At the first hearing of the special conference committee urged by California Governor Jerry Brown to get action from legislators on the state's wildfires, one lawmaker suddenly, while speaking, struggled to go on.
Choking back tears of rage and frustration, Republican Assembly Leader Brian Dahle somberly remembered the 69 deaths attributed to the 2017 fires and his five-year fight to spur action by fellow lawmakers. Finally, struggling silently for words, he came back to the committee's work.
"This is not just about utility liability," he told the committee. "These fires keep getting worse. We have a vegetation and fuel-loading problem we need to address along with managing our grid."
California is on fire again this year. There were at least 19 fires burning across the state, consuming at least 210,000 acres, according to the Department of Forestry and Fire Protection (CALFIRE) at 6 p.m. Monday. The fires have involved multiple mandatory evacuations involving tens of thousands of people. Eight deaths have been reported.
It is "a record-setting pace and conditions are primed for more," California Public Utilities Commission President Michael Picker told the committee.
The conference committee faces questions about how to compensate victims for the mounting losses of life and property. It also must consider the role of the state's utilities in prevention and compensation.
Last year's fires left the utilities facing huge, possibly even insurmountable, liabilities. Decisions by the conference committee could protect their ability to continue delivering California's electricity — or cripple it.
In his letter to the conference committee, Brown asked the lawmakers to use the last four weeks of the current legislative session to address wildfire-related questions. He recommended changes in fire prevention and preparedness, forest management, utility infrastructure hardening and fire liability issues.
The committee's first hearing put a wide range of questions on the table for discussion. There was wide agreement that fuel-loading must be addressed by vegetation management. There was much less agreement on how utility liability should be handled.
The fundamental problem
"Too many people are being killed and hurt and their lives destroyed by wildfires," Stanford Research Fellow Michael Wara told the committee last week. The "fundamental problem" California faces is that "the current system for allocating and managing the risk of wildfires in California is unsustainable."
Wildfires are a type of "catastrophic risk," Wara said. But unlike the Southeast's hurricane response, California is not working "all sides" of its wildfire challenge. "Some are being worked less than they should," he said. "Some are not even addressed."
"As the governor has said, we cannot fight mother nature. We're going to have to learn how to get along with her."
Michael Picker
President, CPUC
The ideas of a public fund or securitized utility debt to help get victims compensated more quickly is beginning to be worked. Changes in insurance that could act as incentives to homeowners to do more of their own prevention has not yet been addressed.
California faces a "never-ending wildfire season" with drought-caused dry soil, high winds and extreme climate factors never seen before in the meteorological record, Picker said.
His commission has imposed new fire rules that are "the toughest in the country," Picker said. But they "may not be strong enough. As the governor has said, we cannot fight mother nature. We're going to have to learn how to get along with her."
The conference committee
In March, the Brown administration announced the 10 member bipartisan conference committee. Last week, he sent it seven guidelines. They urged mandating enhanced care and operations of utility infrastructure, enhanced utility prevention and safety planning and operations, and greater accountability for utility failures.
"Nothing changes liability for the 2017 wildfires," Brown wrote. But, going forward, clarification is needed from lawmakers on the utility liability issue and how to more promptly compensate victims.
The letter proposed that lawmakers address California's controversial strict liability interpretation of inverse condemnation. It now requires that if utility infrastructure is a "substantial cause of fire," courts must impose all damage costs on the utility, even if regulators find its prevention efforts were "reasonable and prudent."
Brown proposed that lawmakers instruct courts to balance private loss against the "public benefit" of utilities and require them to compensate only for their "proportionate fault."
"Wildfires affect everyone," Wara reminded the committee. But, because of potentially debilitating utility liabilities, their ability to continue procuring renewables could be compromised, which "fundamentally threatens the climate and clean energy goals of the state."
Prevention
The hearing revealed undisputed agreement that there is an ongoing need for new levels of preventive vegetation management and that San Diego Gas and Electric (SDG&E) has set the standard for how to do it.
"How are you going to address the fuel-loading problem?" Dahle asked during Picker's presentation. He was referring to the need to do vegetation management as a preventive measure.
That entails forest management, management of utility infrastructure at the wildland-urban interface and management of fuel in urban and suburban areas, Picker responded.
His commission is working with CALFIRE and other agencies on "stringent tree and vegetation management." But California's fire risk zone has grown from 31,000 square miles to 70,000 square miles, comprising 44% of the state’s land mass. There are nine million acres of "tree mortality high hazard zones" where 129 million trees have died due to drought and bark beetles.
Utilities have "an obligation to serve" the wildland-urban interfaces where there are 1.4 million homes and a rapidly growing population of over 4 million, Picker said. The CPUC and partner agencies are creating a comprehensive fire hazard map and ensuring that utilities implement updated wildfire mitigation plans. But prevention "may require rethinking where and how development happens."
