As Fires Ravaged California, Utilities Lobbied Lawmakers for Protection

Published on


January 5, 2019

LOS ANGELES — As California’s deadliest wildfire was consuming the town of Paradise in November, some of the state’s top power company officials and a dozen legislators were at an annual retreat at the Fairmont Kea Lani resort on Maui. In the course of four days, they discussed wildfires — and how much responsibility the utilities deserve for the devastation, if any.

It is an issue of increasing urgency as more fires are traced to equipment owned by California’s investor-owned utilities. The largest, Pacific Gas and Electric, could ultimately have to pay homeowners and others an estimated $30 billion for causing fires over the last two years. The most devastating of those, the Camp Fire, destroyed thousands of homes in Paradise and killed at least 86 people.

Realizing that their potential fire liability is large enough to bankrupt them, the utility companies are spending tens of millions of dollars on lobbying and campaign contributions. Their goal: a California law that would allow them to pass on the cost of wildfires to their customers in the form of higher electricity rates. After an earlier lobbying push, legislators have already voted to protect the companies from having to bear the cost of 2017 fires, and utilities are seeking the same for 2018.

The utility companies acknowledge that they may bear some responsibility but say not all of it, because climate change and development in remote areas have made wildfires more destructive. In addition, they argue that electricity rates would go up regardless of whether the state protected them because investors and banks could grow wary of lending to California’s energy sector.

But public interest groups say the utilities are effectively seeking a bailout for mistakes made by well-compensated executives. The utilities have been frequently criticized, for example, for not trimming trees along power lines. Some policy experts and lawmakers say it might be better to break up PG&E, replace its board and management or convert it into a publicly owned utility.

People on both sides fear that the state, which prides itself on being a leader in the fight against climate change, could be on the cusp of an energy crisis — its second in less than two decades. In 2000 and 2001, California was roiled by blackouts, soaring electricity rates and the bankruptcy of PG&E after the state made missteps in deregulating the power industry.

“There clearly is a great deal of disruption that would occur,” said Assemblyman Chris Holden, chairman of the Utilities and Energy Committee. He was referring to the possibility of a second bankruptcy of PG&E, which serves 16 million people in central and Northern California.

Just two months before the Camp Fire, PG&E seemed to have solved its most pressing problem: protecting its shareholders from footing the bill for the 2017 wildfires. On the typical bill of $100 a month, the company estimates, a customer would pay an additional $5 for every $1 billion the utility borrowed to cover damages.

The companies waged a multimillion-dollar campaign to secure that protection. In the first nine months of 2018, the three investor-owned utilities collectively gave $5 million to the campaigns of state lawmakers, as much as $1 million more than they had in any full year since 2011, according to Consumer Watchdog, an advocacy organization in California.

PG&E stepped up its lobbying effort, too — spending $8.4 million in just the first nine months of 2018, compared with $1.6 million in all of 2017 and $1.1 million in 2016. The company’s spending in the first three quarters exceeded 2017’s top spender, Chevron, which spent $8.2 million that year, according to Consumer Watchdog.

“Money talks in Sacramento, and big money talks loud enough to buy a big bailout,” said Jamie Court, president of Consumer Watchdog. “There is no legislator of either party, even those who don’t take money from the utilities, who doesn’t worry about bucking the utilities.”

Consumer groups say the efforts to protect utilities are particularly galling because Californians already pay more for power than people in other Western states. The state’s residential electricity prices are between 19 percent and 40 percent higher than in neighboring Arizona, Nevada and Oregon.

Events like the Maui conference have provided fodder for the industry’s critics.

The annual event is organized by the California Independent Voter Project, a nonprofit in San Diego that was co-founded by a former state senator and says it informs the public about policy issues. The event brings together legislators and executives from several industries, who pay $8,000 a head to attend. Legislators sometimes pay their own way or receive compensation if they speak.

