California's bond-financed wildfire fund will absorb utility liabilities
California Gov. Gavin Newsom signed wildfire legislation Friday that extends a utility bill surcharge to back a new set of Department of Water Resources bonds.
The law, which took effect upon Newsom's signature, creates a wildfire fund to pay claims for damages from blazes caused by utility equipment.
The anticipated $21 billion fund will be launched with $10.5 billion in DWR municipal revenue bonds. The utilities would match the $10.5 billion provided by the state. The fund would act as a line of credit for utilities to cover future wildfire damages and limit the financial obligations for ratepayers.
Assembly Bill 1054 was introduced two weeks ago, drawing some criticism for the speed of the process. The bill passed the Senate Monday and the Assembly approved the measure Thursday on a 63 to 8 vote.
But Newsom has been working on aspects of the legislation since Northern California utility PG&E declared bankruptcy earlier this year, citing billions of dollars in liability for wildfire damage, including the blaze the all but wiped out the town of Paradise in 2018.
“This issue has been front and center for months,” Newsom said during Friday's bill signing press conference. “A better question would be how they processed the other 50 bills at the same time that are now on my desk.”
He added that there will likely be amendments and clean-up bills following the legislation.
“Strengthening our state’s wildfire prevention, preparedness and mitigation efforts will continue to be a top priority for my administration and our work with the Legislature,” Newsom said.
The law also requires electric utilities to receive annual safety certifications from the state and would create an advisory board that would make recommendations about wildfire safety to state regulators.
With bond rating agencies threatening to lower the state's two other major investor-owned utilities, Southern California Edison and San Diego Gas & Electric, to junk without state action and the Legislature headed for recess, hitting Newsom’s Friday deadline for passage was important.
“I can’t emphasize enough the importance of the fund and what it means for predictability in the marketplace, and for victims of wildfire and ratepayers looking for their rates not to jump on a whim,” Assemblyman Chris Holden, D-Pasadena, who authored the bill, said during the governor’s press conference.
S&P Global Ratings warned in June it could downgrade the two utilities if the Legislature missed the July 12 deadline Newsom set to pass a bill. Other agencies have also signaled the potential for further downgrades.
During the press conference, Newsom said the rating agencies were considering dropping the two large investor-owned utilities to junk in March, but he and other state leaders asked them to hold off while they worked on solutions.
The bonds will be backed by extending an existing charge on utility bills that was established to repay $11.2 billion in bonds issued to purchase electricity from insolvent utilities in the wake of California’s energy crisis brought on by deregulation of the electricity markets and pricing manipulations by Enron Corp.
The bonds would not be backed by the faith, credit or taxing power of the state.
PG&E wouldn’t be able to tap into the fund until it settles claims with past wildfire victims and emerges from bankruptcy by June 30 of next year.
PG&E has been pushing lawmakers to approve separate legislation that would authorize the issuance of $10 billion in tax-exempt state bonds, of which $7 billion would be earmarked to cover claims from past wildfire victims.
Many lawmakers called AB 1054 a step in the right direction, but said more needs to be done.
“If all we do today is pass this bill, we will have failed,” Assemblyman James Gallagher, R-Nicolaus, testified prior to Assembly passage. “If we don’t drastically overhaul how utilities are regulated by the PUC, then we are not getting the job done.”
Gallagher said there were people rooting for the bill’s failure, because they would like to see the state take over PG&E.
Newsom said it wasn’t Wall Street he was thinking of in spearheading the legislation.
“There are powerful interests looking to monetize this and not looking out for the state,” Newsom said. “This bill doesn’t reflect Wall Street’s interests, but that of the state and the ratepayers.”