California Gov. Jerry Brown could sign wildfire bill critics have dubbed as a 'bailout'

Key Points
  • A California bill that would allow investor-owned utilities to pass on wildfires-related costs to ratepayers could be signed as early as this week by Gov. Jerry Brown.
  • The bill has been criticized by some consumer groups who charge it's a "bailout" for California's largest electric utility PG&E.
  • Cal Fire has pinned the blame on PG&E for at least 16 of last year's devastating wildfires in Northern California, including some with fatalities.
Firefighters douse flames as a home burns in the Napa wine region in California on October 9, 2017, as multiple wind-driven fires continue to whip through the region.
Josh Edelson | AFP | Getty Images

A California bill that would allow investor-owned utilities to pass on wildfires-related costs to ratepayers could be signed as early as this week by Gov. Jerry Brown, despite charges by some consumer groups that it's a "bailout" for the state's largest electric utility PG&E.

Senate Bill 901, approved last month by the legislature, would direct the California Public Utilities Commission to conduct a stress test to determine how much utilities can pay for wildfire-related damages. It also would allow PG&E to issue "recovery bonds" that would help it finance costs from last year's devastating fires in the state's North Bay region.

California has a history of power lines or faulty equipment sometimes sparking wildfires. Earlier this year, the state's firefighting agency, Cal Fire, blamed PG&E for at least 16 wildfires in Northern California in October 2017, which included some with fatalities. In July, PG&E announced it took a pretax charge of $2.5 billion in connection with wildfire costs.

"We've sent a letter to the governor asking him to veto the bill, which is a bailout for PG&E and blank check for all three utility companies," said Mindy Spatt, a spokesperson for the Utility Reform Network, a San Francisco-based consumer group. "We believe that PG&E had a hand in negotiating its own bailout, and we know that they've spent millions and millions lobbying for this."

However, proponents of the bill have contended the "protection bonds" would essentially shield ratepayers from having even higher bills from wildfire-related costs. The legislation also requires California utility companies to take new steps to reduce risk of catastrophic fires and streamlines brush thinning in forests to avoid future wildfires.

Brown's office declined to comment on his position on the bill but said he has until Sept. 30 to take final action. The governor has more than 600 bills on his desk from the legislative session, which ended Aug. 31.

Last month, Brown proposed a plan to reduce utility liability for wildfires caused by equipment, but the proposal also included tougher penalties for violating state safety rules and barred utilities from passing on the costs of penalties to ratepayers. SB 901 contains no such penalty increases.

"Senate Bill 901 is a common-sense solution that puts the needs of wildfire victims first, better equips California to prevent and respond to wildfires, protects electric customers and preserves progress toward California's clean energy goals," said Lynsey Paulo, a spokesperson for San Francisco-based PG&E.

"While the legislation addresses many urgent needs, we must continue to work together to ensure ongoing investment in climate resiliency and clean energy and to combat the devastating threat that extreme weather and climate change pose to our state's shared energy future," Paulo said.

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 utility equipment. There are already state regulations requiring strict vegetation management practices by utilities, and they include standards for keeping vegetation clear of power lines.

Fitch Ratings previously estimated PG&E could face upwards of $15 billion in financial exposure from October's 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.

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.

A spokesperson for Cal Fire said Tuesday there is no timetable on when the Tubbs report will be issued.

Besides the North Bay fires, SB 901 also could have implications for December's devastating Thomas fire in Southern California, which contributed to mudslides that swamped the community of Montecito in January. The Thomas fire ranks as the state's second-largest wildfire after the recent Mendocino Complex fire in Northern California, according to Cal Fire.

Electric services company Southern California Edison, a subsidiary of Edison International, is facing more than 40 lawsuits accusing it of negligence in connection with the Thomas blaze. No official cause of the fires has been announced by investigators. CNBC reached out to SCE for comment for this story.

On Monday, SCE filed for approval with the state utility regulator to recover costs in connection with a "grid safety and resiliency program" that it said aims to reduce wildfire risk. The Rosemead-based utility, which expects the improvement program to cost nearly $600 million, needs the approval of the California Public Utilities Commission to pass on costs to its ratepayers.

As part of the "grid hardening" plan, SCE wants to replace "exposed electric wires" with "covered" wires that will feature insulation to protect them against contacting foreign objects. The utility also said it wants to install fire resistant, composite poles as part of the infrastructure upgrade.