California Utilities Want Taxpayers and Ratepayers to Bail Them Out

Ian Adams
Associate vice president for state affairs for the R Street Institute.

SACRAMENTO — It’s a bedrock principle of American law that parties responsible for a harm compensate those affected by the damage they’ve caused. Yet, based on their recent lobbying activities within the halls of the state’s Capitol, some of California’s investor-owned utilities, including PG&E, appear to be operating under a different assumption. They seem to believe that their ratepayers, insured throughout the state and California taxpayers should shoulder the cost of a bailout for their mistakes.

A special legislative committee has been convened to discuss this, and other issues, related to wildfire prevention and mitigation. The charge of that committee is complicated by the specter of profound and ever-mounting stories of human loss and suffering. But a bailout for utilities is not how to make them whole or how to make the Golden State more resilient following a devastating wildfire season.

The stakes are high for the policy conversation surrounding “who pays” and in what circumstances they pay in the wake of wildfires. For instance, the Tubbs Fire — which afflicted wide swaths of northern California’s wine country, took 44 lives, and destroyed more than 5,000 homes — was one of 12 fires estimated to have caused nearly $10 billion in damage to the region.

Based on current law, investor-owned utilities could be on the hook for most of that amount under the principle of “inverse condemnation.” That’s because, according to CalFire, the behavioral-genesis of the various conflagrations rests squarely at their feet. Straightforwardly, they started the fires, they caused the damage, and they should pay to make fire victims whole.

Understandably, those firms would like to mitigate their share of the cost, now and into the future. Despite this calculus of causation and responsibility, the utilities claim that the arrival of a “new normal” in terms of exposure to fire risk demands a new approach to policy. So, to that end, suggestions of adjusting the scope of liability and the use of state funds to offset the expense have been made.

In some respects, the investor-owned utilities may be right. There is a need for policy change to better prepare the state for a future in which wildfires are more frequent and more homes are exposed to the peril. Rating flexibility, particularly in the realms of utility and insurance markets, would serve the state well and allow consumers to better understand the risks they face. Likewise, the availability of pricing variances based on measures taken to mitigate risk should be considered and adopted.

Yet, as providers of energy to millions of residents, California’s investor-owned utilities enjoy unique business advantages. Though they are private firms — albeit heavily regulated ones — they are granted quasi-monopoly status and are able to liberally utilize powers more readily recognizable as those of the state. This includes the power of eminent domain, whereby investor-owned utilities are able to take, or otherwise modify, the ownership interests of private property owners. In exchange for these broad grants of authority the state has created a high threshold of responsibility for their actions. It’s part of a grand bargain.

Given that a utility can introduce a peril to privately owned property over the objection of a homeowner by wielding quasi-state authority, it is only appropriate that it should be held to a standard befitting that expansive and unique power. For that reason, changing the standard by which the behavior of utilities is evaluated is, if done in a vacuum, a give away. Ultimately, spreading the cost of the “new normal” should not come at the expense of the reliance interest that Californians have developed after ceding property rights that would, otherwise, be theirs.

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