California lawmakers could change law to help utilities offset wildfire risk and save them billions of dollars

Key Points
  • California lawmakers are looking at legislation that would provide wildfire liability relief for utilities.
  • PG&E is one of the utilities pushing for liability reforms, and one of its employees also has a father in the state legislature who introduced a measure some critics have called a "bailout" for the company.
  • Cal Fire recently found PG&E at fault for more than a dozen of last October's wildfires in Northern California, including some with fatalities.
  • Fitch Ratings estimates PG&E could face upwards of $15 billion in financial exposure from last year's wildfires.

California has a history of power lines or faulty equipment sometimes sparking wildfires, and a state fire agency recently pinned the blame on PG&E for at least 16 of last year's wildfires in Northern California, including some with fatalities.

PG&E is pushing to reform California laws that allow utilities to face significant liability in wildfire disasters. The state's largest utility appears to have some support from Gov. Jerry Brown, who in March suggested that lawmakers should "update liability rules and regulations for utility services," citing extreme weather and climate change.

A newly formed joint conference committee on wildfire issues is scheduled to meet Wednesday and state lawmakers will be looking at issues such as utility liability and accountability along with emergency preparedness and prevention. The panel will hear testimony from utilities, Cal Fire, the California Public Utilities Commission and wildfire experts.

"This is the hottest issue in Sacramento now," said Patrick McCallum, an education lobbyist and co-chair of “Up from the Ashes,” a coalition of fire victims, businesses, cities and counties. McCallum and his wife narrowly escaped from their burning home in the so-called Tubbs fire in Santa Rosa. Nine months later, McCallum is battling it out with his insurance companies as he recovers.

McCallum plans to testify during the public comment period at Wednesday's meeting.

California suffered one of its most destructive and deadly wildfire seasons ever last year with October's firestorms in the North Bay region and December's record-setting Thomas fire in Southern California. So far this year, the state is already trending above 2017 in terms of acreage losses and number of fires burned, according to Cal Fire.

Wildfire prevention

"We've had some huge fires and can't change what happened in the past, but we can definitely make a difference going forward," said Assembly Republican leader Brian Dahle, who sits on the wildfire committee and represents rural communities in Northern California where there's a constant risk of wildfire. One of the things that he wants looked at is the fire hazard caused by an abundance of fuel in California forests, such as an estimated 129 million dead trees.

The lawmaker also believes the state should consider a better system to measure infrastructure maintenance and how well utilities clear brush and trees from power lines to prevent fires. Moreover, he suggests a review of policies for how to deal with high-wind events such as turning power off to prevent power lines from sparking wildfires.

Another important issue that Dahle wants addressed by the joint committee is "security in the utilities being able to stay in business."

Earlier this month, the city of Ventura sued Edison International's Southern California Edison unit, claiming the utility's negligence is to blame for the Thomas fire — a wildfire that burned nearly 282,000 acres or about 440 square miles. The cause of the blaze remains under investigation. A utility spokesperson said the utility "can't comment due to pending litigation."

Inverse condemnation

Utilities in California face liability under what's known as inverse condemnation as well as for negligence claims for wildfire and other damaging incidents caused by such things as power lines or other utility equipment. There are state regulations requiring strict vegetation management practices by utilities, and they include standards for keeping vegetation clear of power lines.

"California is one of the only states in the country where the courts have applied inverse condemnation liability to events caused by utility equipment," PG&E CEO and President Geisha Williams told investors during a conference call in November following the devastating Northern California wildfires.

According to the CEO, "We don't believe that inverse condemnation is an appropriate doctrine, nor do we think it is appropriately applied to regulated utilities. We would challenge its application, if that were to be the case in these events."

"It's kind of classic corporate America," said Gerald Singleton, of the Singleton Law Firm based in San Diego County's Solana Beach. "They want all the benefits, but then they don't want the responsibility under inverse condemnation that goes along with it."

