Newsom’s wildfire plan for PG&E, other utilities, needs two-thirds vote in Legislature

Jun. 28--Potentially complicating Gov. Gavin Newsom's effort to pay for future wildfires and lift PG&E Corp. out of bankruptcy, his legislation will require a two-thirds supermajority to pass the Legislature.

Newsom's fellow Democrats captured a supermajority in last November's election. And a Republican assemblyman has signed on as a co-author of the wildfire legislation.

But the finding by the legislative counsel's office that Assembly Bill 1054 requires a two-thirds vote could reduce the margin for error as the governor tries to steer the bill toward passage before the main legislative session ends July 12.

The bill, whose language was released late Thursday, dovetails with the plan outlined by Newsom's advisers a week ago. It revolves around a $21 billion insurance fund, largely financed by shareholders and ratepayers of PG&E and the other two major utilities, to pay claims for future fires that are caused by utility equipment. A pile of wildfire liabilities estimated at $30 billion prompted PG&E to file for bankruptcy in January.

Utility rates won't go up to help pay for the governor's fund, which will be run by a new panel called the California Catastrophe Council.

But ratepayers of the big three utilities will contribute anyway: A $2.50-a-month charge they've been paying on their bills since the 2001 energy crisis will be extended for another 15 years. Otherwise the charge was scheduled to disappear next year.

"This will help ratepayers in the long run. If don't do this, their rates would go up for greater than $2.50 a month. I bet they'd rather be paying the extra $2.50 to protect their rates," said Sen. Bill Dodd, D-Napa.

The bill would take effect immediately, making it an "urgency statute" that requires a two-thirds vote instead of a simple majority.

Newsom spokesman Nathan Click said: "We're working closely with the Legislature on this .... Everyone agrees that there's a sense of urgency around this issue."

The bill's co-authors are two Democrats, Chris Holden of Pasadena and Autumn Burke of Inglewood, and Republican Chad Mayes of Rancho Mirage.

Some lawmakers wanted to see more in the deal. Nine lawmakers from both parties wrote a letter to Newsom asking that the package incorporate more funding for wildfire prevention.

"We need to protect ratepayers, make sure victims of the 2017-18 fires are compensated and stabilize the utility market, but we cannot ignore the other side of the equation and that's prevention and preparedness, which is not addressed," Assemblyman Jim Wood, D-Santa Rosa, said in a written statement.

Utility shareholders would pay for half of the new wildfire fund, with PG&E, the largest utility in the state, paying the most.

The fund is designed to put money into wildfire victims' hands relatively quickly while shoring up utilities' finances. The utilities would have to reimburse the fund -- but only if the Public Utilities Commission finds that they act "imprudently."

Even then, the amount they'd have to reimburse would be capped at 20 percent of their "rate base" -- the total value of their electrical equipment.

In PG&E's case, it would effectively cap the troubled utility's reimbursement at about $4.8 billion for future fires, said Michael Wara, a Stanford University law professor who has been advising the governor.

AB 1054 also makes a subtle but important change in determining whether utilities can bill ratepayers for wildfire liabilities. Under the current system, the companies have to prove they manage their equipment properly. The proposal would shift the burden of proof on to others to show the utilities acted recklessly.

Newsom's plan doesn't set aside any money to pay the billions of dollars PG&E will owe to victims of the 2017 wine country fires and last November's Camp Fire, the deadliest wildfire in California history.

But by changing the rules governing shareholders' responsibility for future fires, the governor's advisers believe the plan will enable PG&E to borrow the money it needs to satisfy existing claims. Newsom's administration also believes the rule changes will keep Wall Street's credit rating agencies from putting the other big companies, Southern California Edison and San Diego Gas & Electric, into junk bond status and hampering their ability to do business.

The plan "will help to stabilize the situation for utilities but also for ratepayers and for victims," Wara said. "Ratepayers aren't better off having utilities in bankruptcy or near bankruptcy. Victims aren't better off trying to recover their losses from bankrupt companies."

The bill requires PG&E to pay wildfire victims and exit bankruptcy by next June. The utility is still working on a bankruptcy plan, although a group of its bondholders just submitted a plan that would pay fire victims up to $18 billion for their claims.

Smaller regional utilities would be allowed to contribute to -- and pull money from -- the wildfire fund along with the big investor-owned companies. The fund itself could purchase reinsurance -- a mega-policy with a huge deductible, designed to cover the worst fires -- as a means of increasing the fund's ability to pay claims well beyond the $21 billion figure.

Before they can participate in the fund, utilities would have to spend a combined $5 billion over three years to reduce wildfire risks. That figure is over and above they're already spending. An earlier version of Newsom's plan put the buy-in fee at $3 billion.

The utilities would be allowed to bill ratepayers for those expenditures. But unlike most utility costs, they wouldn't be able to earn a rate of return -- their profit -- on that spending.

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