Rural counties are expanding into high fire risk areas and should take more responsibility for land use choices, California State Association of Counties (CSAC) Policy Director Darby Kernan told to Utility Dive. County leaders can think about where new communities are built, but they want the state to do better vegetation management and to hold the utilities liable for last year's fires.
The critical need is to address the enormous and growing supply of combustible materials across the state, in and around utility rights-of-way and beyond them.
California now has the most aggressive U.S. standards for electric utility wildfire mitigations, CPUC Director of Safety and Enforcement Elizaveta Malashenko told the committee. It is monitoring and auditing the utilities to ensure they meet the standards.
"Fires need three things to spread; fuel, an ignition source, and specific weather conditions," she said. The vast majority of wildfire ignitions are attributable to vegetation coming into contact with power lines. A more "granular understanding of where risks are" and a "surgical ability to respond" can address this.
The utility state-of-the-art
Stakeholders told Utility Dive the prevention and response capabilities developed and implemented by SDG&E represent the state of the art.
The 2007 San Diego County wildfires set SDG&E on a quest for best practices, Principal Meteorologist Steve Vanderburg told Utility Dive. It has a network of 172 weather stations across its 4,100 square mile territory delivering temperature, humidity, and wind speed and direction data every 10 minutes.
"High performance computing" processes it and creates a "fire potential index," Vanderburg said. "It rates the seven-day event potential as normal, elevated or extreme." At the elevated and extreme levels, the utility moves closer toward readiness.
SDG&E's vegetation management program is mapping the more than 463,000 trees in high risk fire zones. The utility is also undergrounding lines there, and has replaced 16,000 wooden poles with fire-resistant steel poles. It has added fire-suppression equipment and firefighting personnel and developed protocols for them. And it has built a network of mountaintop cameras throughout its territory.
Using big data, computing power and detailed situational awareness, SDG&E runs tens of millions of wildfire simulations daily, Vanderburg said. If the indexes indicate a potential event, simulations of comparable historical conditions can inform a decision on response, he said. If response is necessary, the data will show where to preposition aerial and on-the-ground firefighting assets.
This work was started in response to one wildfire year, but there is now an ongoing increase in "unprecedented events," he said. "That is a new normal and climate change is undeniably one of the factors."
About a quarter of the Southern California Edison (SCE) 50,000 square mile territory is in high risk fire zones, VP Phil Herrington told Utility Dive. "No doubt driven by climate change," SCE has seen "a marked increase in the magnitude of the threat."
Both SCE and Pacific Gas and Electric (PG&E) have programs that, as described by Herrington and PG&E spokesperson Ari Vanrenen, follow SDG&E's best practices.
Like SDG&E, SCE has installed and used recloser devices. They normally enhance reliability by automatically reclosing switches opened by a power line fluctuation, Herrington said. But during a fire threat, "we may decide the safest thing to do is deenergize the circuit before something happens."
Kellie Smith, chief consultant for the California Assembly's Energy and Utilities Committee, told Utility Dive the CPUC's July 12 guidance on deenergizing was critical to preparing utilities to use reclosers more effectively. "It is a difficult ask of utilities, because turning off the power disrupts traffic lights during an evacuation, water pumps vital for firefighting, and puts the vulnerable in jeopardy," she said. "But it may be necessary to prevent a fire."
The CPUC guidelines on using reclosers to deenergize lines were issued while reports were emerging that PG&E, unlike SCE and SDG&E, failed to use their reclosers effectively in 2017.
Kernan, along with advocates for ratepayers, the insurance industry and 2017 wildfire victims told Utility Dive this was among the reasons counties are insistent that PG&E not get liability relief from the conference committee.
PG&E was potentially negligent in at least 11 of the 2017 wildfires and faces billions in liability costs, according to Democratic Senator Jerry Hill who is not a conference committee member but serves a district in PG&E's territory. "In October, PG&E turned off 38 reclosers but there were severe losses of life and property. But it learned and, facing similar circumstances in December, it turned off 4,000 reclosers."
After the deadly San Bruno natural gas pipeline explosion, PG&E built a state-of-the-art natural gas system, Hill told Utility Dive. "Unfortunately, they ignored their electric system instead of following SDG&E's best practices, which may have prevented much of what happened."
The question now is what action the conference committee should take to create incentives to use best practices and prevent the worst from happening again.
Prevention through policy
The conference committee will likely use Senate Bill 901 as the legislative vehicle to respond to the Governor's recommendations," Smith said.
There is much speculation and debate about what the committee will do about the liabilities and costs PG&E and SCE face from what CALFIRE calls the 2017 "conflagrations."
