PG&E wants ratepayers to pay California wildfire costs

San Jose Mercury News (CA)

Oct. 27--Fearing billions of dollars in future liability, PG&E has been aggressively urging state regulators to make it easier for the company to charge ratepayers -- rather than its shareholders -- when its power lines and other electrical equipment cause wildfires.

Top PG&E executives met as recently as last week to lobby officials at the state Public Utilities Commission in San Francisco over the issue, which could arise powerfully in coming months if the utility is found to be responsible for the Wine Country fires, a serious possibility that state regulators are now investigating.

In a 30-minute meeting on Oct. 17, Meredith Allen, PG&E's senior director of regulatory relations, told Travis Foss, an adviser to PUC Commissioner Clifford Rechtschaffen, that PG&E and other California utilities are in "an untenable situation," according to a record of the meeting that PG&E sent to the PUC as required under state lobbying rules. PG&E should not have to pay "a disproportionate" share of the costs of wildfires because of the growing fire risk and a tough insurance market, Allen argued.

But consumer groups say the push by PG&E and the state's other two large utilities -- Southern California Edison and San Diego Gas & Electric -- is out of line. If the PUC allows utilities to pass along most of their uninsured wildfire costs to ratepayers in the form of higher monthly bills, critics say, they will have less incentive to properly maintain wires, trim back trees and take other sometimes costly measures needed to reduce wildfire risk.

"PG&E and the other utilities are very vigorously lobbying to see that the costs of disasters be covered by ratepayers, even when they are found negligent," said Mark Toney, executive director of The Utility Reform Network, a San Francisco consumer group.

"The shareholders benefit when the company does well," he said. "They have to pay when the company doesn't do well."

If the PUC doesn't grant the utilities' request to spare shareholders if the companies are held liable for causing wildfires, they would see their profit margins decrease -- which is likely to hurt shareholders financially by causing dividends and utility stock prices to drop.

The PUC and Cal Fire are investigating whether PG&E power lines were responsible for starting the devastating wildfires in Napa and Sonoma counties earlier this month. The Bay Area News Group reported two weeks ago that records from emergency dispatchers show that firefighters were sent to at least 10 different locations in Sonoma County to respond to reports of arcing power lines and exploding transformers on the night of Oct. 8 within 90 minutes of the first fire being reported.

If PG&E is found to be at fault for the fires, the costs would almost certainly soar into the billions. But the company has reported that it has only $800 million in insurance.

The fires in Napa, Sonoma and other Northern California counties together were the deadliest and most destructive in state history. They burned more than 245,000 acres, destroyed at least 8,700 structures and killed 42 people, according to Cal Fire.

The PUC has ordered PG&E to preserve all lines, power poles, emails and other evidence that could be relevant in the case. PG&E's stock price has fallen 18 percent from the time the fires began until Thursday.

The specific case that has drawn PG&E's recent focus is a potentially precedent-setting PUC proceeding regarding whether San Diego Gas & Electric should be forced to pay $379 million in expenses that its insurance did not cover after the utility's power lines were blamed for starting three huge fires in San Diego County in 2007. The outcome of that San Diego County case is "likely to impact PG&E directly in the future," PG&E attorney Michael Klotz said Oct. 4 in a filing with the PUC.

Power lines may be linked to Wine Country fires: As the first reports came in the night of October 8th of numerous fires that would grow into one of the most destructive wildfire disasters in California history, emergency dispatchers in Sonoma County received multiple calls of power lines falling down and electrical transformers exploding. (Bay Area News Group Video)

There's a big issue at stake, the company says.

"Wildfires and the method with which they are treated presently have real world and potential long-term impacts on the operations, risk management and financial standing of every energy company in the state," PG&E spokesman Donald Cutler said in an email. "We felt it was important that the Commission hear the perspectives of all the energy companies that operate in California."

But the San Diego County case is not going the utilities' way.

On Aug. 22, after more than a year of hearings and motions, two administrative law judges rejected San Diego Gas & Electric's request to pass along $379 million in uninsured expenses from the 2007 fires to its ratepayers. A final decision in the case by the five-member PUC, whose members are appointed by the governor, has been postponed three times, with a decision now scheduled for Nov. 9.

The three San Diego County fires have similarities to this month's North Bay fires.

Investigators from Cal Fire and the PUC concluded that the three October 2007 blazes -- the Witch, Guejito and Rice fires -- were caused by San Diego Gas & Electric's power lines.

The Witch and Guejito fires combined to burn 197,000 acres. They killed two people, injured 40 firefighters and destroyed 1,141 homes and 239 vehicles. The Rice fire burned 9,472 acres and destroyed 206 homes. It was caused by a dead tree limb falling on power lines.

The PUC ruled that the utility did not trim trees back as required by state law in the Rice fire -- and that the utility was at fault in the other two. In the Witch fire, the power line that caused the fire shorted three times in three hours, investigators found, and it took the utility more than six hours to turn off its electricity.

After the fires, San Diego Gas & Electric faced $5.6 billion in legal claims. It settled approximately 2,500 lawsuits from people who suffered damages, bringing its costs down to $2.4 billion, said company spokeswoman Colleen Windsor. The $379 million it is seeking to charge ratepayers for now is money not covered by its insurance.

Windsor said that "hurricane force" wind speeds topped out at 92 mph on the day of the fires.

"We design, operate and maintain our system at or above standards, and despite having a safe system the wildfires that occurred were due to circumstances beyond SDG&E's control," she said.

In August, however, the two administrative law judges disagreed. They sided with consumer groups' experts who said the winds were blowing at 43 mph at the time of the Witch fire's ignition, 56 mph at the time of the Guejito's fire's ignition and 34 mph when the Rice fire started. The judges, S. Pat Tsen and Sasha Goldberg, concluded that SDG&E "did not reasonably manage and operate its facilities" and thus could not pass along costs to ratepayers.

PG&E made similar claims this month after the North Bay fires, saying that "hurricane strength" winds of more than 75 mph were in play. But the Bay Area News Group reported earlier this month that weather stations in the Santa Rosa and Napa area recorded wind speeds of 30 and 32 mph when the fires started, although the winds later strengthened.

Consumer groups and the utilities are watching the San Diego case very carefully.

"We're concerned this could give a free pass to the utilities," said Diane Conklin, an activist in San Diego. "If the utility doesn't have a good record, then their insurance costs are going to be higher, like the bad boy in the driving class. But they should have some accountability. They should have consequences for their own actions."

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