How to save PG&E and its customers — support AB33
OPINION: Mike Florio, San Francisco Chronicle
The 2017 wildfire season left behind immense and tragic harm throughout California. Latest estimates show insurance claims totaling $12 billion statewide, leaving families and business reeling to recover. Some argue that financial fallout for the disaster belongs wholly to electric utilities, and it appears likely some of it will. Unfortunately, it is not the case that even large companies like PG&E — or any other utility — could foot the bill for all of the wildfire-related costs without causing serious harm to its customers and the rest of the state.
Based on the California Department of Forestry and Fire Prevention’s findings from its investigation into some of last year’s fires, Pacific Gas & Electric Co. improperly maintained trees that contacted power lines and ignited some fires. Should those findings be upheld, PG&E must take responsibility for its role in the disaster.
However, there are broader forces at play. Drought, heat waves and other climate change-related conditions have fundamentally changed the nature of severe natural disasters. We must realize that California is facing a climate “new normal.” A yearlong wildfire season and steadily climbing rates of burned acreage demand innovative, sustainable policy ideas.
Regrettably, California’s outmoded policies and legal interpretations allow for “inverse condemnation,” which holds utilities such as PG&E strictly liable for damages in which their equipment is a substantial cause, even if there is no finding of wrongdoing or negligence. If the state continues to hold utilities to this strict liability standard, it is likely that PG&E will be forced into bankruptcy.
We’ve seen in the past when utilities are driven into bankruptcy by natural disasters, such as what happened to Entergy New Orleans after Hurricane Katrina, it results in severe rate increases, raises the cost of procuring carbon-free electricity, and has ripple effects throughout the economy.
A bankrupt PG&E would face significantly higher costs of making investments to maintain the electric system and purchasing power to deliver to customers. This leads to higher customer bills. Bankruptcy would also directly threaten investments necessary to achieve California’s clean energy goals and would place claims from wildfire victims at the bottom of an immense stack of debts. This would be bad for PG&E customers, bad for our communities, and bad for California’s progress in fighting climate change.
Assembly member Bill Quirk, D-Hayward, has proposed a better way. His legislation, Assembly Bill 33, would use a creative financing mechanism called securitization to finance the costs of the 2017 wildfire damages at the lowest possible interest rate. AB33 does not bail out PG&E!
The bill, which will be heard in Sacramento on Wednesday, specifically provides that regulators will determine which fire costs are borne by PG&E and which, if any, are borne by customers, consistent with existing law. These regulators will still hold PG&E accountable for any bad actions, while also ensuring that 2017 wildfire victims are compensated, minimizing costs to ratepayers, and avoiding PG&E bankruptcy. By providing low-cost financing to spread out the costs over time, AB33 offers a workable solution to the 2017 wildfire damages while ensuring that utilities remain healthy and able to invest in California’s clean energy future.
Our government must continue to consider the necessary role of a healthy utility in sustaining the climate goals and economic prosperity of this state. AB33 applies only to the 2017 fires, yet fires and climate change are ongoing problems. The Legislature should continue to plan for the new normal. But AB33 is a good foundation for a forward-thinking and constructive response to climate change. And it is one that will avoid bankrupting the utilities — and their customers.
Mike Florio is a former commissioner of the California Public Utilities Commission; a former senior attorney for The Utility Reform Network, and former member of the board of governors of the California Independent System Operator.