California Legislature Approves Multibillion-Dollar Wildfire Fund
July 11 2019 - 3:13PM
Dow Jones News
By Alejandro Lazo and Katherine Blunt
SACRAMENTO, Calif. -- California lawmakers on Thursday approved
a multibillion-dollar fund meant to stabilize the state's largest
utilities amid fears of sizable future liability costs from deadly
wildfires tied to their equipment.
The creation of the wildfire fund, one of the biggest challenges
in the first year of Democratic Gov. Gavin Newsom's administration,
is part of a broader regulatory overhaul meant to mitigate the
crisis created when PG&E Corp. sought bankruptcy protection in
January, citing more that $30 billion in potential liability costs
stemming from its role in sparking wildfires.
The company's collapse sowed concern on Wall Street that the
state's other large utilities, Edison International's Southern
California Edison and Sempra Energy's San Diego Gas & Electric,
may face similar fates. Credit-ratings firms threatened to
downgrade them unless lawmakers moved to limit their liability
exposure.
After concern among investors that lawmakers wouldn't pass the
bill before beginning a month-long summer recess this Friday, a
final version was hammered out late last week. It passed the state
Senate Monday with a vote of 31-7 and the Assembly Thursday with a
preliminary tally of 63 in favor and 9 opposed, winning bipartisan
support in both houses. Mr. Newsom is expected to act quickly to
sign the bill into law.
The legislation creates two routes for a wildfire fund -- one
valued at $10.5 billion and another at $21 billion or more. The
smaller proposal would be structured as a revolving loan funded by
extending a surcharge on electricity bills and securitizing the
revenue through state-issued bonds. The larger would include an
insurance policy requiring a $10.5 billion contribution from the
three utilities.
Southern California Edison and San Diego Gas & Electric will
have 15 days upon enactment of the bill into law to choose between
the two options. They are likely to coalesce on one plan, said
people close to the companies.
PG&E can't participate in the decision-making process while
it restructures in bankruptcy court, but will be bound by what the
other two companies choose. The other two utilities are widely
expected to select the larger option, which would require PG&E
to contribute the most money to the fund given the size of its
service area.
An unusual state constitutional provision makes utilities
responsible for property damages resulting from fires sparked by
their equipment. The legislation would allow utilities to tap the
wildfire fund to cover future claims arising from such fires if
they were found to have acted responsibly.
Mr. Newsom's proposal was aimed at satisfying investor demands
that the state partially reform utilities' exposure to wildfire
risk, which has intensified in recent years with severe drought and
climate change -- while avoiding a bailout of PG&E. The state's
largest power company has lost political goodwill in the wake of 19
wildfires state investigators have found its equipment caused in
2017 and 2018, including last year's Camp Fire, the deadliest in
state history, which killed 85 people.
The new legislation does nothing to address PG&E's liability
for past wildfires. The company last week pressed lawmakers to
allow it to securitize future earnings to pay past wildfire claims,
according to people familiar with the matter, but that provision
wasn't included in the bill. Analysts expect lawmakers to consider
that proposal later this session, given the amount of money
PG&E will be required to contribute to the wildfire fund going
forward.
Many longtime critics of PG&E's safety record, including
consumer group The Utility Reform Network, supported the
legislation, noting that it imposes new safety restrictions while
limiting rate increases and corporate profits.
The wildfire fund will essentially spread future liabilities
among the three utilities, making it easier for them to cover costs
without raising rates for customers. To access the fund, a utility
must obtain a safety certification from a new division of the
California Public Utilities Commission that will be created to
oversee wildfire safety efforts.
"Make no mistake -- this is not a utility bailout, it is a
ratepayer bailout," said Democratic State Sen. Bill Dodd, co-author
of the bill.
But some critics argued the measure still fell short.
State Senator Scott Wiener, a Democrat from San Francisco, who
voted against the bill, said the legislation would make it harder
for cities to create their own utilities. San Francisco has been
considering purchasing some of PG&E's assets and forming a
municipal utility.
"This is a dramatic sea change in terms of our ability to try a
new model," Mr. Wiener said at a Monday hearing. He was the only
Democrat in the state Senate to buck his party and Mr. Newsom, the
former mayor of San Francisco.
(END) Dow Jones Newswires
July 11, 2019 14:58 ET (18:58 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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