Until 2019, if a California utility violated fire safety rules and thereby caused a catastrophic wildfire, the utility could not make its customers pay for its uninsured wildfire costs.
In 2017, San Diego Gas & Electric was found by two administrative law judges to have violated numerous fire safety rules when its operations caused San Diego’s catastrophic wildfires in 2007. SDG&E was therefore not allowed to pass onto its customers $379 million in uninsured wildfire costs, about 15% of the $2.4 billion total in damages caused.
In other words, $2 billion of SDG&E’s 2007 wildfire costs were covered by insurance (purchased with its customers funds); the rest fell on stock owners.
There is more to catastrophic wildfires than money.
Gov. Newsom, in signing AB 1054 into law, substantially weakened California’s fire safety rules.
Wildfires like those SDG&E caused in 2007, Southern California Edison caused in 2017 and PG&E caused in 2017 and 2018 contribute to global warming. Inside Climate News explains how:
Wildfires emit carbon dioxide and other greenhouse gases that will continue to warm the planet well into the future. They damage forests that would otherwise remove CO2 from the air. And they inject soot and other aerosols into the atmosphere, with complex effects on warming and cooling.
Gov. Gavin Newsom understands that “climate change is an existential threat.” That “fundamental belief,” according to the governor, has inspired his work as an elected official. You would think that the governor would insist on strict enforcement of fire safety rules because it reduces wildfires and perforce global warming.
However, the opposite is true: Gov. Newsom, in signing Assembly Bill 1054 (AB 1054) into law, substantially weakened California’s fire safety rules. The governor has adopted the loose safety standards the Federal Energy Regulatory Commission uses.
The governor weakened the safety rules in the face of a Wall Street Journal report documenting that PG&E knowingly failed to maintain its power lines in a safe condition for decades.
The California Department of Forestry and Fire found those unsafe power lines caused the 2017 northern California wildfires and the Camp Fire. The California Fire Department also found Southern California Edison’s equipment ignited the 2017 Thomas fire in Ventura County. Those fires not only increased global warning, they have caused billions in losses and resulted in more than 100 deaths.
Under Newsom’s new law, the utilities no longer must prove they obeyed fire safety rules before making customers pay the uninsured wildfire costs.
The utilities now claim their operations are so risky, they cannot buy insurance. The utilities even claim they are considering bankruptcy. Indeed, PG&E has already filed for bankruptcy.
When insurance companies lose confidence in managers of a private corporation, when those corporations try to escape their problems in bankruptcy court, it’s time for new management.
Under Newsom’s new law, the utilities no longer must prove they obeyed fire safety rules before making customers pay the uninsured wildfire costs. In fact, Newsom’s law makes taxpayers and utility customers pay for all future wildfires.
The Newsom law adopts what the utilities have argued before the U.S. Supreme Court — that they should be able to recover uninsured wildfire costs “without regard” to whether they have prudently maintained their operations.
The Newsom law adopts an automatic payment plan for future wildfires, funded by utility customers. The California Public Utilities Commission will make utility customers pay for future wildfires by funding bonds the state will issue through the California Department of Water Resources (DWR). If the utilities continue to cause wildfires at the current pace, DWR will need more than $225 billion from ratepayers over the next 15 years. Meanwhile, utility customers are given no meaningful opportunity to be heard about the validity of the surcharge.
These numbers may explain why the California Department of Finance refused to issue a fiscal impact report on the Newsom law before it was passed. Legislators did not even know how much money Newsom’s law would cost before adopting it.
The governor and legislators claim they acted to protect fire victims and ratepayers. Their motive may be less pure. The utilities causing the wildfires provide an important part of campaign funding for the legislators and Governor.
In transferring billions of dollars of customer funds to the utilities, the governor and legislators made sure their dedicated contributors will be able and willing to finance the lawmaker’s campaigns far into the future.
Editor’s Note: Michael Aguirre and Maria Severson are partners in the Aguirre & Severson law firm. They have represented utility customers in wildfire cost recovery cases before the CPUC and the U.S. Supreme Court.