Calif. Legislation Shields Utilities from Wildfire Costs

A bill allowing utilities to recover wildfire costs if they conform to state-regulated safety plans moved through the California legislature last week, but it faces heavy opposition from some who say it lets utilities off the hook for their contribution to wildfires.

Cost Recovery PG&E utilities Wildfire Costs California TURN

Dodd | U.S. Army Corp. of Engineers

The relevant language in SB 1088, introduced by Sen. William Dodd (D), requires each electrical and gas utility to submit a biennial safety, reliability and resiliency plan to the California Public Utilities Commission (CPUC), beginning Jan. 15, 2019. It would require the CPUC to review the plans in a single consolidated proceeding and verify the plans comply with all rules, regulations and standards. The initial plan must be limited to addressing fire risks, with subsequent plans addressing risks associated with routine operation and all major events.

If utilities are found to be in “substantial compliance” with the plan, “the utility’s performance, operations, management and investments addressed in the plan must be deemed reasonable and prudent for all purposes,” a bill analysis said. The legislation would not protect utilities from civil lawsuits, which represent a separate area of liability for the fires.

The cost recovery issue is front and center for California investor-owned utilities, regulators and ratepayer interests as utilities try to recover costs of the devastating disasters. The CPUC last December denied San Diego Gas and Electric’s (SDG&E) request to recover $379 million from ratepayers for 2007 wildfires. (See Besieged CPUC Denies SDG&E Wildfire Recovery.) Commissioners at the time said the decision turned on a specific case of whether SDG&E had reasonably maintained its facilities, not on the cost recovery issue.

California law requires that any costs ratepayers incur on behalf of a utility must be just and reasonable, but the CPUC found SDG&E’s management and control of its facilities prior to the 2007 Witch, Guejito and Rice Wildfires were unreasonable, mentioning poor vegetation management and other activities.

Seeing the writing on the wall for future cost recovery of last year’s fires, the state’s two other large investor-owned utilities, Pacific Gas and Electric (PG&E) and Southern California Edison joined SDG&E in requesting a rehearing of the CPUC decision and launched a fierce response on legislative, regulatory and legal fronts. (See Sempra Joins ‘Three-Pronged’ Wildfire FrontPG&E Vows Fight over Wildfire Cost Recovery.)

PG&E and other investor-owned utilities are being investigated for causing the 2017 fires, but utilities say they cannot be held solely responsible for the increasingly high-risk fire conditions in California, which most observers attribute to climate change. Sempra Energy CEO Debra Reed told shareholders in February she expected legislative action on the issue. And state lawmakers such as Assembly Utilities and Energy Committee Vice Chair Jim Patterson (R) are sounding the alarm about IOU bankruptcies after utilities lobbied in Sacramento earlier this year for a legislative fix. (See Wildfire Costs Ignite Worry at CPUC, Legislature.)

In his author’s comments on SB 1088, Dodd said that climate change will cause more frequent and intense storms, floods, mudslides and wildfires, and eight of the 20 most destructive wildfires in state history have happened since 2015, with five occurring in 2017. “Many scientists predict the 2017 fire season is not an anomaly, and similar wildfires are likely to continue into the future,” he said.

Opponents of the bill include California Large Energy Consumers Association, California League of Conservation Voters, Consumer Attorneys of California, Consumer Federation of California, Environment California, Environmental Defense Fund, Silicon Valley Leadership Group and The Utility Reform Network (TURN).

TURN said the bill “would enrich utility shareholders at the expense of vulnerable households who would be forced to pay large rate increases for bloated programs of unproven benefit to safety risk reduction. TURN fully recognizes the increased risk of wildfires poses new challenges and financial threats to both ratepayers and utilities. Unfortunately, SB 1088 is fundamentally flawed and offers no such constructive solutions.”

The Senate Governmental Organization Committee cleared the bill on April 24 on an 11-1 vote, and it now goes to the Senate Appropriations Committee. The Senate Energy, Utilities and Communications Committee passed the measure on April 17 with a 9-1 vote.