California state called for spreading wildfire costs 'broadly' — and PG&E stock jumped 20%

Key Points
  • California Gov. Gavin Newsom releases a wildfire report that slams PG&E for its role in major blazes and suggests the state could push to break up the utility.
  • He also says wildfire costs should be spread more "broadly," beyond utilities and even to include government.
  • Shares of PG&E shoot up 20% in trading Friday after the report is released.
A charred vehicle was left in the middle of Honey Run Road as the Camp Fire continues with zero containment in Paradise, Calif., on Friday, Nov. 9, 2018.
MediaNews Group/The Mercury News via Getty Images | MediaNews Group | Getty Images

LOS ANGELES — California Gov. Gavin Newsom on Friday released a wildfire report that slams PG&E for its role in major blazes and suggests the state could push to break up the utility. The report also suggests wildfire costs should be spread "broadly," and not just to utilities and investors but to insurers and even government.

"After years of mismanagement and safety failures, no options can be taken off the table to reform PG&E, including municipalization of all or a portion of PG&E's operations," said the report prepared by the governor's "strike force" on wildfire and climate change.

Shares of PG&E shot up 20% in trading Friday after the report was released.

PG&E, the state's largest electric utility, filed for bankruptcy protection in late January after getting hit with a flood of lawsuits from devastating wildfires in Northern California in 2017 and 2018, including the catastrophic Camp Fire in Butte County that killed 86 people and destroyed more than 10,000 homes. Also, PG&E was fined $1.6 billion four years ago after the 2010 deadly gas pipeline explosion in San Bruno, a suburb of San Francisco.

"PG&E hasn't been a good actor," Newsom told reporters after release of the report. "If they get in the way of doing the right thing, all options are on the table."

The governor's strike force report also said the state should "demand that a reorganized PG&E serve the public interest," including if it means "refocusing PG&E's operations on transmission and distribution." The San Francisco-based company currently has natural gas and electric operations, serving about 16 million people throughout northern and central California.

"We share the concerns of the governor and lawmakers for those impacted by the wildfires of 2017 and 2018," said PG&E spokesperson Lynsey Paulo in a statement. "They are our customers, our neighbors and our friends, and we remain focused on supporting them through the recovery and rebuilding process."

She added, "We've heard and are embracing the calls for change. Wildfire risk is a complex issue and we look forward to continuing to work with our regulators, policymakers and the Commission on Catastrophic Wildfire Cost and Recovery to examine a range of solutions that will help make the energy system safer and safeguard California's clean energy future."

In February, PG&E said in a regulatory filing that it believes it's "probable" that the company's equipment will be found to be the source of the deadly Camp Fire. Problems with PG&E equipment near where the Camp Fire is believed to have started were also reported by the utility in November.

Cal Fire previously found PG&E at fault for 17 wine country fires in 2017, including the Redwood Fire, which resulted in nine fatalities. The state agency also found PG&E responsible for the Cascade Fire that killed four in Yuba County in October 2017.

"It is imperative that utilities not put profits ahead of safety and service," said the report. "That is why the state has and will continue to advocate in PG&E's bankruptcy proceeding for fair treatment of fire victims, for California consumers, and for California policies and values."

The report, entitled "Wildfires and Climate Change: California's Energy Future," also suggests the state overhaul legal and regulatory policies because of the risk of more destructive wildfires and the potential impacts to fire victims, communities and the utility industry. One of the changes it proposes is spreading financial risk of wildfires.

"Any real plan must allocate costs resulting from wildfires in a manner that shares the burden broadly among stakeholders, including utilities (ratepayers and investors), insurance companies, local governments, and attorneys," said the report.

For example, the report suggested the state look at creating "a catastrophic wildfire fund coupled with a revised cost recovery standard to spread the cost of catastrophic wildfires more broadly among stakeholders." It also said the state should consider "a liquidity-only fund that would provide liquidity for utilities to pay wildfire damage claims."

In California, utilities 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. However, the report said California should consider modifying the current strict liability standard under inverse condemnation to one that is "based on fault to balance the need for public improvements with private harm to individuals."

Besides PG&E, the change in liability laws could have far reaching financial and legal implications down the road for other major investor-owned utilities in California, including Edison International and Sempra Energy. Edison stock jumped 7% on Friday and Sempra rose more than 1%.

According to the governor's report, more than 25 million acres of California are considered wildlands and "very high or extreme fire threat." It also said one out of every four Californians — about 11 million people — live in areas classified as "high-risk areas."

At the same time, communities in fire-risk areas should be made "more resilient by considering updating codes that govern defensible space, encouraging cost-effective hardening of homes, strengthening evacuation, encouraging other emergency planning, and improving land use practices to reduce the damage to life and property from wildfires," the report stated.

The report points out that the Golden State has experienced 10 of the most destructive wildfires in its history since 2015. It adds that 2019 "has all the conditions for devastating fires, with a very wet season leading to high vegetation density."

The federal government also should "better manage federal forestland," says the report. It follows President Donald Trump previously threatening to pull federal funds from California, claiming the state's "forest management is so poor."

"As the owner of 57% of California's forestland, the federal government must also do its fair share to reduce fire risk," the report said. It added that the governors of California, Washington and Oregon all have called on the U.S. government to double its investment in managing federal forest lands due to the high risk of fires.

Newsom, a Democrat, already has proposed the state spend more for wildfire prevention and even waived environmental rules to clear dead trees and remove other vegetation in fire-prone areas. He also recently called in California National Guard troops to start helping out in some of the wildfire prevention efforts.

Still, the report said California should do more in fire prevention as well as investing in new technologies to model and monitor fire risk. The report also calls for "strengthening utility oversight so that they invest more in safety."