While Pacific Gas & Electric is drawing most of the attention – and fire – for its role in devastating wildfires in 2017 and 2018, it’s clear that this is a statewide problem, not just sloppy practices by an uncaring monopoly utility.
The state’s other two investor-owned utilities – Southern California Edison and San Diego Gas & Electric – and the state’s large and politically powerful public power systems are also coming under scrutiny.
It appears that the problem is California’s climate and geography, coupled with land use patterns that put more homes and communities at risk, perhaps aided by poor land use management from the state, local, and federal government, that have turned California into a multi-billion dollar tinderbox.
There’s a long running joke. California, it goes, has four seasons, just like the rest of the U.S. In the Golden State they are drought, fire, flood, and mud. The state is prone to natural disasters (not to mention earthquakes, but I just did). The spread of urbanization and suburbanization into the California brush and mudslide country increases the natural risks.
So PG&E, the state’s largest utility, was forced into bankruptcy by its apparent responsibility for the 2018 Camp fire, which killed 86, causing billions of dollars in damages. The company may not survive. Barron’s this week reported that “while the dust may be beginning to clear on where the utility stands in terms of recent wildfires, Morgan Stanley warns that potential liabilities for future outbreaks are the next worry for shareholders.”
While the appointment of a new slate of PG&E leaders, including new CEO Bill Johnson, gave the shares a boost, still the “company had to suspend its dividend, critics remain, and Barron’s has warned of the risks of trading PG&E.”
Southern California Edison has not been exempt from concerns over wildfires. Buzzfeed reported in mid-March, “Southern California Edison equipment sparked the Thomas fire in December 2017, devastating coastal communities in Ventura and Santa Barbara counties and killing one resident and a firefighter, officials said. In all, the wind-driven blaze engulfed more than 281,000 acres and destroyed 1,063 structures.”
The account added, “About a month later, storms in the newly charred, vegetation-stripped hills of Santa Barbara triggered massive mudflows in Montecito, which killed 23 other residents.” The company took a $4.7 billion charge for the fire and mudslides.
Nor is San Diego’s utility off the hook. The company filed an appeal last August of a state court judgment upholding a California Public Utilities Commission (CPUC) ruling that the utility may not recover $379 million in costs from ratepayers from a major fire 11 years ago.
The state’s public power systems are also exposed to financial risk from fires. Moody’s Investors Service this week issued a report saying, “While much of the focus following the Pacific Gas & Electric bankruptcy has centered on investor-owned electric utilities (IOUs) in California, public power utilities are also at risk due to wildfires and the state’s application of inverse condemnation….”
California’s inverse condemnation law, Moody’s explains, “requires compensation to private property owners whose property is damaged by public use property, regardless of whether the public entity acted negligently or violated regulations.” California’s munis, including their joint action agencies – groups of munis working together to achieve greater economies of scale – are subject to the law, which exposes them to credit risk. Unlike investor-owned utilities, municipal systems have ratemaking control and do not have to go through the CPUC to raise rates to recover damages.
Moody’s has three categories of wildfire risk for the California munis and joint action agencies: Low risk, moderate risk, and “elevated risk.” Moody’s elevated risk category has one occupant: Trinity Public Utilities District, located in northwestern California on the edge of Trinity National Forest.
In the moderate risk category are Los Angeles Department of Water and Power, Sacramento Municipal Utility District, Turlock Irrigation District, City of Anaheim, City of Glendale, City of Burbank, and City of Colton. In the low risk category are Modesto Irrigation District, Imperial Irrigation District, City of Vernon, City of Rosedale, and City of Lodi. The high and moderate risk systems have a negative bond rating outlook from Moody’s, while the low risk munis all have stable ratings.
Moody’s risk ratings are based on data from the California Department of Forestry and Fire Protection and recognize that the three IOUs have by far the greater geographic exposure to wildfires, as they “provide service to 89% of the state’s land area….”
Looking statewide, E&E News commented, “California’s top lawmakers are weighing major changes to how the state deals with catastrophic wildfires, including overhauling rules for the troubled utilities tied to those deadly blazes.”
— Kennedy Maize