill.
The utilities say another option is for the legislature to change the way inverse condemnation is applied. Instead of using a standard of strict liability, the state could instead look at whether the utility acted reasonably in running its equipment. There’s a precedent for this: a 1997 state Supreme Court ruling that used this standard in a waterdistrict case.
“We’ve actually looked at this really closely, and we believe that under the law, yes, the legislature has the power to change that standard,” Pizarro said. “We’re not looking to get off the hook here if we’re negligent. If we’re negligent, we should be held accountable.”