California Panel Has Wildfire Fix That May Already Be Moot Point

(Bloomberg) -- After four hearings and months of deliberation, a California commission decided Friday that the state should change the legal doctrine that pushed its largest power company into bankruptcy.

The recommendation may fall on deaf ears.

Just a week earlier, Governor Gavin Newsom and legislative leaders signaled they’ve already made up their minds on how to help utilities deal this year with increasingly catastrophic fires their equipment keeps igniting -- and it doesn’t involve changing the doctrine known as inverse condemnation. They said they’ll instead introduce legislation to establish a so-called bridge fund that power companies could tap to cover fire damages while make it easier for them to recover costs from customers if they acted responsibly.

Their preemptive move underscores how urgent the situation has become for California's utilities as the state heads into another wildfire season. PG&E Corp., which filed for Chapter 11 in January to deal with an estimated $30 billion in fire liabilities, warned earlier on Friday that it may shut power to thousands of customers over the weekend as strong winds threatened to knock down power lines and spark blazes. Edison International and Sempra Energy face junk ratings. Newsom called on lawmakers to help them before mid-July.

The state-appointed commission approved on Friday a report that recommends, among other things:

• Changing the inverse condemnation policy that holds utilities strictly liable for wildfires that their equipment causes to one that is “fault-based”
• Making it easier for utilities to recover the costs of wildfires from customers if they acted responsibly
• A wildfire victims fund with contributions from utility shareholders, ratepayers and homeowners through a property insurance surcharge
• A utility wildfire board to oversee fire prevention that would operate separately from the California Public Utilities Commission

“We are in a crisis,” Commissioner Michael Kahn said during the meeting. ”The current liability and governing system doesn’t equitably distribute costs.”

In a joint statement last week, Newsom and leaders of California’s Senate and Assembly suggested they’ll leave the issue of inverse condemnation for another day. Should “massive, catastrophic wildfires persist,” there may eventually be a need to change the policy, they said.

The commission’s report did include a short-term fix similar to the one Newsom and legislators laid out: a smaller fund that would offer “bridge financing” to utilities, allowing them to pay wildfire claims as they wait for regulators to decide whether they can collect costs from customers. A separate analysis by the governor’s office suggested that the fund could be capitalized by utility investors and ratepayers, potentially through a charge on customer bills.

A bridge fund, however, ``doesn’t address the underlying question around the solvency of utilities,'' Commissioner Michael Wara said.

To contact the reporter on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, Joe Ryan

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