Cal­i­for­nia util­i­ties agree to de­posit $10.5 bil­lion into new wild­fire fund

Lodi News-Sentinel - - FRONT PAGE - By Taryn Luna

SACRAMENTO — Cal­i­for­nia’s in­vestor-owned util­ity com­pa­nies have agreed to open up their wal­lets to pay into the state’s wild­fire fund in ex­change for less fi­nan­cial re­spon­si­bil­ity when blazes are linked to their equip­ment.

The un­prece­dented de­ci­sion to spend bil­lions of dol­lars from share­hold­ers un­der a new model to pay for dam­ages cham­pi­oned by Gov. Gavin New­som speaks to the im­mense fi­nan­cial threat that power providers face as they op­er­ate in a state that en­dured the worst blazes in the coun­try last year. The fund, propped up by $21 bil­lion split equally be­tween util­ity cus­tomers and share­hold­ers, is meant to act as a sec­ond in­sur­ance pol­icy for pub­licly traded elec­tric­ity com­pa­nies and to off­set con­cerns from Wall Street about mas­sive mone­tary li­a­bil­i­ties that have threat­ened to up­end the en­ergy mar­ket in Cal­i­for­nia.

“The rea­son it makes sense is that the risk could be so great, and the stocks have been hit so hard, that the value of get­ting bet­ter cer­tainty made it worth putting up money with no re­turn,” said Steve Fleish­man, a se­nior util­i­ties an­a­lyst for Wolfe Re­search. “But in the nor­mal course of the util­ity, no one would ever do this.”

Un­der state guide­lines, a util­ity or its cus­tomers are re­spon­si­ble for pay­ing prop­erty dam­ages from wild­fires linked to the com­pany’s equip­ment. With ag­ing in­fra­struc­ture elec­tri­fy­ing re­mote ar­eas of in­creas­ingly hot and dry ter­rain, the cost and risk have grown sig­nif­i­cantly in re­cent years. Pa­cific Gas & Elec­tric filed for bank­ruptcy, an­tic­i­pat­ing some $30 bil­lion in li­a­bil­ity for fires in 2017 and 2018, ear­lier this year.

Rat­ings agen­cies threat­ened to down­grade South­ern Cal­i­for­nia Edi­son and San Diego Gas & Elec­tric if law­mak­ers failed to pass leg­is­la­tion this month to sig­nif­i­cantly re­duce the in­dus­try’s risk.

New­som pushed the wild­fire fund at the Capi­tol as a so­lu­tion to the prob­lem. Util­i­ties will be re­quired to earn a safety cer­ti­fi­ca­tion be­fore the on­set of wild­fire sea­son in or­der to par­tic­i­pate.

The law takes $10.5 bil­lion from elec­tric­ity cus­tomers through the con­tin­u­a­tion of a charge on monthly bills that was set to ex­pire next year. In re­turn, wild­fire costs that would typ­i­cally lead to higher bills for cus­tomers will in­stead be paid out by the fund, po­ten­tially avoid­ing price hikes.

For their $10.5 bil­lion, the util­i­ties are al­lowed to tap into the fund to pay wild­fire dam­ages that ex­ceed in­sur­ance cov­er­age. The law also shifts the bur­den of proof in reg­u­la­tory pro­ceed­ings — an­other ben­e­fit for the util­i­ties — and re­quires out­side groups to in­ter­vene to prove that the com­pany failed to prop­erly man­age its sys­tem to prevent the fire. If proved, the util­ity would have to re­pay the wild­fire fund for the costs up to a cap, a first-of-its-kind limit to a com­pany’s risk exposure de­fined as 20% of its trans­mis­sion and dis­tri­bu­tion eq­uity.

The state gave the util­i­ties un­til Fri­day to sig­nal their in­tent to par­tic­i­pate in the fund. The com­pa­nies will be re­spon­si­ble for de­posit­ing their share of an ini­tial $7.5 bil­lion to­tal into the fund in the first year and then $300,000 an­nu­ally for the next decade.

One week after New­som signed the law, SDG&E said it would join the fund and pay its share of the to­tal, set at 4.3% or roughly $450 mil­lion. Edi­son on Thurs­day agreed to pay its ini­tial con­tri­bu­tion of ap­prox­i­mately $2.4 bil­lion and fol­low with an­nual con­tri­bu­tions of ap­prox­i­mately $95 mil­lion for the next decade. PG&E also no­ti­fied the Cal­i­for­nia Pub­lic Util­i­ties Com­mis­sion of its de­ci­sion to pay into the fund on Thurs­day.

PG&E’s par­tic­i­pa­tion must be con­firmed through the courts and its ini­tial $4.8 bil­lion con­tri­bu­tion would not be due un­til the bank­ruptcy process con­cludes, while the other util­i­ties must make their pay­ments by Sept. 10. In or­der to par­tic­i­pate, the state is re­quir­ing the com­pany to exit the bank­ruptcy process no later than June 30, 2020, with­out rais­ing costs for its cus­tomers.

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