How much does California need to fight fires?
SACRAMENTO— California leaders are calling for a giant pot of money to help electricity providers pay for wildfires, a critical move to head off another utility bankruptcy and prevent Wall Street from downgrading the state’s utilities again.
But it could prove difficult to achieve in Sacramento this year.
With a deadline to take action just weeks away, lawmakers and the governor haven’t settled controversial issues regarding the so-called wildfire fund: How much money does the state need and what portion of that will come out of the pockets of electricity customers?
Lawmakers are looking to Gov. Gavin Newsom to take the lead and provide answers to one of California’s most high-stakes problems. His response could define his early administration.
“The decisions have got to be made,” said Assemblyman Chad Mayes, R-Yucca Valley. “At this point, we’re just waiting to see what the executive’s office comes up with and how we’re going to move forward.”
Newsom inherited the wildfire quandary from previous administrations, just as former Gov. Gray Davis took office with a deregulated power market before the 2000 energy crisis.
The problem has been complicated by climate change, forest management, outdated and neglected electrical infrastructure and local land-use decisions that allow communities to sprawl deeper into fire-prone areas.
Stock analysts predict that Southern California Edison could follow Pacific Gas & Electric into bankruptcy if Newsom fails to calm the energy markets and a major wildfire hits in Southern California, leaving victims across the state struggling to recoup their losses from insolvent utilities.
S&P Global Ratings is threatening to downgrade Southern California Edison and San Diego Gas & Electric if the Legislature misses a July 12 deadline Newsom set to pass a bill. Other agencies have issued similar threats to downgrade the utilities.
But ratepayer advocates fear that legislative efforts to prop up the companies will leave utility customers picking up the tab.
A wildfire commission created by the state Legislature suggested two models for funds to help reduce wildfire liability risk, although details of how they would work remain under debate.
The governor’s office favors an idea, referred to as a “liquidity fund,” that would require at least $10 billion. In April, the administration proposed continuing a state Department of Water Resources charge on ratepayers that was implemented during the last energy crisis to provide the funding. The charge, which adds a few dollars to monthly electricity bills, is set to sunset in 2020.
The money could be lent to investor-owned utilities to pay off victims after a wildfire. The companies could be expected to return the money to the fund after the California Public Utilities Commission determines who should pay damages from the blaze.
“The goal of a liquidity fund is to prevent investor panic from getting out of control and leading to a bankruptcy,” Michael Wara, director of Stanford University’s climate and energy policy program, told state senators last week.
The governor’s office late last month said that it would also seek changes to the state’s standards for utilities to prevent wildfires, which might shift more financial burden to ratepayers.