Nearly 20 years ago, deeply flawed public policy sent electricity costs soaring, caused widespread rolling blackouts, bankrupted one utility and nearly another and led to statewide public outrage. It also stalled California’s march toward a cleaner, more renewable energy future.
The new electricity market designed in 1996 was manipulated by out-of-state energy wholesalers, including Enron, which pocketed billions of dollars from consumers. Representing the central coast in the Assembly as speaker pro tem, I helped enact a legislative fix, but the energy crisis left Californians shaken and uncertain.
Today, a perfect storm has emerged that could prove just as damaging. Due to court rulings and incoherent regulations, California’s utilities face outsized financial risks from wildfires that cannot be effectively managed until conditions change.
Climate change has increased wildfire risk. Widespread drought and bark beetle infestations have made fires more destructive. Development in fire-prone areas has put more infrastructure in harm’s way. And extraordinary wildfires have swept the entire state.
A legal doctrine called “inverse condemnation” allows utilities to be held entirely liable for property damage from wildfires if their equipment was a substantial cause – even if the equipment was properly maintained and in compliance with current requirements. This worked in the past because utilities could recoup the costs by spreading them across their customers.
But a 2017 California Public Utilities Commission ruling raises questions about whether utilities can recover these costs. Therefore, utilities would have to assume the full financial risk of wildfires with no tool to manage it.
The chain of dominoes continues. Investors and lenders will shy away from California’s utilities. Without a reasonable source of capital, the utilities’ costs to fund their operations – including substantial green energy investments – will increase, meaning customer rates will, too.
Gov. Jerry Brown is leading us in the right direction. He is proposing to reduce utilities’ legal liability for wildfire damage. He told a new conference committee on wildfire preparedness and readiness that “just as our firefighting techniques and forest management must adapt…so must California’s laws. The law must establish powerful incentives for utilities to deliver power safely and must hold those who are at fault responsible for the damage they cause.” I couldn’t agree more.
The threat is so extreme that many, including legislators, suggest that California’s utilities could possibly face bankruptcy. While some may cheer this blow to corporations, it’s a lousy way to implement renewable energy and effectively combat climate change.
California has ambitious climate change goals – to reduce greenhouse gases by 40 percent from 1990 levels by 2030 and by 80 percent by 2050. To achieve these goals, we need financially healthy utilities. You don’t have to like them, but we do need them.
First responders and other stakeholders are working with utilities to identify ways to prevent wildfires and reduce their destruction. But when fires break out, we need a sensible way to pay for nature’s damage.
Legislative action on this issue is critical. Unresolved, it is likely to end up in the courts for months and years. As the new conference committee begins its important work, I urge its members to learn the lessons of the past, and take the necessary steps to safeguard California’s future. As the threat of wildfires grows and their costs continue to rise, California cannot afford to wait to act.
Fred Keeley, a former state Assembly speaker pro tem, teaches at San Jose State University and at the Panetta Institute for Public Policy. He can be contacted at email@example.com.