By Dana Drugmand
California rapidly passed a new law earlier this month that aims to strike a balance between guarding the state’s investor-owned utilities against insurmountable liability costs from wildfires while also protecting fire victims and ratepayers from skyrocketing costs.
The new statute – AB 1054 – has come under legal fire, with two ratepayers filing a lawsuit last week deeming the measure unconstitutional because it forces utility customers to pay into a fund that helps companies pay off their wildfire-related liabilities and costs. With the climate crisis making catastrophic fires more likely, the question of who ultimately pays for the damage becomes even more complicated.
Currently the costs are borne by three different parties – the utility companies that often spark the fires with their equipment, the insurance companies that absorb the losses, and taxpayers. All three are increasingly strained. One utility company is already bankrupt, insurers are refusing to renew policies in the riskiest areas, and the public is feeling the pinch with higher taxes, insurance premiums and utility rates.
“The challenge is the losses are going to happen regardless. Someone has to pay,” said Sean Hecht, co-executive director of the Emmett Institute on Climate Change and the Environment at UCLA Law School. “We can try to mitigate the losses. There are strategies that will mitigate and lessen some of these costs but they’re not going to solve the problem.”
The new law, AB 1054, was passed as an urgent matter by the state and is intended to help stabilize utility companies facing crippling wildfire liabilities. Pacific Gas & Electric (PG&E), which filed for bankruptcy in January, reported $30 billion in liabilities from the 2017 and 2018 wildfires that killed more than a hundred people and burned hundreds of thousands of acres. PG&E announced plans to reorganize under Chapter 11 and to bring in fresh leadership with a new board of directors and new CEO. But the company, still facing immediate financial and legal woes, has also pushed for help from state lawmakers. The state last year passed legislation alleviating PG&E’s liability burden for the 2017 fires across the northern wine region. Under that law, PG&E is allowed to pass on much of the damage costs to ratepayers.
Critics of AB 1054 say that it once again puts ratepayers on the hook, requiring them to pay half of a $21 billion liquidity fund by extending a surcharge on their electric bills that had been set to expire. The law also changes the standard for allowing utilities to recover wildfire-related costs from customers. Rather than proving to regulators that they acted prudently, utilities with valid safety certifications can make their customers pay unless customers raise “serious doubt” that the utility acted reasonably.
New Lawsuit Claims Law is Another Bailout for Utility Companies
These concerns prompted two PG&E utility customers to file a lawsuit against the California Department of Water Resources, California Public Utilities Department and several other state agencies and officials.
In the suit, which was filed last week in the U.S. District Court for the Northern District of California, Alex Cannara and Gene Nelson allege the law violates the U.S. and California constitutions with claims of due process violation, illegal “takings” and illegal gift of public funds for a private purpose. They also say the law is in violation of the urgency clause and of the right to access information under the California constitution.
Cannara and Nelson maintain that PG&E and other investor-owned utilities have an abysmal safety track record and argue that the corporations repeatedly put profit above safety concerns. The new law, they contend, amounts to a “bailout of the IOUs, both financially and legally, from the consequences of their continued intransigence against prioritizing safety.”
The law authorizes rate increases to pay off bonds issued to help fund the utilities’ wildfire liabilities. According to the complaint, “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 utilities have placed the burden of their wildfires squarely on the backs of poor and working-class families through increased electricity rates and taxes.”
In their complaint, Cannara and Nelson also emphasize PG&E’s status as a convicted felon. PG&E was convicted of felonies stemming from its role in the 2010 San Bruno gas pipeline explosion. In that case, investigators found the company had used ratepayer funds meant for gas line maintenance as bonuses and dividends for executives and shareholders.
They also say records reveal PG&E spent $8.35 million in state lobbying in 2018, compared to $1.6 million spent in 2017. The governor and 80 percent of state lawmakers received campaign contributions from the utility giant.
Cannara and Nelson contend that this money essentially bought the revised, more utility-friendly accountability standard in the new statute, and says this standard is at odds with heightened fire risk due to climate change.
“PG&E’s campaign contributions induced the Governor and the Legislature to act without regards to climate change,” wrote the plaintiffs in the complaint. “The drier weather and more aggressive winds caused by climate change make it imperative for utilities to operate their systems in strict compliance with safety rules. Yet, the legislature lowered the fire safety standards with the passage of AB 1054…”
The Climate Change Factor
Authorities in May concluded that PG&E’s equipment set off the deadly blaze known as the Camp Fire that claimed 85 lives and destroyed the town of Paradise. PG&E is facing multiple lawsuits over that fire and estimates liability damages at $10.5 billion.
A PG&E spokesman did not respond to a request for comment on how climate change is compounding fire risk and heightening wildfire liabilities, but said the company did not take a position on AB 1054.
Steve Malnight, a senior vice president at PG&E, told NPR affiliate station KQED last year that the state’s existing liabilities laws “weren’t made for the new normal that we face going forward with these climate driven wildfires.”
“It’s creating really significant financial risk to the utilities which will limit our ability to continue making the investments we need going forward,” he said.
Hecht said the climate change factor is an argument the utilities are making for easing their liability burden.
“They’re saying these liabilities are going to be so potentially vast that they’re not going to be able to continue serving their customers effectively,” he said, noting that although climate change might make a wildfire more likely or make it burn a larger area, it doesn’t legally absolve the party responsible for starting the fire.
Previous research has linked large petroleum producers to a significant portion of carbon emissions and resulting climate impacts and a recent study found a “clear link” between warming-driven drying of land cover and increased California wildfire activity. Whether fossil fuel producers could also be liable for fire damage remains an open question.
Hecht, who is helping advise some of the municipal plaintiffs in California that have sued fossil fuel companies over climate impacts and associated costs, said that the suits are about redirecting climate-driven costs that currently are paid for by the public.
“Through all kinds of different avenues, the public pays,” he said. “The idea behind those lawsuits is that one can try to assign some of the liability to the companies that have exacerbated these problems.”