Updated Sept. 1, 12:49 a.m.
California lawmakers have voted to shift billions of dollars of wildfire-recovery costs from electric utility shareholders to ratepayers.
The measure passed the Senate 29-4 and the Assembly 46-11 late Friday night in the waning hours of the 2018 legislative session. It now advances to Gov. Jerry Brown, who was involved in negotiations and is expected to sign it.
SB 901 by Sen. Bill Dodd (D-Napa) would change the rules governing the liability of utility companies when their electrical equipment causes wildfires.
It also contains several provisions intended to reduce the risk of massive wildfires, which have scorched California in recent years, and improve response and recovery efforts when fires do burn.
At stake is how to pay for the billions of dollars in damages as California’s changing climate, drought, and other factors combine to make megafires — such as the 2017 blazes in Santa Rosa and Ventura and this year’s Redding fire — annual occurrences.
As he presented his bill in the Senate, Dodd called it “a comprehensive approach” that protects both wildfire victims and utility ratepayers.
“Let me be very clear: If we do not provide a debt stabilizing mechanism for a utility — in this case PG&E — the corporation will certainly face higher borrowing costs, which will translate into higher rates,” Dodd said. “Or this company might very well face bankruptcy.”
Opponents blasted the measure as a bailout for PG&E.
“Shouldn’t we focus on requiring PG&E to improve the safety of their electric system that they’ve been neglecting all these years? Instead, this bill rewards their bad behavior,” said Sen. Jerry Hill (D-San Mateo). “This bill allows PG&E to pass their costs on to ratepayers even if they were negligible.”
There were supporters and opponents on both sides of the aisle.
“To do nothing would be on us,” said Assembly Republican Leader Brian Dahle (R-Bieber), who helped craft the bill on the joint Senate-Assembly conference committee that signed off on the measure Tuesday night. “We’ve done something that’s not perfect. But I think it’s a step in the right direction.”
“It’s not a bold bill. It’s not a crisis bill,” said Sen. Ted Gaines (R-El Dorado), who voted aginst the measure. “If the new normal is piles of ash and funerals, then why isn’t this bill massive and groundbreaking?”
Under current state law, utilities are liable for damages from wildfires caused by their equipment — even if they did nothing wrong. Investor-owned utilities — in particular, Pacific Gas & Electric — have argued they could be forced into bankruptcy if they continue to get hit with multibillion-dollar damages.
The utilities originally pushed for a complete rewrite of that liability law, but they fell short.
However, the utilities did not come up empty-handed. The conference committee approved several provisions that are drawing criticism from ratepayer groups:
For fires that started in 2017, the California Public Utilities Commission would conduct a “stress test” to determine the maximum amount of damages a utility could sustain without harming ratepayers or going bankrupt. That amount would serve as a “cap” on their fiscal liability.
Also for fires started in 2017, costs passed along to ratepayers could be financed — spread out over several years under a process called “securitization” — to reduce the sticker shock on ratepayers’ monthly utility bills.
For fires caused by electrical infrastructure from next year forward, the CPUC will decide whether a utility acted reasonably, considering factors that include extreme weather conditions. If so, the CPUC could order that the costs be passed along to ratepayers and securitized.
PG&E released a statement after the bill passed Friday night, calling it “a common-sense solution that puts the needs of wildfire victims first, better equips California to prevent and respond to wildfires, protects electric customers and preserves progress toward California’s clean energy goals.”
After the vote, Assembly Speaker Anthony Rendon (D-Paramount) had harsh words for the utility.
“Everybody to a person in our Legislature believes that PG&E has not done the right thing,” the speaker said in an interview with CapRadio. “Over and over and over again, they have consistently not learned their lesson.”
But Rendon insisted the bill was “not a bailout” and that PG&E will “be held responsible to a large extent for what they did.” He cited the stress-test provision as evidence that the utility will be required to pay as much as it can bear.
Whether intentional or otherwise, the bill — swiftly drafted as a deadline to get it in print approached Tuesday night — is silent on the rules governing fires that start in 2018. Barring a future bill — what’s known in the Capitol as “clean-up” legislation — those fires would be subject to the same rules under current law, which PG&E and other utilities have sought so hard to change.
Those provisions are infuriating ratepayer groups.
“Legislators will give a cap to rich PG&E shareholders on how much to pay for their negligence but no cap for ratepayers,” said a spokeswoman for the Ratepayer Protection Network, which represents the manufacturing, agriculture and oil industries. “We cannot give a blank check to PG&E to bail them out on the backs of ratepayers.”
Mark Toney with The Utility Reform Network, a consumer advocacy group, added that “PG&E gets to bill for costs resulting from negligent and even criminal behavior, which is a bailout, plain and simple.”
But the bill is backed by the insurance industry, trial lawyers, cities and counties, and unions that represent utility employees, firefighters and building trades.
“This legislation makes significant progress toward minimizing the risk of future wildfires in California,” said Graham Knaus with the California State Association of Counties. He said it “protects victims, enhances community safety and “ensures stability for utilities and ratepayers.”
And California Professional Firefighters president Brian Rice said the bill “makes a substantial investment in fire prevention, forest management and risk mitigation, to help to keep catastrophic fires from starting in the first place.”
Indeed, the fire prevention and forest management pieces of the bill generally enjoy broad support. There are new requirements for utilities to implement fire prevention plans and the streamlining of landscape and forestry management.
A notable exception is the authorization for utilities to extend contracts with biomass plants, which create energy by burning wood. That’s one part of a multipronged strategy to reduce fire risk by thinning forests. It’s strongly opposed by some environmental groups, though not all.
The bill also sets aside $200 million annually in proposed funding through the 2023-24 fiscal year for forest health, fire prevention and reduction of “fuel,” or trees and vegetation. The money would come from carbon emission auction revenues under California’s “cap and trade” greenhouse gas emission-reduction program.
However, because the Legislature cannot bind a future one, this money will need to be approved as part of each year’s state budget.