One small change to California’s wildfire prevention law could spark a huge political fight in Sacramento

A home burns as the Camp fire rages through Paradise on Nov. 8. If investigators determine equipment owned by Pacific Gas & Electric Co. started the blaze, the costs to the utility could be substantial.

Dec. 3, 2018 8 AM PT

Reporting from Sacramento — California’s biggest utilities will soon have more flexibility in covering costs associated with wildfires sparked last year and in years to come — but not those that began in 2018, a gap in state law one legislator hopes to soon close.

But the proposal to do so is so politically fraught that its author, Assemblyman Chris Holden (D-Pasadena), was forced to delay the bill’s introduction from this week’s opening of the Legislature’s new session until January.

“I want to make sure my colleagues have enough time to properly review this,” Holden said last week. “I’m being respectful to the fact that it may still require some conversations.”

The legislation would do little more than add a handful of words to a far-reaching piece of legislation approved last summer, Senate Bill 901, ensuring financial relief for any utility whose equipment was involved in a wildfire during the current year. Holden, chairman of the Assembly Utilities and Energy Committee, said the proposal could assuage investor fears that one or more of California’s utilities will be bankrupted by billions of dollars in new fire-related costs.

“I’m very concerned,” Holden said. “I think there are a very fragile set of circumstances.”

Critics, however, are poised to pounce. Some believe the timing is inappropriate, so soon after the catastrophic Camp fire in Butte County. Others see the effort as tantamount to punishing utility customers — particularly those of Pacific Gas & Electric Co. — through higher bills.

“All of this conversation is premature,” said state Sen. Jerry Hill (D-San Mateo), a frequent PG&E critic. “There is a major cost to ratepayers that I think is outrageous.”

Hill and Holden were on different sides of the law signed by Gov. Jerry Brown in September, a $1-billion boost to wildfire prevention programs. Senate Bill 901 imposes new rules on investor-owned utilities when blazes are sparked by equipment owned by the companies. It also mandates additional scrutiny of fire policies by the California Public Utilities Commission.

Although the commission now has no formal role in scrutinizing the fire mitigation plans it receives from utilities, SB 901 requires agency regulators to review the plans and will allow them to insist on changes, if needed, to proposals for clearing brush and vegetation away from power lines. Only after that process has been completed will regulators consider, in the aftermath of a fire involving a utility’s equipment, any request to lessen the financial burden of wildfire-related costs.

When it became clear during summer negotiations that SB 901 would skip over any costs related to 2018 fires, the bill earned the nickname “The Doughnut” in state Capitol conversations because of what some saw as an obvious public policy hole. Filling that hole, however, is easier said than done.

From a governing standpoint, the complicated changes brought about by the new law will take time to implement. Had SB 901 imposed a sweeping new regulatory system on utilities before 2019, it would have left CPUC officials scrambling. And to take effect immediately, the bill would have probably required a supermajority vote in both houses — a perilous path in a tense election-year session of the Legislature. The 71-page law was already a tough sell, criticized for what some interest groups insisted was little more than a “bailout” to utility companies implicated in fires that blazed through Ventura, Napa and Sonoma counties in 2017.

SB 901 allows a utility, with regulators’ approval, to impose a special fee on customers to pay those 2017 costs. The fee would be used to repay long-term borrowing and, in theory, could be collected in monthly electricity bills for decades. Holden’s proposal would fill the doughnut hole, offering the same option for fires that happened in 2018.

“These are monster fires that are just overtaking communities,” he said. “And the impacts are even greater than those in 2017.”

For utilities, the costs could be daunting. Last week, a report from Fitch Ratings said PG&E could be on the hook for costs of $15 billion from the 2017 fires. But that amount can be securitized under SB 901; fire expenses from 2018 cannot.

“The gap in coverage is a material credit negative” for PG&E, wrote analysts for Moody’s Investors Service on Nov. 12 — just four days after the Camp fire erupted outside of the town of Paradise. On Nov. 16, PG&E’s credit rating was downgraded. Analysts noted the new California law’s failure to make 2018 fire costs eligible for long-term securitization was “an omission that will now have more serious credit implications for the company.”

Holden said such a scenario threatens the company’s long-term viability and, with it, the state’s electricity infrastructure. Supporters of helping PG&E and other utilities included Brown, who argued that the success of California’s ambitious efforts toward fighting climate change and a clean energy future depends on the major utility being financially stable. The legislation to be introduced next month is intended to assure investors that state lawmakers realize they need to address the impact of 2018’s historic wildfire season.

“We want to make sure we can stabilize the marketplace,” Holden said.

PG&E is not, for now, asking for the help Holden’s bill would provide. A spokesman said by email last week that “there will be a time and place for discussing this and other matters” and that the company is focused for now on “helping our customers recover and rebuild.”

A coauthor of SB 901 agrees. Sen. Bill Dodd (D-Napa), who co-chaired with Holden the joint legislative wildfire committee that crafted the new law, said last week there’s plenty of time to consider help for utilities that face steep costs from recent fires.

“Until things settle down there and we find all the victims and really work with the communities up there, I think what we’re talking about here is premature,” Dodd said.

A key question, though, may be whether lawmakers ultimately want to wrap 2018 costs into a much broader discussion, perhaps reshaping not only the industry’s approach to wildfire expenses, but to public safety in general.

SB 901 creates a new procedure by which state regulators will determine whether future fire expenses are “just and reasonable.” Prior law, applied under a legal standard known as inverse condemnation, gave little wiggle room to pay costs related to a wildfire — even when the utility isn’t shown to be negligent in its operations.

But over the summer Brown urged lawmakers to completely dismantle the existing system, proposing instead to give judges broad discretion in setting financial penalties. Courts would have to “balance the public benefit of the electrical infrastructure with the harm caused to private property and determine whether the utility acted reasonably.”

The governor’s effort was soundly rejected after local officials and activists said it would allow utility companies to drag out legal maneuvering over fire costs for years, leaving communities without the money needed to rebuild. Still, efforts could arise in the new legislative session, with strong support from California’s three major investor-owned utilities — PG&E, Southern California Edison and San Diego Gas & Electric. Combined, the companies spent $17.3 million on lobbying legislators in the two-year session that ended in September. PG&E spent almost $10 million of that amount, one visible sign that it’s seen as the company with the most at stake.

Hill, who has for years hounded the San Francisco-based utility, said the Legislature needs to finally address a larger question: whether PG&E should be broken into smaller entities.

“Is this investor-owned utility in the best interest of California?” Hill asked. “We can’t trust them to act responsibly. They’re going to act what’s in the best interest of their shareholders.”

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