Newsom Offers Plan to Help Shield California Utilities From Wildfire Liablilty

With the effects of climate change intensifying, California is under ever-greater siege from wildfires, often caused by the equipment that brings power to homes. One of the state’s utilities is already in bankruptcy largely because of the resulting liability claims.

On Friday, Gov. Gavin Newsom laid out a proposal for helping to meet such claims while also helping to shield the utilities’ ratepayers and the companies themselves. The plan follows two years of the worst wildfires in California history, which killed dozens of people and destroyed the town of Paradise.

Mr. Newsom’s proposal calls for the creation of a $21 billion fund paid for by utility investors and ratepayers to help victims of the disasters. A commission would oversee the pool of money and would tie executive compensation at the state’s investor-owned utilities to safety.

“Climate change has created a new reality in the state of California,” Mr. Newsom, a Democrat, said in a statement. “It’s not question of ‘if’ wildfire will strike, but ‘when.’”

Under the governor’s plan, ratepayers would not have to pay for wildfire liability when investigators determined that the utilities were negligent.

The state’s largest utility, Pacific Gas & Electric, which filed for bankruptcy protection in January and faces tens of billions of dollars in liabilities related to the recent wildfires, could not benefit from the new fund until it exits bankruptcy.

Paul Moreno, a PG&E spokesman, said in a statement that the utility was “looking at all options when it comes to working with the governor and legislature” and was “committed to resolving wildfire victims’ claims fairly and expeditiously, mitigating wildfire risks, continuing to deliver safe and reliable energy to our customers, and supporting the state’s bold clean energy goals.”

Some critics said that Mr. Newsom’s plan could ultimately leave the financial burden on ratepayers.

The state’s three investor-owned utilities — the focus of the governor’s proposal — have separately asked regulators to increase the profit they are allowed to make on their normal business operations to help cover the cost of wildfires.

Utilities in the United States are typically allowed to earn a 10.5 percent return, but PG&E has asked that its roughly 12 percent return be increased to 16 percent. The state’s two other investor-owned utilities — Southern California Edison and San Diego Gas and Electric — are seeking returns of 14 to 15 percent. The combined requests would cost ratepayers $2.7 billion a year, according to the Utility Reform Network, a consumer-advocacy group that opposes the rate-increase requests.

“They’re going to move the goal posts and pretend that the shareholders are paying for it,” said Loretta Lynch, a former president of the California Public Utilities Commission, which regulates PG&E and the other investor-owned utilities. “It’s just so ugly.”

Mr. Newsom is navigating difficult political waters. While working to develop a plan that helps protect the state, he has also had to find ways to improve confidence among banks and other investors that California is solving the problems related to the kind of wildfire liability that put PG&E into bankruptcy.

All the while, he must show Californians that he is not simply bailing out utilities at the consumers’ expense. He has said he opposes an increase in the utilities profits overall.

Ms. Lynch’s argument is not lost on the administration, although blocking the utilities’ rate request is not currently part of Mr. Newsom’s proposal. His administration has not ruled out preventing an increase in the utilities’ profits.

For now, the governor’s proposal requires the utilities to spend $3 billion on safety improvements every three years. The improvements would include early warning and wildfire-detection systems and upgrades to utility equipment to harden the electric grid against fires. In addition to tying the compensation paid to utility executives to safety performance, the plan calls for the creation of safety committees on the companies’ boards.

The utilities could not earn a profit from the $3 billion in safety spending or on any other money related to Mr. Newsom’s plan. Half of the $21 billion wildfire fund would be covered by the utilities; the other half would be covered by ratepayers, whose portion would come from the state’s Department of Water Resources extending for 15 years bonds that ratepayers related the 2000 energy crisis.

The state would provide $2 billion to start the fund and would make a $7.5 billion upfront payment by the utilities.

Wildfire victims and their advocates praised the plan but cautioned against allowing the utilities to collect additional profits through the regulatory process.

“I think this is a reasonable proposal as long as there are no monkey tricks at the P.U.C.,” said Jamie Court, president of Consumer Watchdog, a nonprofit consumer-advocacy organization, referring to the state’s Public Utilities Commission. “The trick is making sure the shareholders do pay.”

Patrick McCallum, co-chairman of the wildfire victims group Up From the Ashes, said the utilities must not only take part in the governor’s plan but must also ensure that those who suffered losses in previous fires received appropriate compensation from PG&E.

“The ball is squarely in PG&E’s court,” Mr. McCallum said. “Will they do the right thing and compensate 2017-18 wildfire victims for the losses we’ve suffered through no fault of our own?”

The governor’s plan would leave intact the contentious state law known as inverse condemnation, which holds utilities liable for wildfires caused by their equipment even if they are not determined to have been negligent.

PG&E announced this week that it had reached a $1 billion agreement to compensate 14 public entities for wildfire losses. The deal still requires court approval as part of the utility’s overall bankruptcy plan. PG&E has yet to reach agreement with homeowners like Mr. McCallum in the bankruptcy case.

The bankruptcy court approved PG&E’s request this month to create a $105 million wildfire victims’ assistance fund to help with housing costs for uninsured victims of the 2017 and 2018 wildfires and to help those whose insurance benefits had been exhausted from those two years.

In the past week, the governor has been consulting consumer advocates, utility representatives and state lawmakers about his plan. A bill with his proposal is expected to be presented to the Assembly next week. Mr. Newsom’s goal is to have a legislative package approved by July 12, before the official start of wildfire season.

Mr. Newsom’s bill follows measures drafted by lawmakers, so the governor and the legislators still must reach agreement.

Source

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