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Governor Releases Language for Utility Wildfire Liability Bill

AB 1054 faces a two-thirds vote in the Legislature; Governor wants bill passed before July 12

July 8, 2019
Gov. Gavin Newsom and Assembly Members released 73 pages of language on June 27 outlining a wildfire plan that seeks to stabilize investor-owned utilities (IOUs) in California.
 
AB 1054 (Holden, Burke, Mayes) will establish a Wildfire Fund, make changes to the cost recovery standard at the California Public Utilities Commission (CPUC), and create a new CPUC Safety Certification. This bill requires a two-thirds vote to pass as it is an urgency bill and will take effect immediately upon being signed. The Governor has announced the ambitious goal that he would like the Legislature to pass legislation related to wildfires before the summer recess begins on July 12.
 
Background of Utility Wildfire Liability Bill
 
The severity and frequency of California’s recent wildfires is unparalleled. The recent Camp Fire in Butte County devastated the Town of Paradise and regrettably is on record as one of the most deadly and costly wildfires in California’s history. The destruction seen across the state only highlights the need for more resources and tools to prevent and respond to these disasters. To address the destabilizing effects that utility caused catastrophic wildfires have had on California’s electricity customers, the Governor called for the creation of a Strike Force to develop recommendations. It is the mission of the Strike Force to develop comprehensive strategies to grapple with the increasingly dangerous and destructive wildfires that California communities continue to face and to inform legislation on this issue going forward. They issued a report in April outlining their findings. AB 1054 attempts to codify some of the Strike Force’s recommendations.
 
Breakdown of AB 1054

The key contents of the bill are detailed below: 
  • Establishes the California Catastrophe Council: This council will oversee the California Earthquake Authority (CEA) and the “Wildfire Fund Administrator” who oversees and operates the Wildfire Fund.
  • Creates the Wildfire Safety Division and Advisory Board at the CPUC: Starting Jan. 1, 2020, the Wildfire Safety Division will oversee and enforce investor owned utilities’ safety compliance, and evaluate all electrical utilities’ compliance with their wildfire mitigation plans.
  • Reforms Utility Cost Recovery: Creates a new CPUC standard where in order to pass-through expenses, an electrical corporation bears the burden of proof to demonstrate their conduct was reasonable (current law practice), unless the electrical corporation has received a valid new “safety certification” from the CPUC. If the electrical corporation has received a valid safety certification, their conduct shall be deemed reasonable, unless a third party demonstrates that the electrical corporation’s actions were not reasonable.
  • New CPUC Safety Certification: The CPUC and Wildfire Safety Board will issue new annual safety certifications to electrical corporations. The safety certification allows electrical corporations to have access to the Wildfire Fund and for new cost recovery standard.
  • Creation of Liquidity Fund; and Option to Convert to Larger Insurance Fund: Creates a Wildfire Fund as a liquidity fund for investor owned utilities (IOU) initially capitalized through a Surplus Money Investment Fund (SMIF) loan of $10.5 billion. IOU’s can also opt to covert the wildfire liquidity fund into an insurance fund funded from initial investment from SMIF loan and an additional $10.5 billion from IOU’s totaling $21 billion.
Next Steps

The Governor announced that he would like to see legislation related to wildfires pass before the Legislature’s summer recess begins on July 12. The Legislature is currently considering this bill and will require a two-thirds vote in both houses in order to pass.

This bill was heavily amended late on Friday, July 5 and is currently scheduled to be heard in the Senate Energy, Utilities and Communications committee on Monday, July 8. The League will issue a follow-up story outlining the amendments and the legislative progress the bill has made.


 
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