Plan to de­fray util­i­ties’ fire costs sails to New­som’s desk

Ratepay­ers will pay bil­lions into a fund cham­pi­oned by the gover­nor as a way to limit soar­ing li­a­bil­i­ties.

Los Angeles Times - - FRONT PAGE - By Taryn Luna

SACRA­MENTO — Gov. Gavin New­som is ex­pected to sign leg­is­la­tion Fri­day to over­haul how the state pays for util­ity wildfire dam­age — a com­plex bill the gover­nor cham­pi­oned and moved swiftly through the Cal­i­for­nia Leg­is­la­ture this week at Wall Street’s urg­ing.

The bill’s passage was a po­lit­i­cal vic­tory for the gover­nor, but some ques­tioned whether Cal­i­for­nia lead­ers were just mak­ing a down pay­ment for wildfire costs that will sky­rocket if more isn’t done to pre­vent ev­er­larger blazes.

The ad­min­is­tra­tion says the bill will pro­vide in­vestorowne­d util­i­ties with at least $21 bil­lion to pay for dam­age from blazes linked to their equip­ment be­gin­ning this sum­mer. Util­ity cus­tomers will be re­quired to pay $10.5 bil­lion to the so-called wildfire fund through a 15-year ex­ten­sion of an ex­ist­ing charge on monthly bills, one that was orig­i­nally ex­pected to ex­pire by 2021.

The Assem­bly sent AB 1054 to the gover­nor’s desk Thurs­day with a 63-8 vote, three days af­ter the Se­nate ap­proved the pro­posal. New­som com­mended law­mak­ers for mov­ing the bill for­ward.

“I want to thank the Leg­is­la­ture for tak­ing thought­ful and decisive ac­tion to move our state to­ward a safer, af­ford­able and re­li­able en­ergy fu­ture; pro­vide cer­tainty for wildfire vic­tims; and con­tinue Cal­i­for­nia’s progress to­ward meet­ing our clean en­ergy goals,” New­som said.

The gover­nor pro­pelled the bill through the Leg­is­la­ture in re­sponse to threats from credit rat­ing agen­cies to down­grade the state’s power com­pa­nies if law­mak­ers failed to act by the end of this week. New­som and his leg­isla­tive al­lies have ar­gued that his bill will ul­ti­mately cost cus­tomers less than in­ac­tion would.

Weaker credit rat­ings of­ten lead to higher bor­row­ing costs for util­i­ties, and state reg­u­la­tors have al­lowed power com­pa­nies to pass off those cap­i­tal ex­pen­di­tures to ratepay­ers through higher monthly bills.

State lead­ers also feared a worst-case sce­nario in which South­ern Cal­i­for­nia Edi­son might fol­low Pa­cific Gas & Elec­tric Co. into bank­ruptcy if the li­a­bil­ity law re­mained un­changed, the power com­pany was down­graded and a ma­jor wildfire broke out in its ter­ri­tory this year.

The New­som ad­min­is­tra­tion has ar­gued that the law pro­tects ratepay­ers from po­ten­tial price spikes by en­sur­ing Edi­son doesn’t

go belly up. As a con­di­tion of par­tic­i­pa­tion in the fund, the bill re­quires PG&E to exit its bank­ruptcy case by next year with­out raising rates on cus­tomers. PG&E would also have to pay off its claims from 2017 and 2018 wild­fires to join the fund, a mea­sure wildfire sur­vivor groups praised dur­ing leg­isla­tive hear­ings this week.

“AB 1054 will pave the way for very im­por­tant changes in how we ad­dress wild­fires in Cal­i­for­nia,” said As­sem­bly­man Chris Holden (D-Pasadena). “The pack­age pro­vides cer­tainty for cus­tomers whose con­tri­bu­tions are fixed by the bill. It pro­vides cer­tainty for the mar­kets to pro­tect the util­i­ties and pro­vides cer­tainty to fire vic­tims.”

An anal­y­sis shows that PG&E res­i­den­tial cus­tomers could ex­pect their bills to dou­ble within eight years if re­cent wildfire trends con­tinue and state laws go un­changed, said Steven Weiss­man, a lec­turer at the Gold­man School of Pub­lic Pol­icy at UC Berke­ley. Weiss­man said that sim­i­lar in­creases could fall on Edi­son cus­tomers and that San Diego Gas & Elec­tric Co., if faced with sim­i­lar li­a­bil­ity, could see rates rise even faster.

Weiss­man’s anal­y­sis did not pro­vide a cost com­par­i­son to the ef­fects on rates un­der New­som’s pro­posal. He said shuf­fling money around can only go so far.

“Dol­lars have to come from some­where,” Weiss­man said. “It’s either ratepay­ers, taxpayers, share­hold­ers or vic­tims. As these wild­fires might pile up, you’re go­ing to reach a point of sat­u­ra­tion very quickly, where either ratepay­ers can’t pay their bills, share­hold­ers won’t buy the stock and on down the line. There’s no sub­sti­tute for do­ing what we can to pre­vent wild­fires. What a bill like this does is buys a lit­tle time.”

Some law­mak­ers sim­i­larly asked their col­leagues and the gover­nor to fo­cus more on wildfire pre­ven­tion as the ul­ti­mate so­lu­tion to the prob­lem.

