Wanting to ease utility wildfire costs, Newsom faces biggest test yet with lawmakers

There’s been no shortage of criticism for Gov. Gavin Newsom’s plan to help California’s largest utilities stave off bankruptcy from costs associated with wildfires: No focus on prevention efforts. More difficulty proving utility negligence. Too much of the financial burden falling on millions of utility customers.

The governor, six months into his first year in office, faces a crucial test this week as he attempts to convince the California Legislature to ratify a multibillion-dollar utility wildfire fund before lawmakers leave Sacramento for a one-month recess.

“This is his first time up to bat on a very big issue,” said Joseph S. Tuman, a professor of political and legal communications at San Francisco State University. “It’s important for him to have success with this.”

The legislation, which will need a supermajority in both houses to pass, marks Newsom’s most consequential effort yet to leverage his political power in enacting major legislation. His reputation is on the line, and it’s unclear if his solution to utility liabilities will earn enough support, even in a state Capitol dominated by Democrats.

Lawmakers from both parties share concerns about any proposal that could be cast as a gift to power companies that have been responsible for wildfires in their communities. Newsom’s plan would take $10.5 billion from California ratepayers to help utilities pay wildfire costs, which critics say is an unfair burden for electricity customers with no guarantees that the corporations will operate their systems safely.

Late last month, nine legislators sent him a letter criticizing the bill for failing to address wildfire prevention.

“At a time when we have a $20-billion surplus, could we not make some of that money available to keep Californians safer?” asked Assemblyman Jim Wood (D-Healdsburg), who signed the letter to the governor.

Credit ratings agencies have inserted a sense of urgency into the process, threatening to downgrade the investment grades of Southern California Edison and San Diego Gas & Electric if the state fails by Friday to pass legislation that would significantly reduce utility companies’ financial liability for wildfires.

With Pacific Gas & Electric in the midst of federal bankruptcy proceedings, Newsom hired top law firms and investment analysts earlier this year — at a cost of $6 million — to help him develop a solution. The governor argues that his answer will cost ratepayers less than inaction. The bill requires utilities to pay claims for 2017 and 2018 wildfires without raising rates for their customers in order to access the fund.

Doing nothing would be “a catastrophic consequence to ratepayers, and I think most objective people that have looked at this would say that’s the option that will most impact customers,” Newsom said last week. “None of this is easy. I took the oath of office with this predicament, and sort of inherited a challenge here. I’m not trying to defer responsibility. Quite the contrary, I’ve owned this.”

Newsom’s proposal offers two different options to shore up the industry’s finances and avert another utility bankruptcy.

One model offers investor-owned utilities a $10.5-billion line of credit through an extension of an existing fee on electricity bills. A power company could use the money to pay costs that exceed its insurance coverage for wildfire damages, and it would be responsible to repay the loans.

A second option would establish a first-of-its-kind annual utility safety certification process before the onset of wildfire season. In order to qualify, companies would have to tie executive compensation to safety performance, create a safety committee on its board of directors and be implementing their wildfire mitigation plans.

A company that earned a safety certification before wildfire season would be allowed to dip into a wildfire fund, supported from the $10.5 billion from ratepayers and at least another $10.5 billion from the utilities.

The wildfire fund would act as a second insurance policy for the utilities. The companies would only have to pay it back, up to a cap, if they behaved unreasonably to cause a fire. The safety certification would also shift the burden of proof away from a utility, requiring outside groups to intervene in regulatory proceedings and raise serious doubt that the electrical corporation operated its system reasonably before a wildfire. Critics have said the shift would make it harder to prove that a utility is at fault.

Consumer advocates, including The Utility Reform Network, or TURN, are concerned that powerful utilities will use their political muscle to pass legislation in their favor. Edison and SDG&E formed a lobbying coalition with electrical workers and other business and community groups, called Action for Wildfire Resiliency, and have turned to Twitter to pressure individual lawmakers to support the governor’s bill.

“Consumers are always concerned when we see Wall Street lobbying hard at our Capitol because we know that they are lobbying for their own interests and not ours,” TURN spokeswoman Mindy Spatt said. “Their interests are in the utility being profitable. Our interest is in the utility being safe and affordable.”

Michael Aguirre, the former city attorney of San Diego who now represents customers in cases against the utilities, called the proposal “a funding mechanism to do more wildfires because they’ve given up on stopping them.” If the bill is signed into law, Aguirre said he would sue the state in federal court for violating the Takings Clause in the U.S. Constitution.

“The Takings Clause says you can’t take someone’s property without due process of law and making me prove that you don’t have a right to my money is not due process,” Aguirre said about the money ratepayers will be forced to contribute to the wildfire fund.

Wood said he supports Newsom’s attempts to keep the power companies afloat. He also believes the state needs to spend more money to harden homes in fire-prone areas and educate residents about ways to manage their property to reduce the likelihood of burns — funding which was omitted from the budget signed by Newsom last month, a spending plan that dedicated nearly $1 billion to emergency response, wildfire recovery and prevention projects such as forest thinning.

“That’s historic investment into emergency management and wildfire prevention,” Newsom said last week. “But is there a lot more to do? Absolutely, and we’re committed to doing that over the course of the next couple of years.”

The California Forestry Assn., a collection of forest owners, mills and others with ties to the industry, agrees with Wood and the other lawmakers. Rich Gordon, president of the association, said there’s not enough money to treat all of California’s forest lands, which cover one-third of the state. But Newsom should dedicate more funding to create fuel breaks around vulnerable communities and defensible space near homes, he said.

“The bill, as currently crafted, protects utilities and provides them with an opportunity to stay somewhat solvent, but it doesn’t provide any protection for the folks who are also going to be contributing through the continuation of a fee toward that fund,” Gordon said.

It’s unclear if the governor has enough votes to pass the bill. His top advisors met with Republicans in the Legislature, suggesting they don’t expect to earn the support needed solely from his fellow Democrats.

Democrats in the Senate successfully negotiated for legislative amendments last week that created stronger rules for the safety certification process that ties executive pay to safety performance. The amendments would also allow for on-the-ground safety audits.

Wood, who represents part of Sonoma County devastated by fire in 2017, wouldn’t say if he plans to support or oppose the legislation.

“I don’t want to hold something hostage, but I do want people to know that I’m serious,” Wood said. “I’m not going away. These are valid concerns.”

Assembly Speaker Anthony Rendon (D-Lakewood) said he’s held discussions and meetings about the legislation for several days.

“We take it seriously,” Rendon said. “We certainly understand that something needs to be done quickly. At the same time, we’re not going to rush it at the sake of good policy.”

Others say they are concerned about the lack of transparency and time for public input. The bill was amended late Friday while many Californians were taking a long holiday weekend.

“This is not the way to do business,” Sen. John Moorlach (R-Costa Mesa) said. “There’s an urgency, but it isn’t something that is such a high crisis right now that it needs to be done within a week before we go on summer break. It needs to be looked at with a lot of good, smart people around the state before it’s voted on.”

Newsom said last week that the ratings agencies may give the Legislature a few extra days to pass the bill if lawmakers make substantial progress this week. If the Legislature shows it is “moving with sincerity toward coming up with some resolution,” he said, it could also make it less likely that utilities would file for bankruptcy in the event of a downgrade.