By NOAH BAUSTIN, JEREMY B. WHITE, MARISA GUERRA ECHEVERRIA and CAMILLE VON KAENEL, POLITICO
SACRAMENTO, California — Gavin Newsom scrambled to push through a major policy priority in the closing days of California’s legislative session — overhauling the rules for who pays when utility equipment sparks a catastrophic wildfire.
Instead, Democratic lawmakers gutted his proposal. In a rare rebuke, they said he overreached.
State Sen. Sasha Renée Pérez, who represents the district hit by the Eaton Fire, said that it gave her “heartburn” thinking about how to communicate with her constituents about it.
“Too big a bite and too little time,” said one lawmaker familiar with the negotiations and granted anonymity to describe them.
For Newsom, the likely presidential contender, it was an extraordinary setback on his home turf. For nearly eight years, he’d gotten most of what he wanted from the Legislature, despite sporadic grousing. But over the weekend, as he prepared to decamp from California for a political swing this week through, among other places, South Carolina, those same lawmakers demonstrated the limits of his leverage.
“What he was doing was incredibly unpopular,” said a senior Senate staffer granted anonymity to describe the private negotiations. “When he runs for president in two years, I’ll be happy. I’ll be happy they can’t use this against him.”
Newsom picked one of the West’s most complicated fights for his final legislative act, after blazes incinerated whole swaths of Los Angeles last year. But after an all night marathon of negotiations with Newsom’s office, instead of delivering sweeping changes, lawmakers over the weekend introduced a bill that would tackle a much narrower, and less controversial, slice of the issue than the governor proposed.
“The primary challenge was the volume of the opposition from the institutional stakeholders — including insurance companies, hedge funds, and trial lawyers — who have made billions off the current system,” said Newsom adviser Ann Patterson.
In a statement after the bill’s introduction, Newsom noted the elements of his proposal that made it into the final “compromise,” including measures to block hedge funds from profiting off of wildfires, to prevent utility CEOs from receiving bonuses after their company ignites a blaze and to get money to fire survivors faster. But he also alluded to the pieces that were taken off the table, saying, “This system needs full structural reform — not a partial one,” and urged the Legislature next year to “finish the work we started.” Implicit was the preview of a potential rebuttal on the campaign trail — that he had tried to enact a more comprehensive overhaul and was rebuffed.
The governor, who has been working on the issue since his tenure began with a major utility bankruptcy that threatened the stability of the electricity system, made it clear that he saw it as an imperative for the state.
“The status quo is untenable in the short term, and in the long term, catastrophic potentially. What that will mean is the [wildfire] victims even further behind chasing crumbs in bankruptcy court,” Newsom said on Wednesday. “I’m just not going to leave without trying.”
Lawmakers rejected his plan to stop insurance companies from recouping some of their losses from utilities that cause fires, to limit payouts for some wildfire survivors’ emotional distress and to prevent cities and counties from recovering the full replacement cost of damaged infrastructure.
Newsom pushed to reorder a system that has come under enormous strain as increasingly powerful fires destroy communities and cause billions of dollars in damage. But even the governor’s team left negotiations acknowledging the core problem remained unresolved: Future wildfires could send the state’s power companies into a financial spiral, destabilizing the electricity system.
With billions of dollars at stake, it was ultimately the proposal’s ambition and breadth that sank it. The governor’s plan set off an all-out lobbying fight after he unveiled it earlier this month. Outside groups poured millions of dollars into swaying legislators, and a broad coalition of insurers, local governments and consumer advocates came out against it.
Meanwhile, the group that stood to gain the most was the state’s utilities, which have become a frequent target in Sacramento after sparking numerous wildfires and raising electricity rates significantly in recent years.
Newsom tried to sell the plan as a benefit to wildfire survivors, not utilities. He said he wanted to prevent a repeat of the PG&E bankruptcy early in his tenure, when many survivors were unable to recover the full cost of rebuilding after the utility sparked devastating blazes. But that message was undercut when survivors of last year’s Eaton Fire in the Los Angeles area learned of the brewing proposal before it was public and labeled it a “utility bailout.” That chorus of criticism grew louder when it emerged that Newsom wanted to limit emotional distress damages for some victims.
Wildfire survivors protested at the governor’s mansion, held rallies at the Capitol building and handed out hand-painted flyers to every legislative office. That resonated with lawmakers, many of whom, including Senate President pro Tempore Monique Limón, have labored to help their communities recover in the wake of a blaze.
“At this point, you’ve got a lot of members who’ve been personally scarred by fires,” said state Sen. Josh Becker, one of the co-authors of the final compromise. “That’s important.”
Against that backdrop, Newsom’s proposal was already in trouble when it entered the final week of California’s legislative session.
The state Senate and Assembly responded with their own plans, both of which rejected the most controversial, and transformative, pieces the governor was pushing for.
A focal point of the talks became the issue of subrogation — the insurance industry’s ability to sue utilities to recoup some of the money they paid out to policyholders in the wake of a utility-caused fire.
Newsom initially wanted to get rid of the practice, which dramatically increases utility company losses after a fire. But neither legislative house did. On Thursday, Newsom’s team sent a counter proposal which, instead of ending it immediately, would have phased it out over time.
Lawmakers wouldn’t accept that either, according to the governor’s office.
Newsom, who was not scheduled to be in Sacramento on Friday, scrapped his plans and traveled to the Capitol, according to his office. While he didn’t attend the negotiations, he spoke with Limón and Assembly Speaker Robert Rivas.
That morning, his office sent out another concession, a proposal which would have eventually capped subrogation at 20 cents on the dollar, his office said.
But lawmakers still wouldn’t back down. Heading into Friday night — with a midnight deadline to introduce most types of bill language into print — it was clear that the governor was going to have to settle for much narrower language. His legislative team, including Christine Aurre, Brady Borcherding, Megan Mekelburg and Patterson, the adviser, huddled together in their office.
Lawmakers, meanwhile, had already traveled home to their districts and tackled the final negotiations over the phone, with Becker in the Bay Area and Assemblymember Cottie Petrie-Norris, a co-author on the bill, in Irvine.
The work continued past midnight, forcing the parties to put the compromise into a so-called urgency measure, a special type of bill that wasn’t restricted by the midnight deadline, but will now require a two-thirds majority to pass the Legislature.
“Many of us were up until three in the morning, and then staff had to go write the actual bill language,” Petrie-Norris said.
Power company CEOs had warned of financial peril if they didn’t get a favorable outcome in the Legislature this year, and the stock prices of California’s three investor-owned utilities dropped on Friday as the chances of a big deal going their way seemed to evaporate.
Once the language went public, PG&E criticized the measure, saying that it “does not adequately address the financing risks created by California’s current wildfire liability framework” and won’t give financiers the type of long term assurances they need to “attract affordable investment” for the company.
Critics of the initial Newsom proposal, meanwhile, were celebrating. “Survivors from across California came to Sacramento and asked our elected representatives to stand with the people whose homes, communities and lives have been devastated,” said Joy Chen, executive director of Every Fire Survivor’s Network who was a vocal critic of Newsom’s proposal.
She added, “They listened.”
Rachel Bluth, Eric He, Blake Jones, Tyler Katzenberger, Alex Nieves and Nicole Norman contributed to this report.
