[REN #591] Wildfire Liability – *NEW* Legislation in California

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Picture of orange clouds for Real Estate News for Investors Podcast Episode #591

California lawmakers approved a bill that helps victims of last year’s devastating wildfires, and helps PG&E avoid financial disaster. Critics are calling it a PG&E bailout because of the October 8th wind-driven wildfires in Northern California. But, without the bill, PG&E could fall into bankruptcy and leave uninsured fire victims without any recourse for compensation. This legislation makes all of our utilities along with their ratepayers ultimately responsible for the cost of wildfires, but passes more of the cost onto the utilities if state officials determine they are to blame for the fires.

Wildfires in California reached historic proportions last year. According to a compilation of statistics by the Washington Post, California dealt with almost 9,000 wildfires that burned 1.2 million acres in 2017. More than 10,800 homes and other buildings were destroyed, and 46 people were killed. (1)
 

Largest & Most Destructive Fires

The Thomas fire set a record as the largest fire ever recorded in California. It burned 280,000 acres northwest of Los Angeles, in Ventura and Santa Barbara counties. It destroyed more than 1,000 structures, and killed one person.

The most destructive fire was the Tubbs fire in Northern California. It was one of more than a dozen fires that erupted during that October firestorm. The Tubbs fire alone destroyed more than 5,500 structures. More than 3,000 other structures were also destroyed by the Nuns, Atlas and Redwood Valley fires in the North Bay.
 

PG&E Wildfire Liability

Fire investigators say that at least 16 of those wind-driven fires were caused by PG&E equipment. They also say that in many cases, PG&E broke state safety laws. The utility currently faces about 200 lawsuits representing 2,700 fire victims because of those fires. Total liability could go as high as $17 billion.

If PG&E has to pay that amount, it would likely push the utility into bankruptcy. If that happened, many fire victims may never get the money they need to rebuild their homes. The bill’s sponsor, Senator Bill Dodd, says, “We quite frankly cannot allow that to happen.” (2)
 

Proportional Blame

The legislation assigns blame proportionately, depending on whether PG&E, Southern California Edison, or San Diego Gas & Electric has done a reasonable job maintaining equipment that may have sparked a fire. If the California Public Utilities Commission determines that the utility did not act reasonably, then the utility and its shareholders or stakeholders will pay. If it did act reasonably, the utility would be allowed to issue some sort of state-authorized bond that would be paid off in increments by ratepayers.

There would also be a limit as to how much a utility would be forced to pay, and will help PG&E avoid bankruptcy because of all those lawsuits. Those limits would be determined by a bankruptcy stress test. Anything above that limit, would again fall in the laps of ratepayers.
 

Common Sense Solution

The utilities may not have gotten everything they want in the bill, but in the case of PG&E, it did get what it needs to survive this round of wildfires. It said in a statement that the bill 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.”

Critics don’t agree. Many are still seething over PG&E’s role in the fatal gas line explosion in San Bruno eight years ago. And now, many feel the current legislation is a giveaway to a company that still has safety problems.
 

Measure is a Balancing Act

Lawmakers may feel like they are between a rock and a hard place, because we need the energy produced by PG&E. Senator Hannah-Beth Jackson said of the situation that the goal is “to protect the victim and the rate payer.” She says, “This measure is a balancing. We need that energy. If we didn’t need it, boy, I’d be the first to push PG&E off the cliff. But we need their energy and if we push them off the cliff it will cost the ratepayer more.” (3)

Fire victim, Patrick McCallum, and lobbyist for the group Up from the Ashes said of the bill, “The passage of SB 901… ensures that victims of last year’s deadly utility-caused fires are compensated, future fires are prevented, and utility rates are stabilized without putting PG&E in a position of potential bankruptcy.”

The bill also provides $1 billion in funding over five years to reduce the risk of future wildfires. The money will be used for clearing brush and cutting fire breaks. The new rules also make it easier to clear trees that were killed by drought in state forests.

The bill was approved in a 29 to 4 vote in the Senate and a 45 to 10 vote in the Assembly. Governor Jerry Brown is expected to sign it. He has until September 30th to do so.

Links:

(1) Washington Post Statistics

(2) Press Democrat Article

(3) San Francisco Chronicle

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