SAN FRANCISCO—California’s legislature passed a bill late on Aug. 31 that could help the utility Pacific Gas and Electric Corporation (PG&E) avoid potentially crippling liabilities for wildfires that ravaged northern parts of the San Francisco Bay Area last year.
The bill, passed 29 to 4 in the Senate and 45 to 10 in the Assembly, requires approval by Democrat Governor Jerry Brown.
Some fires in the north of the Bay area were caused by trees toppling into or making contact with PG&E power lines, a report released by state officials in June said. Analysts estimate PG&E, the state’s biggest utility, could face several billions of dollars in liability as a result.
Democrat State Senator Bill Dodd said the bill was needed to spare customers from big increases in energy costs. “Without it, ratepayers will be left holding the bag and communities will needlessly suffer,” he said.
The fires killed 46 people in blazes across at least 245,000 acres, including subdivisions in the city of Santa Rosa.
In California, utilities are responsible for fires traced to their equipment whether or not they are complying with regulations. PG&E faces about 200 lawsuits on behalf of 2,700 plaintiffs stemming from last year’s fires.
If signed by the governor, this would soften that standard by having regulators determine liability based on whether equipment was reasonably maintained and operated. It would also let utilities issue bonds to help pay damages, with a surcharge on ratepayers’ bills helping to cover interest payments.
Critics say the legislation is a bailout. But Dodd, who led the legislation, has said another bankruptcy by PG&E could be worse for ratepayers than a surcharge on their bills.
PG&E faced bankruptcy during California’s energy crisis in 2001, emerging three years later with customers left to pay higher rates to help repay $13 billion owed to creditors.
A second bankruptcy could potentially lump victims of last year’s fires in with PG&E’s creditors, casting uncertainty over the timing and size of recoveries.
“You’ve got a lot of investors like hedge funds circling like vultures,” Dodd, who represents parts of Northern California hit by last year’s wildfires, told reporters. “What would happen to the North Bay fire victims?”
Dodd’s legislation won bipartisan support in committee to be heard on Aug. 31, the last day of the legislature’s session. Consumer advocates have lobbied strongly against the bill.
PG&E hired law firm Weil, Gotshal & Manges LLP to explore debt restructuring options, including breaking the firm up to let one division file for bankruptcy, it was reported in August.
PG&E said it would not be financially sustainable without changes to state policy. PG&E reported second-quarter net losses of $984 million, compared with net income of $406 million a year earlier.
By Jim Christie