Six years ago, Pacific Gas & Electric Co. was declared bankrupt after being found responsible for starting a series of devastating wildfires, including one that destroyed the town of Paradise and killed more than 100 people. I applied.
Wall Street investors lost confidence and rating agencies threatened to downgrade California’s investor-owned utilities, prompting lawmakers to come up with innovative solutions. It would create a $21 billion wildfire fund to be split 50-50 between shareholders and utility customers.
Now that two major wildfires have destroyed thousands of homes and killed at least 20 people in and around Los Angeles, another power company could be found to be responsible for starting the blazes. The state’s wildfire fund will face its first major test.
Even the same lawmaker who led the bill to create the wildfire fund isn’t convinced that enough is being done to reduce risk for utility companies and allow them to continue operating in states prone to increased wildfire risk. .
“This is the most serious challenge the fund will potentially face,” said former Democratic Rep. Christopher Holden, the sponsor of the bill creating the fund. “This is new ground,” said Holden, who lives in Pasadena and had to evacuate during the Eaton fire.
“When we wrote this bill, it was new ground, and now, just five years later, we are experiencing new ground.”
If investigators determine that utility companies were responsible for the Eaton and Paradise fires, it could send shockwaves through the utility industry and the broader insurance market.
Mark Toney, executive director of the Utility Reform Network TURN, said the scale of the Los Angeles County fires raises serious questions about the fund’s ability to cover insurance liability. Even if the fund were able to bail out utility companies during fires, it’s unclear whether it would be able to cover future fires.
“Will the fund work?” Tony said. “Who will pay in the end?”
The cause of the fire has not yet been determined.
Investigators investigating the Eaton Fire, which killed at least 17 people and damaged an estimated 7,000 structures across Pasadena and Altadena, say the area around the Southern California Edison power transmission tower in Eaton Canyon focused.
Edison denied any negligence in the Eaton fire. In a statement to the Times, the company said wildfire mitigation efforts have reduced the risk of catastrophic fires by 85% to 90% compared to before 2018.
The Los Angeles Department of Water and Power, the municipal utility that operates in the Pacific Palisades, said it did not participate in the wildfire fund because it was too costly for customers. If a large municipal power company is held responsible for the Palisades fire, the city of Los Angeles could face prohibitive financial costs.
But sources familiar with the investigation told the Times that the fire, which started in the Skull Rock neighborhood north of Sunset Boulevard, appears to be human-caused. Authorities are investigating whether a small fire that may have been started by New Year’s Eve fireworks may have somehow reignited on January 7th.
Michael Walla, an energy and climate scientist at Stanford University, said if power companies were found to have started the Los Angeles fires, it would require an overhaul of not just California’s wildfire fund but insurance across the state. He said it might happen.
“The big question is how available and affordable insurance is overall,” said Walla, who served on the California Catastrophe Council, the fund’s oversight body. “I think California will face even greater challenges than it has in past years. It will be easier for primary insurers and other entities to access the global reinsurance market that funds losses after catastrophes. It wasn’t.”
Under California law, utility companies have strict liability for all damage to fire-related property, including residences.
The wildfire fund is funded by three major owner-operated utilities in the state: Pacific Gas & Electric Company, San Diego Gas & Electric Company, and Southern California Edison. , a new model that allows funds to be used as needed. It was determined that their equipment caused the fire. If that happens, they will be responsible for the first $1 billion in losses. The Bushfire Fund will then pay for it.
“If the wildfire fund didn’t exist now, Edison might be in real trouble,” Walla said. “We’re probably going to see something similar to what happened to PG&E after the Camp Fire.”
At the time, electric companies were subject to strict liability standards, which meant they could be held liable if their electrical equipment was found to have caused a fire, Walla said.
Now, if Edison is ultimately held liable, the company could go to the wildfire fund and get money, Walla said.
“This is very important in ensuring that victims recover, at least in terms of property losses,” he says.
It’s too early to estimate the damage caused by the Eaton fire, but Walla said thousands of structures were lost in an area where the average home price is about $1.3 million. He said the cost could reach $10 billion.
Walla said half of the $21 billion in the fund could be depleted if authorities determine Edison acted responsibly despite causing the fire.