The benefits of owning the public utility include what Singleton called a "monopoly" business as well as "the guaranteed rate of return on their capital investment, which is anywhere from 8 to 10 percent."

Singleton, who represents about 1,500 victims in last year's North Bay wildfires and about 700 individuals in the Thomas fire disaster, believes the tide has turned against the legislature making reforms for inverse condemnation.

"When we initially started hearing about this about six months ago, a lot of lawmakers were very sympathetic to what PG&E had to say," he said. "As you talk more to the lawmakers, and you take them through all of the very detailed issues that are involved, there seems to be a lot less appetite to give them a 'get out of jail free' card."

To be clear, even if the utilities do succeed in getting immunity against inverse condemnation claims, they would still have responsibility under negligence suits.

Utilities in the state have more than 10 different lobbying firms and their in-house lobbyists pushing for liability reforms or other changes. There's also dozens of special interest groups involved in the wildfire issue, from ratepayers, trial lawyers, insurers and alternative energy companies to unions and various business and local government groups.

'Bailout' plan for PG&E

There are several proposals in the state legislature that deal with reforming rules and regulations involving wildfires or preparing for the next disaster.

There's also one that some critics have called a "bailout" for PG&E — Assembly Bill 33, which was introduced by Assemblyman Bill Quirk, D-Hayward, whose son works for PG&E. The measure would allow state-authorized "recovery bonds" to be issued that "securitize" the costs from the 2017 Northern California wildfire claims, and it would be backed by charges on ratepayer bills.

"PG&E is doing everything they can to get a ratepayer bailout," said Mark Toney, executive director of the Utility Reform Network, a San Francisco-based consumer group. "And they're doing it through AB 33, which is just blatantly written for them only for the 2017 fires."

PG&E confirmed that Quirk's son, Ian, is an employee of the San Francisco-based company. It was first reported by the San Francisco Chronicle newspaper.

Quirk responded to a request for comment by pointing out he's been "very vocal about my concerns on what the impact of 2017 wildfires will have on ratepayers and fire victims. My decision to author AB 33 has nothing to do with my son being employed by PG&E. It has everything to do with my concern about fire victim compensation and ratepayer protection."

"This bill isn’t about one individual," said PG&E spokesperson Lynsey Paulo. "It’s about making wildfire victims whole in the wake of the devastating fires last year and reducing impacts to our customers’ bills, while protecting customers from any potential utility negligence. The system is broken and we all need to work together on solutions to address the impacts of extreme weather on our state."

New normal for California

Paulo said climate change is leaving California "very, very vulnerable. This is a huge problem facing everyone in California and this problem is not going away. In fact, it's only getting worse. That's why PG&E is advocating for comprehensive reform."

Fitch Ratings estimated PG&E could face upwards of $15 billion in financial exposure from October's so-called wine country or North Bay wildfires given the state liability laws and scale of the disaster, which destroyed or damaged about 10,000 homes and resulted in 44 fatalities. The fires were in Mendocino, Butte, Humboldt, Sonoma, Lake and Napa counties.

In June, Cal Fire said its investigators determined that a dozen wildfires in six counties, including the Nuns, Redwood and Atlas fires, were caused by PG&E's "electric power and distribution lines, conductors and the failure of power poles." It followed the state agency's finding in May that four other wildfires in last year's so-called October Fire Siege were due to "trees coming into contact with power lines." 

That said, Cal Fire continues to investigate the cause of October's Tubbs fire in the wine country. The Tubbs fire was blamed for 22 deaths and the destruction of more than 5,600 structures, including entire neighborhoods in the Santa Rosa area. In all, there were more than 100 fires during the October Fire Siege in Northern California. 

"We haven't seen the Cal Fire reports as of yet," said PG&E's Paulo. "But we look forward to the opportunity to review them. However, based on the information that we know right now, not having reviewed the reports, we do believe that our overall programs met the state's high standard."