California wildfire bill fuels debate: Bailout for PG&E or financially sensible?

PG&E would pay no more for the billions of dollars in damage done by last year’s wildfires than it can afford without harming ratepayers or its ability to deliver services under a bill headed for a final decision Friday night in the state Legislature.

That standard - at the heart of a 62-page wildfire response bill produced at a breakneck pace over the past month - marks the divide between critics who say it’s a bailout for PG&E versus those who warn that beating up on the utility giant will hit almost?everyone’s pocketbook.

Already, state investigators have found the utility’s equipment responsible for starting 16 major wildfires last year. A finding on the most destructive blaze, the Tubbs fire, is still pending.

James Gore, chairman of the Sonoma County Board of Supervisors, said he is among those who consider the bill a “grand compromise” in a high-stakes issue that has both emotional and economic impacts in Sonoma County, where 24 people died and more than 5,300 homes were incinerated in the October wildfires.

“If everybody’s a little bit happy and a little bit pissed off it probably achieved what it should have,” Gore said.

If the market is any indication, PG&E has had a good week so far as details of the bill emerged and the utility’s stock went up by $4, or 10 percent, since Friday.

Noreen Evans, a Santa Rosa attorney who is part of a legal team representing about 2,000 fire survivors suing PG&E, said the bill ratified Tuesday night by a special legislative committee “didn’t do anything for fire victims.”

Fire victims, as PG&E ratepayers, “will be paying for their own loss,” said Evans, a former state senator and Santa Rosa city councilwoman. She said the bill includes “no requirement that PG&E compensate fire victims.”

Patrick McCallum, a Sacramento lobbyist whose Fountaingrove home was destroyed in the Tubbs fire, said he “humbly disagrees” with Evans.

McCallum noted that lawmakers rejected a strong push by PG&E and Gov. Jerry Brown for softening a longstanding state policy that holds power companies responsible for wildfire damage caused by their equipment, even when the utility has done nothing wrong.

PG&E spent about $1.7 million on lobbying in California from April to June, and some observers say the utility didn’t get much for its money.

PG&E representatives were not called as witnesses during the committee’s seven public hearings. A spokeswoman for the utility said Tuesday they were still reviewing the final legislative package.

McCallum said the bill “gives us some assurance the utilities will be safer,” and ramps up fire prevention, including a $1 billion expenditure on efforts to reduce fire fuels over the next five years.

His group, Up from the Ashes, which represents displaced residents and trial attorneys, spent more than $560,000 lobbying from April to June.

“The question everyone needs to ask themselves is what happens if we don’t help PG&E,” said Michael Wara, a lawyer and Stanford University scholar focused on climate and energy policy,

“I think the company is in jeopardy,” he said, noting that California utilities are all facing possible credit rating downgrades because of wildfire risk and “none are very far away from being downgraded to junk.”

When credit ratings fall, the cost of borrowing - which utilities use to fund their operations - goes up, Wara said, “and that makes everything more expensive.” Operating costs are routinely passed on to ratepayers, he said.

The bill’s central feature is a stress test to be applied to any utility that seeks to recover costs from a catastrophic wildfire in 2017.

The California Public Utilities Commission is authorized to “determine the maximum amount the corporation can pay without harming ratepayers or materially impacting its ability to provide adequate and safe service,” it says.

For any fire costs deemed reasonable by the commission, PG&E or any other utility may apply for state-sponsored funding, including recovery bonds that would be repaid by ratepayers through charges on their bills.

The average residential customer would pay about $5 a year for every billion dollars in financing over the life of the bond, PG&E said.

PG&E has said it expects to pay $2.5 billion in damages, and possibly much more in connection with the 2017 wildfires. Total damage estimates could hit $10 billion to $15 billion.

The stress test combines provisions that will protect both utilities and ratepayers, supporters said.

“I think that is a good standard,” said Wara, who was the leadoff witness at the first public hearing by the 10-member special committee of lawmakers who crafted the bill. It lays out slightly different requirements for utilities in future wildfires.

“Punishing PG&E is a trade-off,” he said. “We’re tied to them; they provide an essential service.”

Supervisor Gore, who was part of a delegation representing county governments that recently met with top aides to Brown, said the governor was “significantly concerned” over utility solvency.

“The governor doesn’t want to leave office and have an energy crisis,” Gore said. “He doesn’t want the system to blow up.”

Friday is the deadline for the approval of bills that will be the last batch Brown signs before leaving office at the end of this year.

Critics say the stress test effectively caps the fire costs that utilities can pay, but puts no limit on costs that can be passed on to ratepayers.

The Utility Reform Network, a San Francisco-?based nonprofit watchdog, said PG&E was “showered with gifts including guarantees of customer revenue and limits on corporate liability” in the bill. “Consumers were left holding the bag,” the organization said in a press release.

Moreover, PG&E and other utilities “get a blank check for anything they attribute to wildfire safety, despite PG&E’s previous failures,” said Mark Toney, executive director of the group known as TURN.

Graham Knaus, executive director of the California State Association of Counties, said in a press release the bill “makes significant progress toward minimizing the risk of future wildfires in California.”

He said it “provides a solution that protects victims, enhances the safety of our communities and ensures stability for utilities and ratepayers.”

Brad Sherwood, a Larkfield resident who last year lost his home in the Tubbs fire, said utility shareholders, not ratepayers or fire survivors, “should bear the financial burden from the 2017 wildfires.”

Utilities should also invest more heavily in wildfire prevention programs, such as vegetation management, to help secure their own stability, he said in an email.

Meanwhile, lobbyists for and against the bill will continue their efforts up until Friday night’s votes in the Assembly and Senate.

McCallum said his group was targeting 30 to 40 Assembly members and is “fairly confident” of a majority vote.

The Senate appears a slightly safer bet for approval, he said.

Some Assembly Democrats are wary of the bill being viewed as a bailout for PG&E, McCallum said.

“All the lobbying is going on behind the scenes,” said Assemblyman Jim Wood, D-Santa Rosa, a member of the committee that drafted SB 901.

Wood said he was busy answering questions from colleagues, who asked about the bill’s impact on ratepayers and on what would happen “if we just let the utility go bankrupt.”

“I think people understand the gravity of the situation,” Wood said. “I think the risk of doing nothing is far worse than what we’re proposing to do here.”

You can reach Staff Writer Guy Kovner at 707-521-5457 or guy.kovner@pressdemocrat.com. On Twitter? @guykovner.