California created a fund to cover utilities’ wildfire costs and PG&E may be first to use it

Seen in a long exposure photograph, embers light up hillsides as the Dixie Fire burns near Milford in Lassen County, Calif., on Tuesday, Aug. 17, 2021. PG&E plans to draw from a state fund for $150 million to help defray the expected cost of the Dixie Fire, which burned more than 963,000 acres this year. NOAH BERGER AP

PG&E Corp. had been driven into bankruptcy by wildfire damages and Gov. Gavin Newsom was worried that the state’s ever-increasing wildfire hazards could swamp California’s other major utilities as well.

So, just months after taking office, Newsom persuaded the Legislature to create a giant wildfire insurance fund for the big utilities, paid for by shareholders and ratepayers alike. The plan “treats wildfire victims fairly and protects California consumers,” he said.

The fund is about to get its first claim.

PG&E says it plans to tap the fund for $150 million to help defray the expected cost of the Dixie Fire, which burned more than 963,000 acres this year. While an investigation is ongoing, Cal Fire believes the Dixie Fire began when a tree made contact with a PG&E power pole in the Feather River Canyon.

The state’s Wildfire Fund, created by AB 1054, is designed to help the big utilities deal with wildfires that exceed more than $1 billion in damages.

In a Securities and Exchange Commission filing Monday, PG&E said the costs from the Dixie Fire will total at least $1.15 billion. The utility said it expects to collect $150 million from the state’s fund.

A critic of the fund said allowing PG&E to collect money would amount to a bailout for the utility.

“What’s happening is exactly what we were worried about,” said Maria Severson, a San Diego attorney representing two PG&E customers who are suing the state to block the program. “It created the moral hazard of having the utilities neglect their responsibilities because they knew their unfunded liabilities would be funded on the backs of ratepayers.” The lawsuit was dismissed but has been appealed to the 9th Circuit U.S. Court of Appeals.

But Michael Wara, a Stanford University climate and energy expert who helps oversee the fund, said the program is doing what it’s supposed to do.

“The goal of the fund was always to stabilize the situation,” said Wara, a member of the California Catastrophe Response Council, which operates the fund. “The fund is going to do its job, for the first time.”

Before the fund was created, Wara said victims could be dragged through an anxiety-producing ordeal lasting years. For instance, victims of the fires that drove PG&E into bankruptcy have been promised $13.5 billion by the utility, but the process is taking years and there’s no guarantee they’ll get their full $13.5 billion. The payment trust is funded in part with PG&E stock, whose value has been depressed. So far the PG&E trust has paid out $1.2 billion.

WILDFIRE FUND COULD HELP PAY VICTIMS

By bolstering the utilities’ finances, the state-run Wildfire Fund makes it easier for victims to get compensated, Wara said. “It was designed to create greater certainty for victims and utilities, so the victims get paid,” he said.

“It’s really unfortunate that we ever had to use this fund but I’m personally glad that it’s there.”

PG&E could run into interference on prying money out of the fund. The Public Utilities Commission could determine that the company didn’t operate its system prudently, for instance. For its part, PG&E has said it regularly inspected the power pole, power line and the tree that’s believed to have sparked the Dixie Fire.

Under the rules enacted by lawmakers, PG&E, Southern California Edison and San Diego Gas & Electric funded the program with an initial contribution of $4.8 billion, and make monthly contributions. Eventually the fund is supposed to grow to $21 billion — half from shareholders, half from ratepayers.

Customers’ shares come from a surcharge on their bills of about $2.50 a month, although rates actually haven’t risen. Instead, the Legislature agreed to extend a surcharge that’s been in place since 2001.

The surcharge was initially created to reimburse the state for electricity it purchased for the three utilities during the energy crisis. The charge would have expired last year, but instead will run through 2035.

As for PG&E, it believes it can get reimbursed for the entire cost of the Dixie Fire. Besides the $150 million from the state fund, it expects to collect $569 million from its insurers and $339 million in rates through a program set up by the Public Utilities Commission to cover certain wildfire expenses. Those costs would require PUC approval.

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