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California needs a lot of money to fight fires. But how much?

Taryn Luna, Los Angeles Times on

Published in News & Features

Policy analysts say it would be difficult to secure billions of dollars from the utilities, including PG&E, in the midst of a federal bankruptcy case. But if utilities provide significant funding, it's possible that lawmakers would cap the amount of money utilities would have to ultimately pay in liability.

In a test of his ability to steer the state away from crisis, the governor convened a team this year to map out a solution. Newsom hired O'Melveny & Myers, a Los Angeles law firm, and Guggenheim Securities, a New York financial services advisory firm, to help his top advisers, at a cost of $6 million over six months.

The governor in February promised to deliver a "comprehensive strategy" to address the wildfire cost problem in April. Instead, his office issued a report outlining suggestions for lawmakers.

Newsom is expected to unveil a more concrete proposal as early as this week.

At a news conference this month, he questioned whether the state could hit his July 12 deadline to pass legislation and solve the "challenging" issue.

"This is a lot of moving pieces," Newsom told reporters. "This is a tough issue. Look, if it's not July 12, it's not July 12. But we have to do something quickly."

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If the Legislature fails to pass legislation to significantly reduce the utility industry's risk for wildfires, the credit downgrades from the ratings agencies could lead to higher borrowing costs for the utilities and monthly bills for electricity customers.

"They do not see a sustainable business model in the utility space in California because of what they see as unlimited downside risk," Wara said. "We need to change that perception at the minimum cost to ratepayers and to victims."

A legal doctrine called inverse condemnation holds utilities responsible for property damages from wildfires linked to their equipment. The system generally worked until a wildfire exceeded a California utility's insurance coverage for the first time in 2007.

San Diego Gas and Electric asked the PUC to allow it to recover $379 million, wildfire costs in excess of the company's insurance policy, from ratepayers for a trio of deadly blazes.

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