PG&E backs ratepayer financing plan for 2017 wildfire damage that critics call ‘bailout’

Facing multibillion-dollar claims for damage done by last year’s Northern California wildfires, PG&E is pushing for a state-authorized financing plan to cover liability claims and compensate survivors, proposing the utility’s ratepayers pick up the tab.

The concept, known as securitization, is embodied in a bill by an East Bay assemblyman and has full-throated backing from the utility, which has recently spent nearly $1.7 million lobbying state officials.

Assembly Bill 33 is expressly designed to facilitate prompt settlement of damage claims from the?2017 fires, according to its supporters. It would allow PG&E to sell state-authorized bonds to finance billions of dollars in wildfire damages, with the utility’s millions of customers paying for them through charges on their power bills.

Steve Malnight, PG&E’s senior vice president for strategy and policy, said it is “the right vehicle” to balance the need to compensate fire victims with “maintaining customer cost at a manageable level.”

“The laws that were built for yesterday are just not going to be sufficient for the risks that we face today and tomorrow,” Malnight said last week in a meeting with The Press Democrat’s editorial board.

But critics, including a Santa Rosa attorney representing survivors and a 45-year-old San Francisco utility watchdog, say AB 33 grants an unjustified bailout for PG&E, which faces more than 200 lawsuits from thousands of fire survivors as well as local governments related to the October fires.

State Sen. Bill Dodd, a Napa Democrat who represents thousands of fire survivors, called the bill “incredibly flawed.”

“I think AB 33 at this point in time is a total bailout for the utility,” he said Friday. “I don’t think it’s fair to the ratepayers to have a PG&E bailout.”

Dodd is co-chairman of a 10-member bipartisan conference committee formed last month for the sole purpose of developing legislation aimed at strengthening disaster preparedness and assessing the standards for holding electric utilities accountable.

So far, the securitization proposal is separate from a plan recently presented to lawmakers by Gov. Jerry Brown that would loosen the strict liability standard that applies to utilities in California in cases where their equipment is responsible for disasters. Brown has stressed that such reforms are needed in an era of increasingly more frequent and destructive wildfires.

“I don’t like to scare people, but we’ve got tough times ahead,” he said on Saturday during his visit to Shasta County, where the Carr fire has burned more than 140,000 acres across two counties and destroyed more than 1,000 homes.

Cal Fire has determined that PG&E equipment caused 16 major fires across Northern California in October. Its investigators found evidence that the utility violated safety codes governing brush clearance around power lines in 11 of those blazes, and those cases have been forwarded to local district attorneys.

Not yet in the mix is the Tubbs fire, the most deadly and destructive of the October 2017 fires, which altogether claimed more than 3,000 homes in Santa Rosa and 5,300 homes across Sonoma County. Across the greater North Bay, including Mendocino, Lake, and Napa counties, ?6,200 homes were destroyed.

Cal Fire’s report on the cause of the Tubbs fire is still pending.

PG&E has already said it expects to be held liable for $2.5 billion in damages, while insured losses have been estimated at $10 to $15 billion.

With just four weeks to go before the Aug. 31 deadline for sending legislation to the governor’s desk, Dodd said the committee will be hard-pressed to accomplish its goal.

“We will not present something that isn’t well thought-out,” he said.

The committee has scheduled public hearings on Tuesday and Thursday at the Capitol.

Dodd said he did not know if the committee would consider AB 33, introduced by Assemblyman Bill Quirk, a Hayward Democrat whose son works for PG&E.

Dodd said the panel would need to conduct a “forensic review” of utility financing, including the question of how to manage liabilities tied to the fires.

Lawmakers need to protect ratepayers from all the special interests involved in wildfire liability, including trial lawyers, counties and insurance companies, Dodd said, acknowledging that PG&E’s needs also matter.

“PG&E going bankrupt could be devastating for ratepayers,” he said.

The utility would not get unlimited relief under AB 33, Malnight said, noting that the California Public Utilities Commission would conduct a “prudence review” and disallow bond funding for any damage associated with cases where PG&E is found negligent.

The customer-backed financing would enable PG&E to generate the capital to pay claims at far lower cost than conventional financing, Malnight said.

Hunter Stern, business representative for the International Brotherhood of Electrical Workers Local 1245, said the union, which has about 12,000 members working for PG&E, wholly supports securitization.

