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Wildfire Legislation On Track or Train Wreck?

Mon, 07/08/2019 - 18:35
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The Good, The Bad and The Ugly


Can Sacramento help wildfire victims get paid without bailing out the investor-owned utilities that claim they cannot pay for all of the wildfires they start?

The debate came to a head today in the California Senate Energy and Utilities Committee, where a parade of skeptics gave tenuous support to a proposal by the Newsom Administration. It tries to make sure shareholders pay for fires utilities start and ratepayers pay for fires where the utilities aren't at fault.

The amendments to the 90 page legislation came out late Friday and all parties scrambled to figure out their implications over the holiday weekend by the noon hearing. 

Newsom wants a vote by Friday, which means no amendments to very complex legislation where details have a lot of devils.

The locomotive is on the right track, but it's heading too fast with too much loaded onto it not to acknowledge the real possibility of derailment.

What could go right? 

In the best case scenario, which Newsom staffers paint, and all parties want to believe in, the ratepayers and shareholders each put up $10.5 billion and the problem is solved. There's a bonded insurance fund that traps utilities' assets and limits ratepayers' liabilities. 

Wall Street will get rich off the bonds, but ratepayers won't be stuck with much more than the extra couple of dollars per month they have been paying for Enron-era bonds since 2000.  Wildfire victims will get paid for their losses in the past and the future by some clever leveraging of the utilities into the fund. Meanwhile, the utilities will make themselves safer, so that they don't start fires due to bad management within a decade.

Making sure innocent wildfire victims get paid is a big deal, and worth a lot of the risks in the plan. Especially in light of the cruel alternatives floated by Governor Brown and the utilities in the past to virtually eliminate utility liability.

What could go wrong?

The details give the Public Utilities Commission power to bond endlessly, without the legislature's approval, should ratepayers have to bear the burden of "recoverable" costs for fires.  The problem is the legislature is weakening the standard by which ratepayers can hold utilities accountable for not being prudent managers and starting fires. So ratepayers will pay in more instances than the past.

It's all part of the deal making, but the new standard for fault puts the finger of the scale of justice on the utilities' side in marginal cases. Ratepayers will have to pay. And there will be opportunities to charge them billions more through bonds without legislative veto.

For example, the fund will not cover 2017 and 2018 fires, but the new weakened standard for fault will apply to whether shareholders or ratepayers pay in those cases under the legislation.

Also, if the wildfire fund ever runs out, the PUC will be able to make ratepayers pay through unlimited bonding authority.

The Commission has been morally bankrupt for years, and hijacked by the utilities. There's no reason to trust it with that type of power.

Ratepayers could be on the hook for many billions of dollars more than the legislature was led to believe today under the rule changes in the bill.

In addition, there's lots of details in the complex bill that we just don't know. And the Newsom Administration is not allowing any amendments because they want this bill done this week.

So good ideas to clean up the proposal will have to be dealt with in side bills or later.

There are good smart people on the Administration's team. They are also being advised by Guggeneheim consultants and O'Melvney & Meyers. Both are closely connected to the big investor-owned utilities.

The CEO of SEMPRA, parent of San Diego Gas & Electric, admitted as much in his first quarter earnings call in May with investors. He said:

The governor's got the right folks on it. Guggenheim is our independent financial advisor. They've been meeting with all the credit rating agencies. In fact, some of the agency has actually been out to Sacramento.

A plan with these finger prints is likely to have a lot more traps for consumers than we or the well-meaning people on Governor Newsom's team see.

Based on today's hearing, my colleague Adam Scow put together this "Good, Bad and Ugly" report on this locomotive chugging down the track.

Casey Jones, you better watch your speed. 

AB 1054 – PG&E Wildfire Fund: The Good, the Bad, and the Ugly

Tensions are running high in Sacramento as the State Legislature and Governor attempt to pass AB 1054 to create a wildfire relief fund. The intention of the fund is to strike a balance between PG&E ratepayers and shareholders on paying the costs for wildfire damage.


The Good


AB 1054’s creation of a $20 billion wildfire fund seeks to create a reasonable liability share between ratepayers and shareholders. The fund creates a 50/50 split with each group responsible for $10 billion with the first chunk being born by shareholders.


The Bad


AB 1054 was amended on Friday to make it more difficult for public agencies to replace PG&E with a public utility. The amendments broaden the PUC's authority and impose PUC approval and review of any public entity’s acquisition of an electrical or gas corporation’s assets whether “voluntary or involuntary change in ownership of assets.”


Empowering a PUC that has historically been extremely favorable to PG&E and the private utilities would hamper the ability of a local government entity to acquire assets of a utility through eminent domain, public vote or other power now available to a local government entity. 


“This amendment broadens the PUC's authority over utility asset transfers to grant the PUC new approval authority over all public entities' acquisitions”, according to former PUC President Loretta Lynch.  “No reason exists to impose PUC approval on such public entity action in order to create a wildfire victims compensation fund.”


The Ugly


Despite the intention of the equal share, the fate of who pays for the damage caused by the 2017-18 wildfires could still largely fall on ratepayers.


In addition to the wildfire fund, AB 1054 grants new powers to the PUC to approve private revenue bonds that would be paid for by ratepayers.