Newsom Proposes Huge Wildfire Insurance Fund For State's Big Power Companies

Speaker 1: 00:00 The devil is in the details. That's one. California lawmakers reaction to a sweeping proposal by Governor Gavin Newsom to change the state's wildfire liability policy. The governor put forward and outline last week for a state funding to help cover massive wildfire damages incurred by California's major utilities. To qualify the proposal requires the utilities including San Diego gas and electric to earn a yearly safety certification to be able to tap into the funds. But no actual legislation has been proposed yet. And lawmakers are reacting cautiously. Journey me is Merissa logos corresponded four Kq Edis, California politics and government desk. I'm Merissa welcome back to the program. Thanks for having me. Why is the governor making this proposal? Speaker 2: 00:50 So, you know, he came into office with obviously this huge a thing hanging over his head, you know, just a few months. Um, before he came into office right after he was elected the Campfire Procott up in paradise, killing 85 people within a month of him, him entering office, PG and e filed for bankruptcy protection. And so I think that his administration has been grappling with really how to handle both the sort of short term questions about how these utilities pay you for that liability, how to make sure that they are stable enough financially, that Wall Street doesn't kind of completely, um, destabilize, stabilize their ability to do business. And then also the longterm challenges of trying to figure out how to avoid these fires in California as we move forward. And climate change potentially gets even worse. Speaker 1: 01:38 Big is the fund the governor is proposing. And where will the money come from Speaker 2: 01:42 if the utilities, the three big ones including Sdg, any, um, agreed to it, it would be a $21 billion fund. Uh, about half of that money, 10 and a half billion would come from rate payers in a bond. This would be an extension of the bonds that were actually first issued, um, in the early two thousands as a result of the electricity crisis then. So what they're saying is, look, right, payers won't actually feel this very much because it's just going to be a continuation of money that's already on our bills. The other half would come from the utilities and of course the government can't force them to put this money into this fund. So it would basically, they're kind of offering a carrot and a stick. They're saying, if you guys, you know, play ball and do the safety certification, um, and requirements that we want and you want to put money into this, then it will sort of serve as this backstop. Speaker 2: 02:30 And so the 10 and a half billion would come from the three big utilities. Um, from what I understand PG and e would pay the most because they're the biggest and you know, again, it requires them all to want to do it. So I think there's a lot of questions over whether in San Diego, for example with SD genie rd investing a lot of money in safety improvements, um, and being such a smaller utility, I would assume they're going to want to see the other utilities pick up a bigger portion of the check and maybe have some different requirements around the safety stuff since they've already invested so much. Yeah. What would the utilities have to do to qualify to tap into this new state fund? So basically they would have, there's going to be a new division at the California Public Utilities Commission that is in charge of wildfire safety. Speaker 2: 03:16 And every year the utilities would have to go to this division, um, with their wildfire plans that they're already required to create under previous legislation. And this division would essentially review those plans and approve them. And if they did that and they did this annually, they could be part of this plan. Um, and, and what's interesting about the fun, I think it's important, you know, $21 billion is obviously a lot of money, but it's not as much as the damages we've seen in recent years, unfortunately. But insurance works in interesting ways. And so if you have a pot of money that big, the utilities could actually take out reinsurance against it so it could actually be worth a lot more than that 21 billion. And that also means that if these utilities were to cause a fire and they were found to have, you know, acted responsibly, but something happened to anyway, um, they could essentially tap into that and then also their own reinsurance, um, and it would sort of, would sort of be this deductible so they probably wouldn't end up paying out nearly as much from their bottom line as they would under some other scenarios that have been floated and obviously as much as they are now, uh, with the current liability laws and the, and the damage that's been caused. Speaker 2: 04:27 Now the governor says this plan will be given to legislators as a package of proposals. They haven't actually seen anything yet, but his timeline for approval is rather short, isn't it? Yeah. He wants this done by July 12th, which is, uh, a little less than three weeks from now. Um, they're saying that they'll come up with this language in the coming days. You know, I think it is important to note that some of these ideas like the liability fund had been floating around since at least last year. There's actually a couple pieces of legislation, um, that you know, written by lawmakers that would have tried to do something similar. Um, and those have had some hearings so they're not starting entirely from scratch, but it's definitely going to be a heavy lift. And I think, you know, the reason for that deadline is in large part because fire season is upon us and they want to get this done and they want to be able to send a message to Wall Street and the markets that they are taking this seriously and doing something to protect these utilities. Speaker 2: 05:24 And before people get mad and say, well, who cares about the Italys? Um, it actually affects all of us as rate payers. The way that these companies work as investor on utilities is that they borrow money on the stock market through bonds to do infrastructure work. And if those bond ratings are in the toilet like they are now, it's way more expensive and those costs get passed off to us. So there's kind of a rate, pair argument within this short timeline as well. I've been speaking with Kq edis mode, Risa logos. Merissa thank you so much. Always a pleasure. Speaker 3: 05:56 Uh.