By J.D. Morris and Alexei Koseff, THE SAN FRANCISCO CHRONICLE

April 12, 2019

https://www.sfchronicle.com/business/article/Wildfires-climate-change-a…

Gov. Gavin Newsom on Friday challenged the Legislature to revise state laws on utilities’ wildfire liabilities, presenting lawmakers with a series of potentially controversial strategies to shield electric companies from growing costs fueled by climate change.

The governor did not take a position on the most politically perilous options his “strike force” of state government officials laid out in a widely anticipated report about climate change, wildfires and utilities.

Instead, Newsom called on lawmakers to consider the policy proposals his team unveiled and “get something big done” in the next three months.

One option on the table is changing the strict liability doctrine that holds utilities responsible for wildfires involving their equipment — a goal Pacific Gas and Electric Co. has sought from the Legislature before. Newsom’s strike force suggested other options to address wildfire liabilities, along with a call to reform the California Public Utilities Commission, among other ideas.

The stakes couldn’t be higher, Newsom told reporters at a news conference near Sacramento.

“If nothing else, the purpose of this report is to raise the seriousness of this moment,” he said. “We have to get people’s attention on this. Everything is impacted when it comes to the issue of keeping the lights on and addressing the new normal, or abnormal as it is, of climate change in this state.”

Newsom formed the group in response to the recent wildfire-driven bankruptcy of PG&E and the fact that Southern California’s two major electric utilities have had their credit ratings downgraded, raising the possibility they might follow in PG&E’s footsteps.

The report had some harsh words for PG&E, stressing that the state needs to keep a close eye on the company’s bankruptcy case and intervene when necessary.

The governor was critical of PG&E as well.

“I’m not here to beat them up, but the state has suffered because of their neglect and their misdirection,” Newsom said at the news conference. “Lives have been lost.”

PG&E spokesman James Noonan said in an email that the company appreciates “the important and timely work” of Newsom’s strike force. PG&E shares Newsom’s concern about wildfire victims, he said, and remains “focused on supporting them through the recovery and rebuilding process.”

Noonan said PG&E is “embracing the calls for change” and looks forward to working more with state leaders on the “complex issue” of wildfire risk.

Early response to the report from lawmakers was positive, with several key leaders committing to negotiating a deal on liability.

Assemblyman Chris Holden, who chairs his chamber’s Utilities and Energy Committee, said in a statement that “all stakeholders will have to sideline their agendas and step up as Californians to fix this problem.”

“I’m ready to roll up my sleeves and do the hard work necessary,” Holden said. “We need stability in our utilities to keep the lights on.”

Wall Street also reacted favorably: Shares of the utility’s parent company, PG&E Corp., which is also in Bankruptcy Court, rose 21% to close at $23 Friday.

Consumer Watchdog praised Newsom’s efforts to tackle fire prevention and emergency preparedness but said his proposal “in legislative hands, threatens to take rights and dollars from wildfire victims, ratepayers and taxpayers without forcing PG&E to make tangible concessions.”

Patrick McCallum, who lost his home in the 2017 Wine Country fires and co-chairs a group that advocates for fire victims, said in a statement that PG&E should be held “responsible for the damage it caused.”

“We’re looking forward to working with the governor and legislators to create a plan that protects victims and ratepayers, meets California’s energy needs, and provides strict oversight to ensure the utilities operate safely and responsibly,” McCallum said.

In addition to members of Newsom’s staff, a variety of state agencies were involved in crafting the report, including the utilities commission, the Governor’s Office of Emergency Services and the California Department of Forestry and Fire Protection.

State officials provided numerous recommendations, but the authors said the “most vexing public policy challenge” they grappled with was “the equitable distribution of wildfire liability.”

They outlined three concepts for the state to consider — one of which would involve a major shift in the legal doctrine that holds California utilities responsible for wildfires they cause.

Under the doctrine, known as inverse condemnation, utilities can be liable for wildfires caused by their equipment even if they were not negligent. The report said the state should evaluate modifying that doctrine to a standard based more on fault in order to “balance the need for public improvements with private harm to individuals.”

But changing inverse condemnation isn’t the only way the state can change the wildfire liability equation, the report said.

Another possibility is creating a catastrophic wildfire fund that would include “pooled capital” from the major investor-owned electric companies, including PG&E.

The fund would provide utilities with a “source of immediate funding for the claims asserted against them for catastrophic wildfire damages” and ensure “prompt payment of those claims,” the report said. It would be backed in part by a “substantial contribution” from utility shareholders, according to the report.

A third financial option laid out in the report is a “liquidity-only fund” that would provide utilities a readily available source of financing to pay out wildfire claims while regulators determine whether to allow them to recover costs from ratepayers.

The report also recommended strengthening the California Public Utilities Commission, which regulates the state’s investor-owned utilities.

Regulators should have more resources to inspect, audit and enforce safety standards at the companies they oversee, the report said. The document also calls on the state to set “clear guidelines” for when the commission can pass the costs of wildfire damage claims to utility customers.

And the five utility commissioners should delegate more of their decisions to staff so they and the agency’s administrative law judges can focus on the “core questions” of setting rates and “improving enforcement,” the report said.

Terrie Prosper, a spokeswoman for the commission, said in an email that Newsom “has identified specific recommendations for a safer and more resilient California,” and that the commission will move forward with those recommendations.

An entire section of the report focuses on PG&E, and it includes some pointed comments.

PG&E equipment is suspected of starting last year’s Camp Fire, the deadliest and most destructive wildfire in state history, and its power lines were found responsible for many of the 2017 Wine Country wildfires. The utility was also convicted of felonies arising from the 2010 San Bruno gas pipeline explosion and is currently on probation because of that case.

“PG&E is a textbook example of what happens when a utility does not invest in safety after numerous deadly reminders to do so over many years,” the report said. “Even today, PG&E is taking advantage of the bankruptcy process to promote the interests of investors over fire victims and other stakeholders.”

The report said California officials need to participate in the company’s Bankruptcy Court proceedings in order to defend the state’s interest and ensure wildfire victims and PG&E employees receive fair treatment.

State leaders should also consider whether the utility’s plan to emerge from bankruptcy has provisions that “could disadvantage existing and future wildfire victims,” the report said.

And even though PG&E could stand to benefit from the wildfire liability proposals, company investors need to play a big role, officials said.

If PG&E gets in the way of “doing the right thing,” Newsom said, “all options are on the table” — including government control of all or parts of the utility.

J.D. Morris and Alexei Koseff are San Francisco Chronicle staff writers. Email: [email protected], [email protected] Twitter: @thejdmorris, @akoseff