California could create its own power purchasing entity, change the standards that make utilities responsible for damages from wildfires and discourage new housing in areas at high risk of wildfire.
Those are among the recommendations in a report Gov. Gavin Newsom presented Friday aimed at addressing a host of problems related to wildfires, chief among them how to maintain a safe, affordable electricity supply for California amid worsening fires.
But the 58-page report, crafted by a “strike team” of government and outside experts fails to take strong positions on possible solutions, instead outlining a smorgasbord of recommendations and leaving lawmakers to decide how to proceed.
It offers dire predictions about the consequences of inaction, warning of gaps in electricity service, even more destructive fires and spiking costs for customers.
“The status quo is not an option. Doing nothing is unacceptable,” it concludes.
Two of California’s deadliest and most destructive wildfire seasons in state history hit in 2017 and 2018, with 85 killed in a single Northern California wildfire last November. Insurance losses for that fire alone topped $8 billion.
PG&E, the nation’s largest utility, filed for bankruptcy in January over concerns it couldn’t afford potentially billions of dollars in liability from fires caused by its equipment. Officials haven’t determined what caused the November fire, but PG&E has acknowledged its equipment likely sparked the blaze.
The report covers PG&E’s bankruptcy, the effect of climate change on wildfires, how to protect ratepayers from cost spikes and whether the state’s regulatory system needs to be modernized. The team included representatives from state agencies including the Public Utilities Commission, Department of Insurance, Office of Emergency Services and the California Department of Forestry and Fire Protection.
Newsom has also hired the high-powered law and investment firms O’Melveny and Myers and Guggenheim Securities to provide expertise at a cost of more than $6 million over six months, according to contracts obtained through the California Public Records Act.
The state has no formal role in the bankruptcy, but the report affirms the state should monitor it closely and intervene if needed.
Other recommendations include discouraging new development in high-risk fire areas. California is in the midst of a housing crisis and as urban areas become more expensive many have chosen to move into more rural areas. The report says the state should try to encourage more building in urban and low-risk areas “to provide an alternative to those otherwise shut of the state’s housing market.”
The report also raises the possibility of changing California’s strict liability standards that require utilities to pay for damages from wildfires caused by their equipment, even when the company is not deemed to have acted irresponsibly. Utilities have repeatedly tried to change the standard with no success.
The report said any changes in utility liability rules should give incentives to utilities to invest in safety and critically, impose penalties for failing to do so. It said any changes also must continue to hold shareholders, not customers, responsible for safety failures. It suggests adjusting how much profit utilities and their executives can make based on their wildfire safety performance.
On insurance, the team recommends that the governor and Legislature consider whether insurers should be obligated to offer insurance to customers in high-risk areas, whether they should be obligated to offer reduced rates to property owners and communities that have taken extra mitigation against fire and whether policy limits should be increased to recognize current California construction costs.
The financial stability of California’s three major investor-owned utilities — PG&E, Southern California Edison, and San Diego Gas & Electric — is necessary for California to keep electricity costs low and meet its renewable energy goals, the report concluded.
While only PG&E has filed for bankruptcy, the other two utilities have had their credit ratings downgraded recently. The report warned low ratings make it harder for utilities to access cash they need to invest in making their power lines safer.
“These downgrades, and the prospect of additional utility bankruptcy filings, directly impact Californians’ access to safe, reliable and affordable electricity,” the report said.
It also explores the possibility of California creating its own power source for reliable electricity as the market diversifies, though it offered few details on how a state-run power procurement entity would work.
More Californians are getting their electricity from municipal providers or from local renewable sources rather than through traditional utilities, which could lead to potential gaps in electric service.