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Group Claims SDG&E Wants To Retroactively Charge Customers For 2007 Wildfire Liability

February 21, 2012 1:11 p.m.

Stephanie Donovan, spokesperson for SDG&E

David Peffer is Lead Wildfire Attorney for the Utility Consumer Action Network

Related Story: Group Claims SDG&E Wants To Retroactively Charge Customers For 2007 Wildfire Liability


This is a rush transcript created by a contractor for KPBS to improve accessibility for the deaf and hard-of-hearing. Please refer to the media file as the formal record of this interview. Opinions expressed by guests during interviews reflect the guest’s individual views and do not necessarily represent those of KPBS staff, members or its sponsors.

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CAVANAUGH: This is KPBS Midday Edition. I'm Maureen Cavanaugh. It's Tuesday, February 21st. Our top story on Midday Edition, the controversy is heating up over a SDG&E request regarding the costs of the 2007 wildfires. SDG&E is asking state regulators to allow them to have customers pay $463 million in costs from those fires. This of course after investigations determined that SDG&E power lines were the major cause of the fire. Consumer advocates are outraged over the idea that customers in San Diego should pay these costs. Now, today, we have representatives from both SDG&E and the UT-shirts consumer action network. First, Stephanie Donovan spokes person for San Diego gas and electric. And thank you so much for coming in.

DONOVAN: Thank you for the opportunity to be here. I think there's a lot of misinformation out there and I hope that this is an opportunity for us to get the record straight.

CAVANAUGH: Okay. SDG&E is asking the California public utilities commission to establish a wildfire expense balancing account for future wildfire expenses. So why is SDG&E trying to include the 2007 fire expenses in that request?

DONOVAN: Well, that's the first thing we need to clarify. Actually we were very clear at the beginning when we filed this back in August, 2009, that this was an application to establish a wildfire expense balancing account for future recovery of wildfires. So I think that's where the miss conception is, that this was for future fires. It was actually for future recoveries. And we made it very clear, and the commission clearly understood it as did the division of rate payer advocates that this was to apply to 2007 wildfires because the commission allowed the establishment of a temporary memorandum account to keep track of any excess cost, that is excess above the liability insurance coverage for SDG&E and the other three investigator owned utilities in the state. Only SDG&E eventually had costs that were recorded in that memorandum account.

CAVANAUGH: So how much has SDG&E already paid out because of the 2007 fire?

DONOVAN: Keep in mind that these are round numbers, and frankly the number may change in terms of what we could seek recovery for from customers. But right now, we have paid out about $1.5 billion, and that is includes not only the $1.1 billion of liability also the $444 million that we received from a cross-claim against Cox cable. All of that money has been used to repay and settle the claims of the plaintiffs, or the homeowners, or business owners who host property.

CAVANAUGH: And if I understand things correctly, your insurance coverage for this fire has basically been exhausted at this point. And the remaining amount you would like the PUC to include in this future recovery act, and therefore have ratepayers pay the cost of; is that correct?

DONOVAN: In a nutshell, that is correct. I think the distinction should be made, although it's a fine one, that right now, the proceeding that's before the commission is really about only the recording of the costs, and not the collecting of the costs. So we are simply trying to establish this mechanism as I said, which would allow some increased certainty for the utilities to understand how these things would be handled in the future, obviously, because we're not looking back at the 2007 wildfires. The we can't do anything about that. Although we as a utility have done a lot, we hope to, strengthen our system to try to prevent our equipment from being an ignition sort of any future fire. But I think the real issue that I think some of the people are concerned about is that they think that they're not going to have a voice in whether SDG&E should receive this rate recovery. And in fact, there will be another opportunity when we do at some point down the line, and we could be talking, you know, 18 months or two years down the road, when we would actually have to open another application, separate from the one we're currently involved in, to ask the commission to allow us to recover X number of dollars. Of

CAVANAUGH: Now, if the request is granted by the PUC, you must have thought ahead on this, how will ratepayers see an increase? Would you be asking for a rate hike in order to cover those expenses?

DONOVAN: I think it's important to understand that right now customers are paying for the cost of our liability insurance as a part of doing business. The commission has approved that, and as you might have heard that we have had some excess insurance premiums picked up and passed through to ratepayers over the last couple of years. So this is really no different, and in fact had we been able to get more liability insurance then those costs would not have to pass onto our customers. If we had enough to cover those expenses, those costs would be covered by customers.