Anticipating a significant hit, PG&E announced a $2.5 billion set-aside in a June 21 Securities and Exchange Commission filing. Early estimates put SCE's costs at nearly $4 billion, but that does not include costs that could reach $250 million for the devastating January mudslides that took 21 lives and were the result of the fires.
Stock market activity has shown investor concern over potential liabilities, according to Bloomberg News. PG&E CEO Geisha Williams has raised the possibility of bankruptcy, though a May 21 Morgan Stanley analysis estimated PG&E's eventual liability, after settlements with insurers and other negligent parties, would be $2.75 billion and allow it to remain solvent.
SCE would like legislation that details what lawmakers want in wildfire management plans, VP Carolyn Choi told Utility Dive. That language is critical guidance for formulating utility mitigation plans because it will allow cost recovery for compliant mitigation work.
It will also limit utility shareholder exposure to wildfire costs, because liability incurred by a utility in reasonable and prudent compliance with its commission-approved plan would be recoverable.
Finally, SCE would like lawmakers to take the governor's recommendation to allow the commission to allocate utility liability based on proportionate fault, Choi added.
"It is not the conference committee’s responsibility to keep PG&E solvent ... But the utilities keep screaming bankruptcy and saying the sky is falling and I keep looking up and seeing nothing coming down."
Jerry Hill
California State Senator
These changes "would not affect in any way a litigant's right to file negligence or other claims against a utility to hold the utility accountable," she stressed. "And they should not be retroactive or affect 2017 claims."
PG&E supports these legislative directions, Vanrenen said. Both SCE and PG&E also like an idea proposed in separate legislation and just beginning to be discussed of securitizing utility debt, to help pay wildfire costs not met by insurance or rate recovery.
Choi said the idea of a fund like those used to compensate hurricane and earthquake victims is also "worth exploring." Such a fund "could make compensation happen more quickly," she said.
Wara and Kernan see potential but also complications in the securitization and emergency fund proposals. They agreed these proposals could streamline compensation but raised questions about how much debt would be securitized and how the funds would be paid for.
The biggest matter on the table for the utilities and the lawmakers concerned about the utilities' financial stability is the question of wildfire liability.
Who pays?
A Legislative Counsel opinion concluded the legislatively-imposed liability reforms endorsed by the utilities would be judged unconstitutional by California’s courts, Senator Hill said. The separation of powers prohibits California lawmakers from revising or interpreting court precedents on constitutional provisions, he added.
Revising utility liability rules is also a bad idea because they act as a strong incentive for utilities to be reasonable and prudent, Hill said.
Wara, along with the utilities, disagreed. Citing precedential Supreme Court decisions, Wara told the committee a law clarifying liability rules "would be constitutional" and "would be upheld when judicially challenged." He also argued the current liability rules and the new normal impose an ongoing threat of utility bankruptcies.
Hill responded that "It is not the conference committee's responsibility to keep PG&E solvent." The Governor's call for investigation of these complex issues is appropriate, he said. "But the utilities keep screaming bankruptcy and saying the sky is falling and I keep looking up and seeing nothing coming down."
Kernan said California's under-resourced counties lost thousands of acres to wildfires and victims unable to obtain prompt and just compensation may not be able to remain a part of their tax base. The current liability rules conclusively impose the burden for compensating victims on the utilities, she said. "The counties want it to stay that way."
The changes endorsed by the utilities would force victims into court to prove utility negligence, she said. "The utilities could delay and outspend us on these complexities until we could not obtain real compensation."
The complexity
Kernan is especially concerned that the conference committee recognize the complexity of the liability issue. "Just explaining the liability rules in the four-week period before the legislative session ends will be hard," she said.
"We are open to talking about safety, land use, tree mortality, all the issues," she added. "But on liability, let's figure out what other solutions there are, especially with a new administration and legislature coming in November."
Throughout the hearing, Dahle remained unconvinced. "We will pay for wildfire damages in our utility bills or we will pay for fighting the wildfires unless we manage fuel loading," he said.
Wara agreed the time is short and there are many issues. "It is important to address the existing liabilities first, because there are real people who have been harmed and need to be made whole." The ideas of securitization or an emergency fund might do this.
Future liabilities must be addressed through reforms in utility wildfire planning, in utility liability rules, and insurance regulations. Some items on this "complex menu" can be settled before the current legislative session ends August 31 but others cannot, and two warnings apply, Wara said.
"Don't let utilities go bankrupt" and "beware the unintended consequences of complex changes hastily made," Wara said. "Do the work this year to keep Californians safe and to make them whole. But remember that solving a problem in the electric utility system by creating one somewhere else may not serve anyone's interest."
