After Blazes Burn PG&E, California Passes Utility Fire Fund

California is establishing a fund totaling as much as $21 billion to help rescue utilities from a wildfire crisis that has in the past two years burned thousands of homes, left more than 120 people dead and led to the collapse of its largest power company.

The state assembly passed legislation on a 63-8 vote that will set up a state-backed fund to help utility giants including PG&E Corp. and Edison International cover future liabilities when their equipment ignites catastrophic blazes. Less than seven months ago, a series of these power line-sparked fires forced PG&E into bankruptcy, saddling the company with $30 billion of estimated damages.

The prospect of another devastating blaze — and utility collapse — touched off a race in Sacramento to come up with a fix before California enters the peak of its wildfire season. Governor Gavin Newsom has spent the past two weeks pressing lawmakers to move the legislation forward before a month-long recess begins July 12. The state Senate approved the bill earlier this week and Newsom is expected to sign it into law.

Newsom thanked the legislature for “taking thoughtful and decisive action to move our state toward a safer, affordable and reliable energy future” while providing “certainty” for fire victims, according to a statement Thursday.

Crucial Bill

The bill is crucial for Edison’s Southern California Edison and Sempra Energy’s San Diego Gas & Electric, which were facing junk ratings if the state had failed to act. It’s also a major win for Newsom, who took office in January just two months after a PG&E power line sparked the deadliest blaze in California history, killing 85 people and destroying an entire town.

Under the legislation passed, the state will use $10.5 billion in bonds to finance the fund. Power companies will borrow from it as they seek to recover costs from their customers. The utilities have the option of kicking in another $10.5 billion to turn the account into a larger, insurance-like pool, and Newsom’s staff has said they’ll probably do that.

Southern California Edison has voiced its support for the bill. PG&E and San Diego Gas & Electric said earlier this week they didn’t have a position on the measure.

The bill doesn’t allow for PG&E to issue tax-exempt bonds to pay for past and future wildfire claims, a provision the utility had lobbied for as part of a proposed restructuring plan. PG&E was said to be pressing lawmakers to introduce separate legislation next month that would allow for the tax-free bonds.

“Nobody has ever said that this bill is going to be the silver bullet or fix-all,” Assemblymember Chris Holden, a co-author of the measure, said on the assembly floor. “But it does take us to dramatic leaps from where we can stabilize California. We are talking about victims, ratepayers and the industry that keeps our lights on.”

Little Resistance

The legislation has been met with surprisingly little resistance. Environmental groups, solar energy providers, labor unions, fire victims and a major consumer group have all backed it.

Patrick McCallum, a lobbyist for Up from the Ashes, a group that represents wildfire victims, said the measure “is our best chance to recover and begin rebuilding our lives, and California’s best hope of preventing others from experiencing the kind of devastation we’ve been through.”

The mayors of San Francisco, San Jose and Oakland did, however, raise concerns about some language in the bill that gives state regulators more of a say in whether they can buy parts of PG&E’s grid. Some lawmakers also questioned whether the state should pass something that would help PG&E, given its checkered safety history.

“It’s hard not to see this bill as something of a reward for monstrous behavior,” Assemblymember Marc Levine, a Democrat, said. “They haven’t done the work. They should not be rewarded. Our effort should make public safety paramount.”

Edison and Sempra would be the ones to decide whether utilities kick in money to create a larger insurance fund. PG&E would then be required to cover about two-thirds of the companies’ contributions. Evercore ISI estimated that PG&E’s share would total more than $4.8 billion upfront.

“The bill isn’t perfect,” said Mark Toney, the executive director of the consumer advocacy group Utility Reform Network. But he said it does limit rate increases for customers and ties shareholders’ profits to safety measures.

The bill will also:

  • Make it easier for utilities to recover the costs of wildfires from customers if they’ve met new, more stringent safety standards.
  • Bar PG&E from accessing the fund unless it has settled claims from previous wildfires and exits bankruptcy without raising customer rates by June 30, 2020.
  • Require that utilities comply with fire prevention plans and tie executive compensation to safety performance to obtain a safety certificate.
  • Require utilities to make $5 billion in safety investments without earning a profit on them.

In addition, the legislature passed Thursday two separate wildfire bills, including establishment of a California Catastrophe Response Council, which will oversee a wildfire fund and create an Office of Energy Infrastructure Safety.