CAVANAUGH: However, therefore, you are anticipating a rate hike if indeed you're granted this request, some time in the future?

DONOVAN: I do believe regardless of how this particular proceeding works out, we will be filing a separate application down the road as I say to seek the recovery of those excess costs. But we don't know how much that is because we still have some things that are yet to be involved, about 700 lawsuits, also some cross claims against other folks who might give us the money that will be used to offset what we would ask customers to recover.

CAVANAUGH: As reported in the Union Tribune, investors were tried that ratepayers would pay this money, this without any decision from the PUC about whether or not any of this new recovery system is going to be improved. So why are you so confident?

DONOVAN: Well, I think that's important to point out that what I think you're referring to is actually a filed statement with the security and exchange commission as part of our earnings statement. And there are certain generally accepted accounting practices which SDG&E has to follow, then there are separate and different regulatory things we have to do. So we are keeping track in one column, if you will, the liabilities, in other words the things this we have already paid out or expect that we will have to pay out, and then in the other column, what we are calling a regulatory asset because that's the terminology that is used because these are typically and historically the kinds of costs that have been passed onto customers in the future. And there is court precedent for that, and there is it regulatory precedent. So it doesn't mean that it is an automatic passthrough. Customers who want to have their voices heard should be aware that there will be an opportunity when we do make that -- ask of the commission to give us that rate recovery. There will be a public participation hearing.

CAVANAUGH: Now, the bottom line when people read about this, the fire was a traumatic event for San Diego, homes were burned, communities were threatened, people lived in it fear for days. And independent agencies have found SDG&E largely responsible for causing that blaze. So my question is how in good conscience can SDG&E ask rate payers to pick up more than $400†million in your costs?

DONOVAN: Let me clarify. As I said before, we do not dispute cal fire's investigations that determined that our equipment was the source of ignition for the three big fires in San Diego County. However, we have to remember the 7-mile an hour hurricane force winds from the Santa Ana that were pushing those fires that were a major factor not only in the ignition, but also the horrific spread of those fires. And again, SDG&E was not found, there was no finding of fact, that anything that SDG&E did in terms of the actions were responsible. There were allegations, there were accusations, and they're even being repeated by the media as if they were fact. But when we settled with the consumer protection and safety division, we did so without admitting any wrong doing.

CAVANAUGH: That's quite often what big companies do, but the very fact that you settled tells people that there is some reason for your settlement.

DONOVAN: I think that you can't automatically assume because someone settles something that there is some guilt that is not being brought to the surface. I don't think that's fair. I don't think that anybody with a legal background that that is the case.

CAVANAUGH: I think people reading this story sometimes do. Let me ask you one last question, if I may, and that is you said that people would be able to have a public hearing when your eventual rate increase is asked for if indeed the public utilities commission agrees to this new way of figuring out -- it's called the wildfire expense balancing account. If the public utilities commission agrees to that expense balancing account, but will there be a public hearing about whether or not they should form an expense balancing account for wildfires?

DONOVAN: That's a question that only the commission can answer. Typically there are not public participation hearings in the communities that would be affected unless this is actually a rate increase before the commission. And as I say, the distinction is this is really about a mechanism, not about collecting any costs from customers at this point.

CAVANAUGH: Stephanie, thank you so much.

DONOVAN: My pleasure, thank you.

CAVANAUGH: And this is KPBS Midday Edition. Joining me now is David Peffer, lead wildfire attorney for the utility consumer action network. UCAN is up in arms about all this. You claim that SDG&E added the line to its December filing proposing that damages from the 2007 fires be paid by customers. You say it's hidden in the fine print. If it's in a public filing, why do you say it's hidden?

PEFFER: Well, this case started back in 2007. At that time, there was no mention whatsoever of recovery, retroactive recovery for the costs of the wildfires. From the beginning, this has been framed as a mechanism for recovering the costs of future wildfires. Both the application and the amended application filed by SDG&E mention only future recovery. And that's basically a trojan horse am they've hidden this the whole way through. And it wasn't enemy cross-examination back in January that it came to light that they intended to use this mechanism to recover hundreds of millions of dollars of ratepayers.

