California Assembly passes urgently requested $21 billion wildfire fund
California lawmakers passed a $21 billion measure aimed at protecting the state’s investor-owned electric utilities (IOU) from liabilities due to wildfires that could lead to credit downgrades or even bankruptcy.
The Assembly voted 63-8 in favor of the bill, which Gov. Gavin Newsom is expected to sign on Friday, the day before the start of the legislature’s month-long recess. Newsom had set a Friday deadline to head off any new downgrades in utility bond ratings that could have increased the financial pressure on the companies.
Assembly Bill 1054 rushed through Sacramento as the dreaded late-summer fire season loomed and ratings agencies stood by to possibly issue new draconian downgrades that would put further pressure on utilities to cover expensive upgrades to their infrastructure while at the same time covering billions of dollars in current and potential fire liabilities. It passed in the Senate 31-7 on Monday night.
“This bill takes an important step toward helping wildfire victims, preventing future infernos and also protecting utility ratepayers,” said state Sen. Bill Dodd (D-Napa), a co-author of the bill. “That’s why it is supported by victims of our state’s most destructive blazes as well as ratepayer groups. I appreciate the bipartisan support of the Legislature and look forward to the governor signing it.”
During a spate of hearings held during the week, a dire picture was raised of utilities that would not be able to afford to both pay off fire victims and upgrade infrastructure without sharp increases to Californians’ electric bills. There were also concerns that renewable energy power-purchase contracts would be in jeopardy, and that a rate surge would derail plans to increase the number of electric vehicles on the road.
“If the pattern established over the last two years continues … we will quickly get to a point that will be untenable for ratepayers,” Steven Weissman of the UC Berkeley Goldman School of Public Policy testified before a Senate committee earlier in the week. Weissman said a situation could quickly develop in which consumer rates would double and the IOUs would still be considered poor credit risks.
The support for the bill, however, wasn’t entirely unanimous and around 10 percent of both houses cast nay votes; critics contended that the measure did not include enough oversite of the IOUs’ fire prevention plans and could cause California ratepayers to shoulder too much of the financial burden. But Newsom and other supporters said it was critical to get a plan on the books and underway and leave the fine-tuning for a future day.
“There will be more opportunities for us to tweak this,” Assemblyman Chris Holden (D-Pasadena), another of the bill’s co-authors, said on the Assembly floor just prior to the vote.
A key feature of AB 1054 is the establishment of a new fund of up to $21 billion that utilities will be able to access if they both contribute their own funds to it and also receive annual certification from the California Public Utilities Commission (CPUC) that their fire-prevention plans are adequate. Half of the funds will come from the state’s three major IOUs and half from their ratepayers.
Equipment belonging to Pacific Gas & Electric Company (PG&E) was blamed for the 2018 Camp Fire that destroyed nearly 19,000 structures in northern California. The Camp Fire and other destructive blazes pushed PG&E into bankruptcy because utilities in the state operate under “inverse condemnation,” a legal doctrine that makes them obligated to cover fire damages caused by their equipment regardless of any proven negligence; the doctrine also applies to San Diego Gas & Electric Company and Southern California Edison (SCE).
In reaction to the passage of the bill, SCE said in a written statement: “SCE is supportive of AB 1054 and its companion measures, which improve the current regulatory framework. The state must ensure careful implementation and make some refinements in the future to ensure their success; we will work hard to see those changes made. That said, the bills take initial steps to return California to a regulatory framework providing the financial stability utilities require to invest in safety and reliability and drive toward a clean energy future.”
AB 1054 did not address the inverse condemnation question, but it did have other key provisions, according to Dodd’s office:
• Ensures timely compensation for past and present fire victims;
• Requires the CPUC to protect the interests of ratepayers and employees if a utility or part of a utility changes ownership;
• Requires the three IOUs to pay $5 billion to invest in safety improvements while prohibiting them from turning any profit from those expenses;
• Requires a one-year timeline for PG&E to emerge from bankruptcy under a plan that is ratepayer neutral and provides settlements for the victims of fires in 2017 and 2018.
Newsom issued a statement saying California had cleared a major hurdle. “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,” he said.
