George Boardman: California Legislature gives PG&E protection from its own bad behavior
September 9, 2018
How would you feel if authorities gave somebody with a long rap sheet legal relief from a lot of the mischief it helped cause? No, I'm not talking about our local criminal justice system.
I'm referring to the closing days of the most recent session of the California Legislature, which decided at the start of the Labor Day weekend to let Pacific Gas and Electric Co. off-load some of its potential liability for ruinous wildland fires onto its customers.
It has been estimated by Wall Street's number crunchers that PG&E may be liable for up to $15 billion for damage done by wildfires last year in Napa, Sonoma and Solano counties. Nine people were killed and more than 15,000 structures were destroyed in the fires.
Cal Fire has concluded that PG&E was responsible for 12 of those fires, and referred its findings on eight of the fires to county district attorneys "due to alleged violations of state law." That's a lot of risk for a company that carries less than $1 billion in fire insurance.
There are several problems with the bill, which was rushed into print just three days before the final vote.
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Under California's existing strict liability and inverse condemnation laws, utility companies are typically responsible for providing compensation for property damage if their equipment causes a fire, regardless of whether any negligence is proven. If utilities do nothing wrong, the state Public Utilities Commission allows customer rates to rise to offset loses for property damage.
PG&E and the state's other electrical utilities rolled out the big guns earlier this year to get those laws repealed or modified, arguing the liability they face in our increasingly fire-prone state will eventually force them into bankruptcy.
PG&E spent heavily on lobbying and publicity efforts in the last year, and helped bankroll an outfit called the BRITE Coalition, which portrayed itself as a grassroots organization pushing to reform the state's liability rules concerning fires triggered by utility equipment. You probably saw the TV and newspaper ads of this Astroturf organization.
That effort died in the state Legislature Aug. 18, just 13 days before the end of the session. But that doesn't mean there wasn't a Plan B teed up and ready to go. That was SB 901, which changed the rules governing the liability of utility companies when their electrical equipment causes wildfires.
The bill was described by its sponsor, state Sen. Bill Dodd (D-Napa), as a "comprehensive approach" that protects both wildfire victims and utility ratepayers. "Let me be very clear: If we do not provide a debt stabilizing mechanism for a utility — in this case, PG&E — the corporation will certainly face higher borrowing costs, which will translate into higher rates. Or this company may very well face bankruptcy."
The final bill crafted by a Senate-Assembly conference committee included several provisions that are drawing criticism:
For the 2017 fires, the PUC will conduct a "stress test" to determine the maximum amount of damages a utility could sustain without harming ratepayers or going bankrupt. That amount would serve as a "cap" on their fiscal liability.
Costs passed along to ratepayers for the 2017 fires could be financed — spread out over several years under a process called "securitization" — to reduce the sticker shock on ratepayers' monthly utility bills. In reality, that means bonds that will be paid off by you and me.
For fires caused by utility equipment starting in 2019, the PUC will decide whether a utility acted responsibly. If so, the PUC could pass the costs onto ratepayers.
There are several problems with the bill, which was rushed into print just three days before the final vote. A lot of discretion in determining who's liable and for how much rests with the PUC, which has been known to bow to political pressure. Determining how much liability a utility can bear should keep plenty of accountants and auditors working overtime.
The bill is silent on the rules governing fires that started this year. Those fires are currently subject to the current law the utilities fought so hard to change. Watch for what is known in Sacramento as "clean-up" legislation when the legislature is back in session.
"Legislators will give a cap to rich PG&E shareholders on how much to pay for their negligence but no cap for ratepayers," said a spokeswoman for the Ratepayer Protection Network, which represents among others the agriculture industry. "We cannot give a blank check to PG&E to bail them out on the backs of ratepayers."
"Shouldn't we focus on requiring PG&E to improve the safety of its electric system that they've been neglecting all these years? Instead, this bill rewards their bad behavior," said Sen. Jerry Hill (D, San Mateo). "This bill allows PG&E to pass their costs onto ratepayers even if they were negligible."
Hill is particularly sensitive to PG&E's safety record. His district includes San Bruno, where a PG&E gas line exploded in 2010, killing eight and destroying 38 houses. The utility ended up settling several lawsuits, paying a state fine of $1.6 billion, and being convicted in federal court of violating pipeline safety regulations and then "misleading" investigators.
Still, the legislation passed with bipartisan support on the night before the start of a three-day weekend, and Gov. Jerry Brown is expected to sign it. Assemblyman Brian Dahle (R, Bieber) helped craft the bill on the conference committee that signed off on the final measure.
"To do nothing would be on us," Dahle said. "We've done something that's not perfect. But I think it's a step in the right direction." Sen. Ted Gaines apparently didn't buy that argument, voting no on the measure. "It's not a bold bill, it's not a crisis bill," he said. "If the new normal is piles of ash and funerals, then why isn't this bill massive and ground-breaking."
A bill like this requires plenty of political cover, so the measure also sets aside $200 million annually through 2023-24 for forest health, fire prevention and reduction of "fuel," or trees and vegetation, but future legislatures will have to approve the expenditure every year.
The bill also includes a provision that's near and dear to Dahle's heart: Authorization for utilities to extend contracts with biomass plants. We'll see if that's enough to satisfy Dahle's constituents when the utility bill for the rest of the measure comes due.
CLARIFICATION: Last week's column stated that the median income of Amazon employees is $28,446. That figure represents all employees worldwide and includes part-time workers. The median income of full-time American employees is $34,123, according to the company.
George Boardman lives at Lake of the Pines. His column is published Mondays by The Union. Write to him at firstname.lastname@example.org.