“That’s half the fund in one fire, and it’s five years into the life of the fund,” said the University of California, who serves as the state’s wildfire commissioner and oversees the California Wildfire Fund. said Wala, who also served on the Disaster Response Council.
The problem is compounded by the fact that the wildfire fund has only raised $14 billion so far, as utilities cannot immediately expect ratepayers to pay half of their $21 billion share. There is.
“If you’re a PG&E or Edison investor, you might look at this and think, ‘Hmm, I thought this fund was big enough.’ Maybe you’re not so sure now.” exists to provide credibility. If the endowment is not large enough, credibility will be low.”
The California Department of Forestry and Fire Protection (Cal Fire) will lead the investigation into the cause of the fire.
The California Public Utilities Commission then determines whether the utility company acted reasonably or unreasonably, and if so, to what extent.
Walla said the fund would have to be repaid if the utility was found to have failed to act wisely. However, the amount paid is limited to the reimbursement amount based on the size of the fee base.
Edison International CEO Pedro Pizarro told Bloomberg TV that state regulations cap the company’s owner liability at $3.9 billion.
“The reason there’s a cap is if Edison is repaying the fund, it’s basically the electric customers repaying the fund,” Walla said. “Edison would go to the California Public Utilities Commission and say, ‘We need to expense this money in our rates.'”
Walla said the fund also has to pay for wrongful death, but that’s a different type of claim.
“You have to show negligence, but that can actually be difficult to prove, because even though Edison may have acted reasonably, their equipment still caused the fire.” ,” Wala said. “Edison would have good reason to argue that it acted reasonably in the sense that it invested large sums of money to reduce risks, and that it oversaw all of this, approving and monitoring compliance with the plan. There are institutions that do so.”
Still, even if the wildfire fund were to bail out Edison, there could be significant repercussions for it and other utility companies. If most of the wildfire fund’s $21 billion were to be depleted, it would impact the market’s perception of the fund and negatively impact the credit scores of utilities, which cover about 80% of customers across California. This could cause confusion for the owned power company. .
On Tuesday afternoon, shares in the utility’s parent company, Edison International, rose less than 1% to $57.27, having fallen more than 24% in the week since the fire broke out. This means the company’s market capitalization has decreased by more than $7 billion.
“if, [utility] If the market collapses, it would be catastrophic,” Holden said. “We have to continue to secure our market.”
Last fall, state regulators criticized Southern California Edison for delays in inspecting power lines in areas at high risk for wildfires.
The utility’s safety agency also said in a report that visual inspections of the company’s power line connections sometimes fail to find dangerous problems.
“Telemetry showed no signs of electrical abnormalities,” Edison International CEO Pedro Pizarro said on Bloomberg TV on Monday. “Usually when there’s a fire across the infrastructure, the voltage drops. We’ve never seen anything like that in our research.”
Pizarro said that before the Eaton Fire erupted in a canyon near Altadena, Edison shut down power lines near the source, but not the transmission lines. “Power lines are getting bigger and stronger, so they can operate safely in higher wind speeds,” he said.
Some of the most destructive wildfires in California in the past few decades were caused by aging electrical equipment. The 2018 Camp Fire was caused by a 100-year-old high-voltage power transmission tower. The 2019 Kincade Fire was caused by railroad tracks built half a century ago. Walla said California’s aging public infrastructure may not be working even when inspected.
“A lot of California’s power transmission systems are quite old,” Walla said. “There have been several construction activities connected to our system, but the last time we had major construction activity was when Pat Brown was governor. Something broke down on that tower and caused a ground fault. If so, at some point we have to ask ourselves… Shouldn’t we be relying on old infrastructure?”
At a time when hurricane-force winds can ignite wildfires that engulf vast areas, Tony wondered if it made sense for utility companies to be responsible for the fate of individual households. . He said wildfires are caused by lightning strikes, arson and even legal fireworks, as well as deficiencies in utilities, and are further exacerbated by poor development and inadequate clearing of vegetation and landscapes.
“It’s a mistake to isolate utility,” Tony says. “It’s time for a new paradigm. Utility bills may not be big enough given the cost of rebuilding.”
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