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California Lawmakers Weigh In on Utility Wildfire Exposure

A California legislative committee has started examining the impact of last year’s devastating wildfires on the state’s investor-owned utilities (IOU) and the potential financial consequences.

California Public Utilities Commission (CPUC) representatives at the informational hearing Monday of the Assembly Utilities and Energy Committee echoed what utility CEOs have been stressing, namely that the wildfires are a statewide challenge requiring a statewide solution. The CPUC and IOUs cannot resolve all of the impacts.

Assemblymember Chris Holden, who is chairing the committee, said lawmakers are attempting to understand the "intersect of fire safety and utility infrastructure." They also are attempting to better clarify the distinction between "causation  and negligence," because California law automatically views IOUs as part of the cause of fires when utility infrastructure is involved, regardless of whether there was negligence.

Holden said the Assembly wants to establish a foundation for the IOU fire issues. Given CPUC President Michael Picker's measured approach in his testimony, IOU executives including Sempra Energy CEO Debra Reed said Tuesday during an earnings call that she is hopeful the state will begin addressing the problem.

"This is not something [catastrophic wildfires] for which we have a rational basis in place to prepare for," Picker told the lawmakers. CPUC’s Elizaveta Malashenko, who heads the Safety and Enforcement Division, offered sobering statistics on the frequency of utility-related fires, citing more than 1,400 between 2014 and 2016.

The hearing demonstrated what Reed called "an urgency to resolve the legal issue of inverse condemnation and a recognition that there are several factors involved in the causes of fires, and it is irrational to blame all of that strictly on the utilities." She said the legislature appears to be focused on "what needs to be done."

Reed was encouraged by the Holden’s call for state legislative attorneys to review the legal principle of inverse condemnation and how it applies to the state's IOUs. "Overall, I think the hearing was a real positive sign,” she said.

During an earnings conference call last month, February, Edison International CEO Pedro Pizarro noted that wildfires are a "statewide problem needing a statewide solution.” The utility’s management is urging a set of comprehensive solutions acknowledging that a quarter of the Southern California Edison Co. service territory is considered high-risk fire areas.

Sempra and Edison, along with Pacific Gas and Electric Co. (PG&E), are engaged in multi-pronged strategies to push back in the courts regarding inverse condemnation. Reed said Sempra utilities are filing with the CPUC to seek legislative action on fire safety and are beefing up ongoing fire risk mitigation measures.

The application of inverse condemnation has cast a pall over California utilities' current financial standing, with PG&E receiving credit downgrades.

Under current CPUC requirements, the IOUs must report all fires involving utility infrastructure, and 45% of all the fires involve either vegetation coming in contact with overhead power lines or failure of the utility infrastructure, such as faulty lines or poles, according to Malashenko. She noted that California's major IOUs spend on average $400 million annually for vegetation management. Including telecommunications/energy service providers, the amount is $500 million-$1 billion a year on vegetation control.

The implications of the utilities' vulnerability for blame is approaching a full-blown crisis that needs attention, starting with inverse condemnation, according to Assemblymember Jim Patterson, vice chairman of the energy and utilities committee.

Citing billions of dollars of losses in market value for PG&E, Patterson raised the specter of bankruptcy for California's major utilities over the ongoing issue. "I really see an oncoming crisis," he said at the hearing.

Picker drew short of labeling it a crisis, but said he was "concerned" because the utilities are "going to find it harder to borrow money and impossible to buy insurance" to mitigate the wildfire risks.

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