S&P Global Platts: SoCal Ed Says Power Shutoffs Necessary, But Not Always Effective

HOUSTON, Texas, Oct. 30 -- S&P Global Platts, a subsidiary of S&P Global, issued the following news:

Edison International, whose utility subsidiary Southern California Energy has been following a power shutoff plan over the past few days as firefighters have fought wildfires in its service territory, told analysts it is seeking a revenue requirement increase in a rate case and will be spending $4.1 billion on wildfire mitigation out of a $25.6 billion five-year capital spending plan.

SoCal Ed and PG&E Corp.'s utility subsidiary Pacific Gas and Electric have been forced to shut down their transmission and distribution systems to thousands of account customers in order to prevent igniting wildfires during a period of hot, dry and windy weather.

The so-called PSPS, or Public Safety Power Shutoff program, is overseen by the California Public Services Commission, but it has attracted much criticism from citizens and from California Governor Gavin Newsom.

"We recognize that PSPS is a disruptive hardship, and we strive to minimize the impact on our customers and communities," said Pedro Pizarro, Edison International president and CEO during a third quarter 2019 earnings call late on Tuesday. "We do not take this action lightly, but it is necessary to protect Californians from catastrophic wildfires."

Pizarro said that patrols conducted after PSPS events have found several instances of equipment damage and tree branches contacting power lines "which could have ignited a fire."

"I want to acknowledge," Pizarro said, "the comments made by Governor Newsom and his concerns that customer impacts, particularly impacts to the state's vulnerable populations, be considered when PSPS events are necessary."

He said, "We follow the CPUC's PSPS protocol, which requires investor owned utilities to notify customers in advance of a potential de-energization. Our PSPS process follows this protocol with 72-hour notifications to California's Office of Emergency Services, the CPUC, affected county governments, and essential service providers. We then provide 48-hour, 24-hour, and imminent de-energization notifications to customers and communities whenever possible."

"Unfortunately," Pizarro said, "there are certain occasions when rapidly changing and volatile weather conditions pose an immediate threat to public safety and do not allow us to provide sufficient advance notification."

CONCERNS OVER POSSIBLE LIABILITY INCREASES

Wildfire risk has been increasing in Southern California. Residential and commercial development has occurred and is occurring in some of the highest-risk areas, the utility said in a form 10-Q filing with the Securities and Exchange Commission

"Such factors can increase the likelihood and extent of wildfires. SCE has determined that approximately 27% of its service territory is in areas identified as high fire risk."

When the power equipment of an IOU in California is determined or believed to have been the cause of a wildfire, under the law of inverse condemnation the IOU is held liable for the damages caused.

In the 10-Q filing with the SEC, Edison and SoCal Ed said, "When investigations are still pending or liability is disputed, an assessment of likely outcomes, including through future settlement of disputed claims, may require a liability to be accrued under accounting standards."

They said that they "expect to incur a material loss in connection with the 2017/2018 Wildfire/Mudslide Events and have accrued a liability of $4.7 billion in the fourth quarter of 2018." The utility "expects" recoveries from insurance policies in place at the time of $2 billion.

Pizarro told analysts that a number of recent wildfires in Southern California have "garnered attention."

While noting that evaluations of the cause of the fires are continuing, Pizarro said SoCal Ed filed an Electric Safety Incident Report, or ESIR, related to the Saddle Ridge fire.

"We filed this in an abundance of caution because SCE had an event on its system close in time to the start of the fire. We will file a more detailed report - a '315 report' -- next week that will also be posted to our investor website."

He said the utility did not file an ESIR related to the Tick fire, for which, he said, fire authorities have identified an incident location but not yet a point of origin.

ASKING CPUC FOR REVENUE INCREASE

SoCal Ed filed on August 30 its 2021 General Rate Case application for the three-year period 2021 through 2023. It told analysts that the "critical drivers" of its 2021 GRC request include "the infrastructure and programs necessary to implement California's ambitious public policy goals, including wildfire mitigation, de-carbonization of the economy through electrification and integration of distributed energy resources across a rapidly modernizing grid."

It is requesting the CPUC authorize the Test Year 2021 revenue requirement of $7.601 billion. "This is an increase of $1.155 billion over the 2020 revenue requirement authorized in the 2018 GRC," the utility said.

"We acknowledge that the revenue requirement increase in the 2021 GRC application is larger than it has been in the past. This is due in large part to the pressing need for SCE to undertake extraordinary measures to reduce wildfire risk."