“AB 33 is a key for us,” said Stern, who attended the editorial board meeting at The Press Democrat along with Malnight. “We have to have a financially viable utility.”

The union is “alarmed at the potential” for damages that may be assessed against PG&E, he said.

Asked if the approach amounted to asking some fire victims who are also PG&E customers to “dig into their pockets” to pay twice for the fires, Malnight said, “I understand. We sympathize with the victims.”

Noting again that damage caused by negligence would “not end up on customers’ bills,” he said “that protection is critical and important.”

California faces “an incredible risk” from wildfires, with multiple blazes raging this year, and needs to figure out how to pay for them, Malnight said.

Michael Wara, a lawyer and Stanford University scholar focused on climate and energy policy, likened securitization to “getting a long-term, low-interest loan to pay off an emergency expense that you put on your credit card.” Wara testified at the conference committee’s first hearing last month.

AB 33 would stabilize PG&E financially so it “could potentially weather another major wildfire,” he said in an email. Without it, and assuming there is no change in how California assesses power companies for fire damage done by their equipment, many people in the utility financial markets “have doubts about PG&E’s long-term viability,” Wara said.

But the bill is short on details about how PG&E will credit ratepayers for damage costs “due to imprudent management,” Wara said, calling that “a major omission.”

Wara also said it does not appear, so far, that “ratepayers are responsible for much 2017 liability,” noting there has been no Cal Fire report on the cause of the Tubbs fire.

PG&E, which provides natural gas and electric service to about 16 million customers in northern and central California, reported $1.7 billion in earnings last year.

The utility giant spent about $1.7 million lobbying in California from April to June, more than any other entity and nearly quadruple what it had spent on lobbying in each of the previous five quarters. Most of the money went to lobbying on wildfire issues, the Associated Press reported.

PG&E employs four lobbying firms, including Platinum Advisors, which received $30,000 from the utility from April to June, according to state records.

Platinum Advisors’ founder and CEO is Darius Anderson, managing member of Sonoma Media Investments, which owns The Press Democrat. Anderson said his firm engaged in lobbying on wildfire-related legislation, but that he has not been personally involved in the wildfire lobbying.

Up From the Ashes, a coalition that includes residents who were displaced by the fires and trial attorneys, spent more than $560,000 lobbying state lawmakers and the Governor’s Office from April to June.

Patrick McCallum, head of the group, said he would accept a securitization plan only as part of a package that included improvements in fire prevention, greater accountability for PG&E and other utilities and no change in the state’s policy of inverse condemnation, which holds utilities liable for wildfire damages even when they are not deemed negligent.

PG&E wants to see the policy include a “reasonableness standard,” relieving the company of liability for fire damages if it has acted responsibly.

McCallum, a Sacramento lobbyist whose Santa Rosa home was destroyed by the Tubbs fire, said he believes PG&E may have sufficient resources to pay off fire claims over time.

Mindy Spatt, a spokeswoman for The Utility Reform Network, said securitization “is a fancy word for bailout. No matter what you call it, it’s us paying for it.”

The San Francisco-based nonprofit known as TURN, which has about ?20,000 members, contends that PG&E’s customers should only pay for “safe, reliable electricity, and PG&E isn’t providing that,” Spatt said.

“It’s extremely premature and almost insulting to the victims that PG&E has elected to make a bailout its priority right now,” she said.

The second paragraph of the securitization bill says: “The potential liability from the 2017 Northern California wildfires requires immediate legislative action.”

But the Legislature’s rush to act this year “makes it look like PG&E is throwing its weight around,” Spatt said.

Noreen Evans, a Santa Rosa attorney who is part of a legal team representing 1,100 survivors, also faulted AB 33 as a bailout, requiring fire victims “to pay for their own damages as (PG&E) ratepayers.”

Asked what she would tell the legislative committee members, Evans said it would be to “trash (the bill) immediately and come up with something that actually protects communities instead of PG&E shareholders.”

Evans is a former state senator and Santa Rosa City council member.

Assemblyman Jim Wood, D-Santa Rosa, a conference committee member, said in an email his intention is “to ensure that the needs of fire survivors, taxpayers and utility ratepayers take precedence, not the utility companies.”

But Wood said he was not ready to support any proposal until he has more information, including a Cal Fire report on the Tubbs fire, which he said is “way overdue.”

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