By Hudson Sangree
SACRAMENTO, Calif. — California Gov. Gavin Newsom’s “strike force” on utilities and wildfires Friday called for the state to limit the liability that utilities face when their equipment sparks destructive blazes, while reforming the Public Utilities Commission and holding Pacific Gas and Electric accountable for its repeated safety failures.
The task force’s 59-page report details a strategy to ensure that the state’s utilities “are securing our grid, hardening their resources, participating in a procurement strategy that can meet our long-term climate goals and … deliver affordable, reliable service to millions and millions of Californians,” the governor said at a press conference at the state Office of Emergency Services’ operations center.
It recommends ways to prevent the type of catastrophic fires that have killed 139 residents, destroyed tens of thousands of structures, and burned 2.8 million acres since 2017. The report says equipment owned by the state’s three large investor-owned utilities, including PG&E, has sparked 2,000 fires in the past four years.
Sections of the report deal with climate change, changing how the PUC oversees safety and holding PG&E accountable. But shielding the state’s IOUs from wildfire liability is the top priority, Newsom said.
“The most vexing public policy challenge addressed in this report is the equitable distribution of wildfire liability,” the report says. To address the issue, it proposes three potential fixes.
One is changing the state’s strict liability standard, which holds utilities liable for wildfires started by their equipment regardless of negligence. The legal doctrine, called “inverse condemnation” and enshrined in the state constitution, is based on the premise that utilities have the power of eminent domain to take private property for rights of way and are therefore strictly liable for damage to that property.
Other states have inverse condemnation on the books, but none uses it as extensively as California. Critics have said the doctrine inordinately punishes utilities and puts them in financial peril. The report recommends moving to a more common fault-based standard, under which plaintiffs would be required to show wrongdoing to recover damages.
The “fair allocation of wildfire damages [is] the core of this report,” Newsom said. He pointed to a chart showing a massive increase in wildfire damages in the past two years — with nearly $20 billion in 2017 and almost $25 billion in 2018.
“Who the heck’s going to pay for that? Everybody wants someone else to pay. … The person behind the curtain is going to pay for that,” the governor said. “I’m of the opinion … [that] we all have a burden and responsibility to assume the costs.”
Newsom said it would be difficult to meet the state’s ambitious green energy goals and have a reliable and affordable electric system if changes aren’t made. He said last year’s SB 901, which gave utilities some relief but left inverse condemnation unchanged, is “not enough.”
The strike force report suggests establishing a catastrophic wildfire fund or a “utility liquidity fund” financed by investors, utilities and ratepayers to pay for damages caused by wildfires. (See Does California Need a Catastrophic Wildfire Fund?)
PG&E said in a statement Friday it welcomed the strike force’s recommendations. The company’s beleaguered stock price jumped from below $19 to almost $23/share Friday after Newsom’s presentation.
Southern California Edison parent Edison International also got a boost, rising from below $62 to more than $67. Sempra Energy, parent of San Diego Gas & Electric, rose from less than $128 to almost $130.
Ratepayer advocacy groups, including The Utility Reform Network, were more circumspect in their assessment of the proposals.
“The goal of protecting consumers by making it clear that investors, taxpayers and other stakeholders must share in the costs of wildfire prevention and damage is one we are in total agreement with,” TURN Executive Director Mark Toney said in a statement. But customers “obviously can’t afford to bail PG&E out of billions in liabilities when it is negligent.”
Reform the PUC
Reforming the PUC was another of the strike force’s major recommendations.
The report recommends expanding the PUC’s safety expertise and improving its ability to review wildfire mitigation plans, conduct inspections and audits, and enforce safety standards.
It urges delegating more authority to the commission’s staff “so that judges and commissioners [can] focus on core questions of ratesetting.” The PUC has been criticized for moving slowly and lacking a sense of urgency in addressing utility safety. PUC President Michael Picker recently told lawmakers the commission is set up to slowly process rate cases, not react quickly to emergencies. (See Lawmakers Grill PUC on PG&E, Fires.)
The effort is “long overdue,” Newsom said.
Picker stood near the governor at Friday’s press conference, in an apparent show of unity, and Newsom lauded his reform efforts.
Newsom said the report’s other recommendations are contingent on changes at the PUC.
“Know that each and every one of these attaches to consideration of reforms at the Public Utilities Commission,” the governor said.
Hold PG&E Accountable
Even as it urged overhauling liability standards, the report says PG&E must account for its poor safety record and past disasters.
PG&E filed for Chapter 11 bankruptcy in January, a few months after its equipment was suspected of starting the Camp Fire, which killed 86 people and leveled the town of Paradise. The company said it was forced to seek bankruptcy protection because of the liability it faced for the Camp Fire and a devastating series of blazes in 2017. (See Bankruptcy Only ‘Viable’ Option for PG&E, Lawyer says.)
“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 says. “Even today, PG&E is taking advantage of the bankruptcy process to promote the interests of investors over fire victims and other stakeholders.”
State fire investigators have determined that PG&E equipment started at least 17 of the 21 major wildfires in Northern California in October 2017. The utility remains on criminal probation for illegal conduct related to the deadly San Bruno gas pipeline explosion in 2010.
The report says the state should monitor and intervene in the utility’s bankruptcy proceedings where necessary to protect California residents and “demand that a reorganized PG&E serve the public interest.” Breaking up the company ought to remain an option, it says.
“After years of mismanagement and safety failures, no options can be taken off the table to reform PG&E, including municipalization of all or a portion of PG&E’s operations; division of PG&E’s service territories into smaller, regional markets; refocusing PG&E’s operations on transmission and distribution; or reorganization of PG&E as a new company structured to meet its obligations to California,” it says.
At the press conference, Newsom said, “I just want folks to know we’re watching. … I expect the investors that are involved at PG&E to participate in the solutions, and I expect that PG&E’s going to get serious [and] no longer misdirect, manipulate [and] mislead the people of this state.
“They haven’t been good actors,” the governor added. “I know this personally. I was mayor of San Francisco, where [PG&E is] headquartered. I’m not here to beat them up, but you know the state has suffered because of their neglect and their misdirection.
“Lives have been lost,” he said.
Calls for Legislative Action
Newsom called on lawmakers to implement the report’s recommendations.
“Let’s get something big done before [the legislative] recess,” which begins July 12, he said. “I’m hopeful [the legislature] can meet this moment and meet the demand to be bold and resolved.”
Investor services have downgraded the credit ratings of PG&E, SCE and Sempra to junk-bond or near-junk-bond status because of wildfire liability worries, Newsom said. The legislature can help alleviate those concerns, he said.
“Let the folks on Wall Street know we’re not screwing around,” he said.
Newsom formed his strike force in February and asked for its members to submit recommendations in 60 days.
It was led by his chief of staff, Ann O’Leary, and included members of O’Melveny, one of the nation’s largest law firms (formerly O’Melveny and Myers), and Guggenheim Partners, a global investment and advisory firm, Newsom said. State fire officials and utility regulators were part of the team, news reports said. A complete list of members was not immediately available.