As­sem­bly­man Marc Levine (D-San Rafael) said law­mak­ers were go­ing too far to help util­i­ties, in­clud­ing PG&E, which has ad­mit­ted that its equip­ment prob­a­bly caused the Camp fire, which killed 85 peo­ple in Butte County last year. Levine cited a Wall Street Jour­nal in­ves­ti­ga­tion pub­lished this week that said PG&E knew the line that prob­a­bly sparked the Camp fire could cause a wildfire and failed to per­form up­grades on dan­ger­ous equip­ment.

“It is hard to see this bill as some­thing other than a re­ward for mon­strous be­hav­ior,” said Levine, who voted against the mea­sure. “Our ef­forts should make pub­lic safety para­mount.”

The ul­ti­mate ef­fect of the pro­posal hinges on how Wall Street per­ceives the new law, whether the util­i­ties de­cide to match the ratepayer money and how state reg­u­la­tors en­force util­ity safety.

New­som’s bill of­fers two dif­fer­ent mod­els of wildfire funds to help util­i­ties pay for claims.

One op­tion of­fers the util­i­ties the $10.5 bil­lion from ratepay­ers as a line of credit to pay for costs that ex­ceed in­sur­ance cov­er­age for wildfire dam­age. A util­ity that bor­rowed from the fund would later be re­quired to re­pay the loan if reg­u­la­tors de­cided the com­pany failed to prop­erly man­age its sys­tem to pre­vent the fire.

The sec­ond model gives util­i­ties the op­tion of con­tribut­ing $10.5 bil­lion to match the ratepayer money. That would cre­ate a fund of at least $21 bil­lion in ex­change for a cap on their wildfire li­a­bil­ity. Un­der this plan, SDG&E, Edi­son and PG&E would have 15 days from the time the law is en­acted to sig­nal whether they in­tend to con­trib­ute.

Ana Matosan­tos, New­som’s Cab­i­net sec­re­tary, told law­mak­ers this week that she ex­pects the util­i­ties to choose to par­tic­i­pate in the larger wildfire fund.

In or­der to ac­cess the fund, util­i­ties would have to earn a first-of-its-kind an­nual safety cer­ti­fi­ca­tion be­fore the on­set of the wildfire sea­son. To re­ceive the cer­ti­fi­ca­tion, com­pa­nies would be re­quired to tie ex­ec­u­tive com­pen­sa­tion to safety per­for­mance, cre­ate safety com­mit­tees on their boards of direc­tors and be im­ple­ment­ing their wildfire mit­i­ga­tion plans.

A power com­pany that ob­tained safety cer­ti­fi­ca­tion be­fore wildfire sea­son would be al­lowed to dip into the wildfire fund, which would act as a sec­ond in­sur­ance pol­icy for the util­i­ties. The com­pa­nies would have to pay it back, up to a cap, only if they be­haved un­rea­son­ably to cause a fire.

The safety cer­ti­fi­ca­tion would also shift the bur­den of proof away from a util­ity, re­quir­ing out­side groups to in­ter­vene in reg­u­la­tory pro­ceed­ings and raise se­ri­ous doubt that the elec­tri­cal cor­po­ra­tion op­er­ated its sys­tem rea­son­ably be­fore a wildfire.

Un­der the model, PG&E would be re­spon­si­ble for pay­ing more than 60% of the to­tal $10.5 bil­lion from the util­i­ties.

Edi­son would pay nearly one-third, and SDG&E would cover about 4%.

An ini­tial con­tri­bu­tion of $7.5 bil­lion is due from the util­i­ties in the first year. SDG&E and Edi­son would have to pro­vide their share of the money within 60 days of opt­ing into the plan.

PG&E, in par­tic­u­lar, won’t be re­quired to pay an ini­tial con­tri­bu­tion un­til the San Fran­cisco com­pany emerges from bank­ruptcy, no later than June 30, 2020, ac­cord­ing to the gover­nor’s of­fice. Given the cur­rent bank­ruptcy pro­ceed­ings, PG&E would be able to re­cover only 40% of its costs that ex­ceed in­sur­ance cov­er­age from the fund for wild­fires that oc­cur in the next year.

Af­ter the the first year, the util­i­ties would be re­quired to pay $300 mil­lion in ag­gre­gate an­nu­ally.

The state would de­posit an ini­tial con­tri­bu­tion of $2 bil­lion af­ter the util­i­ties pay their por­tion, and an ad­min­is­tra­tor of the fund would later de­ter­mine when to add the ad­di­tional money, the gover­nor’s of­fice said.

Sev­eral law­mak­ers ex­pressed con­cern over the last week about ef­forts to move such com­plex leg­is­la­tion so quickly. Leg­is­la­tors who worked closely with New­som to push the bill for­ward promised to con­tinue to work on wildfire pre­ven­tion when law­mak­ers re­turn from sum­mer break next month.

“We still have other work to do,” said Assem­bly­woman Au­tumn Burke (D-Ma­rina del Rey). “This is not the end of the con­ver­sa­tion, but this is a piv­otal part in the con­ver­sa­tion and this was some­thing that can­not be pushed aside any­more be­cause we have seen the cost of in­ac­tion and the dev­as­ta­tion.”

Genaro Molina Los An­ge­les Times

THEN-GOV.-ELECT Gavin New­som tours fire-scarred Mal­ibu with Pres­i­dent Trump last year, dur­ing Cal­i­for­nia’s worst wildfire sea­son in recorded his­tory.

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