CAVANAUGH: How do you think this goes against the intent of the wildfire expense balancing account?

PEFFER: The intent of the account based on the proposal based on the application by SDG&E is for future recovery.

CAVANAUGH: I see, okay.

PEFFER: It's in black and white in their application.

CAVANAUGH: Who should pay for the remaining $463 million in damages? SDG&E already says they've exhausted their insurance. They've paid out $1.5 billion in claims for this fire. Should customers be liable at all, do you think?

PEFFER: SDG&E is asking customers to basically act as super-insurance. They want customers to offer free, unlimited insurance, literally unlimited liability that doesn't take any account SDG&E's negligence or even their recklessness or intentional failure to make their power lines safe. This is something that you can't get from ordinary insurers. And SDG&E is asking for it basically for free.

CAVANAUGH: Now, in your handout about this particular -- in your public press release, you say rate hike of $356 per household. Isn't that just a little bit misleading considering that SDG&E as they said is not actually asking for a rate hike right now. It's asking for this amount of money to be included in their request to have this new expense framework okayed by the PUC.

PEFFER: It's -- it is a rate increase. The framework they're proposing is a rubber stamp mechanism for pushing through the cost of wildfires, these rate increases. And in fact SDG&E is so confident that this money will go through, that this recovery will go through that they've actually claimed the $463 million as a regulatory asset in their SEC filings. This is an open and shut case as far as you're concerned.

CAVANAUGH: So you did the math, and that $463 in damages works out to $356 per household in San Diego?

PEFFER: That's per meter.


PEFFER: Business customers would possibly face thousands of dollars, while smaller customers could face at least $100. We're talking about significant money for everybody involved.

CAVANAUGH: What about the claims that SDG&E can't choose who to bring power to? Those lines have to be out in fire-prone areas.

PEFFER: These risks are absolutely controllable. First of all, insurance is available. SDG&E admits as much in its own brief, the opening brief in the filing. They basically said that there is insurance available but it doesn't pass say cost benefit analysis. They don't think it's profitable for them to seek this insurance. Of course it's not if they have this alternative option which is unlimited insurance from ratepayers. The issue of making these power lines safer, it's also misleadingly. SDG&E has fortified their lines, they made a business decision to fortify their lines to be safe up to 56†miles per hour. The commission, are the public utilities commission has recommended that they be made safe to 91†miles an hour. That's what they should be at. SDG&E has saved money by not making these lines safe. It's a business decision, and ratepayers -- I'm sorry, and share holders should pay the cost of this.

CAVANAUGH: Now, talking about share holders paying the cost, SDG&E also claims that it has to maintain its financial health in order to provide power to San Diego.

PEFFER: Well, I would say that you have to balance that against the financial health of the ratepayers. San Diego ratepayers pay some of the highest rates in the country already, SDG&E is a remarkably profitable company, and they get their profits from ratepayers. And ratepayers are suffering right now. Not only from high electric rates but high gas costs, a poor job market. You have to look at the impact of these decisions on people's lives.

CAVANAUGH: Now, Stephanie Donovan of SDG&E says she's perfectly happy to have public hearings about a potential rate hike based on recovering wildfire costs after the PUC agrees to the wildfire expense balancing account with the 2011 wildfire costs in it. Now, what is UCAN doing to stop this process if you're doing anything at all?

PEFFER: UCAN has filed motion for party status in the CPUC proceeding. We not only want to stop SDG&E from categorizing their system as westbound Awe want to stop it all together.

CAVANAUGH: And the, PUC was to decide last Friday who they would hear this issue.

PEFFER: Before we can make any serious moves in that regard, we have to get party status. And that's the first hurdle for us.


PEFFER: As soon as we do, we're going to be pushing for public hearings because people need to realize that SDG&E is asking them to pay for fires that SDG&E caused. There's something just very unfair about that.

CAVANAUGH: What is the timeframe on this? Is the PUC expected to make a decision on this any time soon?

PEFFER: We don't have a firm grasp on the timeline yet. It's an open proceeding. So I can't give you a firm date. But hopefully within the next year or two, we'll see a final decision.

CAVANAUGH: Thank you so much.

PEFFER: Thank you so much for having me.