California governor signs 22 wildfire-related bills

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California Gov. Gavin Newsom signed 22 wildfire-related bills Wednesday, several of which increase state oversight of Pacific Gas & Electric and other investor-owned utilities.

Several of the measures require the utilities to properly maintain their equipment and trim trees around power lines to prevent fires.

Investigators found that PG&E equipment sparked the 2018 Camp Fire that caused 85 deaths and decimated the town of Paradise. The resulting liabilities helped drive the company to file for Chapter 11 bankruptcy in January.

“Given the realities of climate change and extreme weather events, the work is not done, but these bills represent important steps forward on prevention, community resilience, and utility oversight,” Newsom said in a statement.

Newsom signed Assembly Bill 1054 in July, establishing a $21 billion wildfire liability fund that involves the issuance of $10.5 billion in bonds.

This week’s flurry of laws grew out of the recommendations of a panel of experts Newsom formed to investigate methods of preventing fires and holding utilities accountable. The governor’s so-called strike force released its report in June.

One of the measures will make it easier for San Francisco to purchase the PG&E electricity distribution assets in the city. The city recently offered PG&E $2.5 billion for the assets.

Senate Bill 550, authored by Sen. Jerry Hill, D-San Mateo, would alter how California defines a change in control at an electric company so that it would no longer trigger close regulatory scrutiny if a local government tries to buy part of a utility.

City leaders were concerned that AB 1054, a bill designed to protect utilities from future fire costs, could hamper the city’s efforts because of the regulatory edicts it included.

In addition to creating the fund, AB 1054 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.

Hill’s law would make San Francisco’s potential takeover of PG&E equipment less cumbersome while protecting ratepayers and utility workers, he said.

The bill also ensures that public safety is a major consideration in any merger, acquisition or restructuring at an investor-owned utility, he said.

Though PG&E declined San Francisco's offer, some panelists discussing the company’s woes at the Bond Buyer’s California Public Finance conference last week said the utility may well reconsider the offer if conditions change.

The offer could become more appealing if PG&E can’t exit bankruptcy in time to take advantage of the wildfire liability fund established by the Legislature, said A.J. Sabatelle, who leads the municipal utilities team for Moody’s Investors Service.

PG&E must have a bankruptcy confirmation plan approved by June 30 if it wants to make use of the $21 billion fund, which would be launched with up to $10.5 billion in municipal revenue bonds. The state’s largest investor-owned utilities have agreed to 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 of ratepayers.

“A lot needs to happen between now and June in order for PG&E to access that fund,” Sabatelle said.

When PG&E entered bankruptcy in January it estimated it had claims of about $30 billion stemming from fires in 2017 and 2018 its equipment played a role in sparking.

In addition to a bankruptcy exit plan, PG&E also has to present the state’s Public Utilities Commission with its plan to maintain its equipment and trim trees to prevent fires.

“And, secondarily if there is a severe wildfire this year, those claims become senior to existing claims in bankruptcy court,” Sabatelle said. “If that happens the plan will change dramatically.”

PG&E filed an exit plan in September, but plans typically undergo several revisions before one is created that is acceptable to creditors and the court.

“The offer for PG&E's San Francisco assets has more legs if there is another large wildfire and they are not able to get out of bankruptcy by June 30,” Sabatelle said.

Panelist Howard Cure, managing director of Evercore Wealth Management, said peeling off the San Francisco assets could leave PG&E with even higher risk to wildfire because that would increase the percentage of its remaining footprint that is rural areas with greater fire danger.

In general, Cure said, there are a lot of issues standing in the way of there being a municipalization in various service areas.

Though Sabatelle said some policy makers are working to see if PG&E can get out of the June 30 deadline, Panelist Barry Moline, executive director of the California Municipal Utilities Association, said some legislators and regulators are “weary and wary of what the future might hold with PG&E.”

As a result, the concept of making a structural shift is getting more traction, Moline said, because if the assets are in as bad shape as other panelists suggested, maybe officials would prefer to get another carrier to come in and fix them.

He added that San Francisco’s offer of $2.5 billion is “very serious,” and well above the past 20 offers he has seen nationwide over the past several years. It’s 2.5 times annual revenues, he said.

None of California's public utilities will be making use of the wildfire liability fund, Moline said.

The municipal utilities tend to be more urban resulting in less fire risk. He said that 46% of the equipment owned by IOUs is in a high risk area, while only 19% of the munis are located in such areas.

“Wildfires have been brought to everyone’s attention,” Moline said. “We have had wildfires in urban areas.”

Despite that, municipal utilities are not participating in the wildfire fund, because “we just couldn’t make it work,” Moline said.

Senate Bill 167, by Sen. Bill Dodd, D-Napa, which requires utilities to mitigate the negative effects of planned power shutoffs, was also compelled by PG&E.

The utility has been turning off power across Northern California on high fire-risk days to avert the risk that its power lines could cause another fire. The law addresses concerns that the utility could turn the power off too frequently, without sufficient regard for the risks that outages could pose for emergency workers and people with disabilities.

The governor also signed three other bills authored by Dodd: SB 190 to increase compliance with requirements for vegetation in buffer zones; SB 209 to establish the California Wildfire Warning Center, a network of automated weather and environmental monitoring stations; and SB 247 that requires an independent third-party to oversee the clearing of vegetation from utility lines.

PG&E filed a disclosure to a federal judge this week revealing that the company has completed less than a third of the tree trimming work it has planned for this year.

"This approach of fire season underscores the needs for immediate action," Dodd said. "We can't just sit back and watch the state burn."

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Natural disasters Bond legislation Utilities Revenue bonds Gavin Newsom Public Utilities Commission of the City and County of San Francisco California