Camp Fire Cleanup

Soldiers from the California Army National Guard's 649th Engineer Company, 579th Engineer Battalion, 49th Military Police Brigade, from Chico, California, conduct search and debris-clearing operations, Nov. 17, 2018, in Paradise, California. The engineers worked in support of state agencies following the deadly Camp Fire.

Executives with California’s investor-owned utilities in second-quarter conference calls voiced support for Gov. Gavin Newsom and the AB 1054 legislation he signed in July that swiftly and dramatically reduced their financial risk from wildfires, shoring up their bottom lines.

The legislation currently enjoying rounds of praise from utilities transferred billions of dollars in costs of utility-caused wildfires from shareholders directly to electricity customers that are most affected by those disasters. The stroke of a legislative pen instantly reversed the previous policy, under which utilities fought in court to require state regulators to allow them to recover wildfire-related costs. The new law also put a cap on shareholder liability, among other shareholder-friendly provisions.

Executives with Sempra Energy—parent of San Diego Gas & Electric and Southern California Gas Co.—lauded Newsom in a recent earnings call, as did Edison International leaders earlier this month. Pacific Gas & Electric also cited AB 1054 and reduced wildfire liability as it dialed back its return-on-equity request at the California Public Utilities Commission from 16 percent to 12 percent.

“The big effort that we made last year to get to SB 901 and to have the issues that have developed in the state since then and really to see a new governor step in and kind of galvanize the type of political support that was necessary to deliver this was really, really important,” Sempra CEO Jeff Martin said on the company’s earnings call. “I would also say he is very focused on ensuring that we have a good regulatory environment and that there are needed reforms at the commission.”

Happy days are clearly here again for utilities and investors, as AB 1054 swiftly tossed captive energy consumers on the hook for $10.5 billion in wildfire costs. The atmosphere of joy and relief among investors likely rings hollow to a furious public, which for a long time has been denouncing PG&E in public hearings. The central message of protestors flooding the CPUC building in recent months is “Don’t bail out PG&E,” a utility that is a convicted felon with a horrendous safety record and a history of questionable behavior, including an ex parte communications scandal from years ago that is still being settled, among other investigations and public criticisms.

PG&E executives haven’t faced analysts and the public in an earnings call since declaring bankruptcy. But the utility told the CPUC that now that AB 1054 has passed, it could ease up on a ceiling-shattering return on equity it requested in April.

San Diego-based attorney Mike Aguirre, a prominent utility and regulator critic, on July 24 filed suit against the state in U.S. District Court for the Northern District of California over AB 1054.

The IOUs are “wielding their immense political and financial resources to secure from the California Legislature undeserved reprieves from the past and future consequences of wildfires,” Aguirre said in the document.

Utility customers “can now be made responsible for paying back potentially limitless IOU wildfire liabilities without due process, while IOUs continue to reap a guaranteed profit for their shareholders and investors,” the lawsuit says.

But arguments can be made on both sides of the equation. If the state’s two other IOUs went bankrupt, justifiably or not, a nightmare scenario would present itself. Without sufficient capital, utility inspections, infrastructure improvements and safety measures could suffer. Energy consumers benefit from the system and have an interest in a well-maintained grid and in maintaining the financial integrity of the state. And utility shareholders will contribute an additional $10.5 billion to the wildfire fund, matching the share to be funded by ratepayers.

One utility executive recently said that the AB 1054 process is not over. In a July 25 earnings call, Edison International President and CEO Pedro Pizarro said future refinements to the new law will be critical to its success.

Pressed for details by an analyst, he said: “We didn’t specify any specific potential future refinements, but the reality is that with any law that is as large and complex as this one—and frankly, that was written and passed and signed by the governor with such a sense of urgency . . . there are often cleanups that need to be made.”

During the call, a utility credit analyst cast a warm glow over the situation.

“Congratulations on getting the AB 1054 and getting that all behind you,” the analyst said.

One has to wonder: How much of this is similarly in the rearview mirror for energy consumers and Californians? In terms of paying for fires caused by utility infrastructure, it seems to be only the beginning.