PG&E canceled its presence at the event as fires began raging in Northern California but did not seek a refund of its sponsorship, which the company said covered the entry fees for its officials. Executives of the two other investor-owned utilities, Southern California Edison and San Diego Gas & Electric, still attended.

Also at the event were 10 members of the State Assembly and two state senators who sit on committees dealing with the state budget, appropriations, energy, public safety and insurance. The dozen lawmakers are among the biggest beneficiaries of campaign contributions from the three utilities, receiving more than $600,000 since 2011, according to Consumer Watchdog.

Discussions at the conference covered many topics, including the wildfires, said Dylan Gray, chief of staff for Assemblyman Heath Flora, a Republican from the Central Valley who attended.

Dan Howle, executive director and chairman of the Voter Project, said that no lobbying was permitted and that no specific legislation had been discussed.

“What would be wrong with elected officials and business discussing issues?” he said. “If the public wants to go, the public can pay a fee.”

But critics describe the event as part of a broader effort by businesses, particularly the utilities, to influence lawmakers. Consumer Watchdog, for example, found that PG&E and the other two utilities had contributed to the campaigns of between 80 percent and 90 percent of state legislators over the last two years.

Lynsey Paulo, a PG&E spokeswoman, said the company used shareholder money for political activities like campaign contributions and lobbying, as well as tracking and analyzing bills before the Legislature. The company declined to discuss its role in the wildfires.

Mr. Court called the recent political spending by the companies “the biggest lobbying orgy by the utilities” since the last energy crisis in 2000 and 2001, when California gave its blessing to a rate increase.

Now the spotlight is back on Sacramento and whether lawmakers will vote to protect utilities from the tab for the 2018 fires. PG&E’s financial outlook, and perhaps its survival, depends on what happens.

The company’s stock lost more than 60 percent of its value after it disclosed that it had equipment failures near the origins of the Camp Fire, raising an additional $15 billion in exposure to damages, Citigroup has estimated. Southern California Edison made a similar filing regarding fires in its service area. Credit rating agencies downgraded the bonds of all three utilities, citing their fire liabilities.

PG&E could also be prosecuted. The state attorney general, Xavier Becerra, said in a legal filing at the end of December that he could bring criminal charges against the company for its role in the fires if his office uncovered “reckless” conduct by the utility. That filing was in an unrelated case.

In a statement on Friday, PG&E said its board was reviewing the company’s “structural options,” searching for new directors and consulting experts about how the utility should prepare for future wildfires.

Some lawmakers have said the state has no choice but to prevent another utility bankruptcy. They argue that while punishing the companies for fires that killed dozens of people and destroyed thousands of homes might seem justified, the state would end up hurting itself by signaling to bond investors and banks that they should avoid California’s electricity business or lend to it only at much higher interest rates.

Mr. Holden, the head of the Assembly’s energy committee, has taken the lead in drafting the legislation. He is also among the recipients of the utilities’ largess, with at least $71,750 in campaign contributions from the three companies since 2011. Mr. Holden declined to discuss the donations.

But other lawmakers say they are done bailing out utilities. Critics of the companies would like to break up PG&E, potentially into separate gas and electric companies or by geographic areas. Protesters disrupted a meeting of the state’s utility commission in November with chants and signs reading, “No PG&E bailout!”

State Senator Jerry Hill, a Democrat, said he was working on a bill that would break up PG&E. His district, south of San Francisco, includes San Bruno, the location of a 2010 PG&E pipeline explosion that killed eight people and destroyed dozens of homes. The state fined PG&E $1.6 billion for failing to maintain its lines and is investigating whether the company falsified pipeline reports.

“The common thread seems to be negligence on the part of PG&E,” Mr. Hill said. “I’ve come to the conclusion that the investor-owned utility model that they have and use is not providing the priority of safety as it should. Their priority is to shareholders and maximizing profit and not safety.”

Consumer Watchdog
Consumer Watchdog
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