Who should be responsible when a public utility company’s equipment causes a wildfire: the investors who own that utility or California taxpayers, homeowners and ratepayers?
As wildfires rage across the Golden State and smoke and ash fill our skies, this question is at the heart of one of the most significant debates taking place as the State Senate and Assembly return from summer recess.
Last year’s fire season was one of the most tragic in history. Nearly a quarter-million acres burned, destroying thousands of homes, killing 44 people and causing billions of dollars of property damage.
Earlier this summer, Cal Fire investigators released reports that identified equipment owned and operated by PG&E as directly responsible for igniting a dozen wildfires that raged in Northern California. In eight of those investigations, PG&E was found to be in violation of state code, failing to clear brush around its lines and properly maintain equipment. Each of those eight cases has been forwarded to the appropriate local district attorneys for prosecution as evidence of alleged violations of state laws. In another four, the utility’s equipment was determined to be the culprit that started the blaze, though Cal Fire did not identify any violations of state law. Other investigations are still pending.
Under California law, the shareholders and owners of electric utilities are responsible for paying the cost of property damage resulting from wildfires caused by their electric power lines. It’s part of the state Constitution.
Since utilities are granted the ability to access and take private property for electric lines and other equipment, they are responsible for any property damage caused by that equipment, even if there is no evidence of negligence. This legal doctrine – “inverse condemnation” – is an important safeguard for private property owners to ensure that they are compensated for damage related to public infrastructure.
And rightly so.
Property owners should not be required to bear that burden of insuring against damages caused by utility equipment for which they have no duty or ability to maintain.
PG&E carries $800 million in liability insurance, but claims from 2017’s disastrous fire season are nearly $10 billion.
So naturally, PG&E has embarked on an intense lobbying effort, hoping for a trio of changes to California law that shift the financial burden for damages caused by the company's equipment from the investors and shareholders of PG&E onto the backs of taxpayers, homeowners and ratepayers.
Sen. Bill Dodd’s SB 1088 would relax the rules regarding fire-safety plans, including vegetation management, equipment upgrades and maintenance, by allowing the utilities to be merely “substantially compliant.”
AB 33, authored by Assemblyman Bill Quirk of Hayward (whose son works at PG&E), would allow the use of state-backed bonds to provide PG&E with the cash needed to settle claims with the victims of wildfires. The bonds would be paid back by ratepayers and customers, who would face increased electricity rates to cover that cost.
And just two weeks ago, Gov. Jerry Brown proposed legislation that would gut inverse condemnation and require the courts to consider a variety of factors when determining liability for a wildfire, providing utilities with the right to access and take private property for their equipment while unshackling them of any responsibility to private property owners.
Taken together, these three proposals represent cronyism at its worst.
Geisha Williams, CEO and President of PG&E Corp., the parent company of Pacific Gas and Electric Co., opened her letter to shareholders in their 2017 Annual Report with the statement, “For PG&E Corp., 2017 was a year of both great successes and unprecedented challenges.”
Her letter continues to describe the successes and challenges, and to outline a framework designed to guide the corporation to future success. In her letter, while acknowledging that PG&E could face “substantial liability” if the company’s assets were found to be involved in the 2017 wildfires, “even if all of our [PG&E’s] practices and processes met the applicable requirements,” Williams told shareholders that, “in the meantime, the companies’ core operations and performance are sound.”
And indeed they were. PG&E Corp. reported 2017 earnings from operations of $1.89 billion, or $3.68 per common share. Over the past four years, it’s realized about $5 billion in profit.
Despite this, PG&E is spending millions trying to convince the legislature that without a massive overhaul of state law, the company could be unable to raise the funds needed to settle claims and, possibly, face bankruptcy.
I’m not buying it.
PG&E hasn’t reported a risk of bankruptcy to its investors on earnings calls, or to the SEC in any regulatory filings. Even more, market analysts haven’t given any indication that the wildfire liability has put the company at risk for bankruptcy.
What it does put at risk is the ability of PG&E to maintain its profitability and deliver anticipated shareholder returns.
But investing is risky.
And investors should be aware that when they choose to put their dollars in California utility companies, they are taking on the liability of inverse condemnation. If investors aren’t willing to bear the risk, then they don’t deserve the reward.
Taxpayers, homeowners and ratepayers shouldn’t be on the hook for protecting the earnings of a monopolistic industry with known and well-established operating and financial risks.
This utility bailout gives “Together, building a better California,” a whole new meaning.
Let’s hope it’s a meaning the legislature rightly rejects.
Contributing columnist Justin Salters writes on politics and current events; the views expressed are his own. His column appears on the first and third Tuesdays of the month. Reach him on Twitter @justinsalters or email him your thoughts: email@example.com.