Shares of California utility owners PG&E Corp., Edison International and Sempra Energy climbed after Governor Jerry Brown indicated that utilities shouldn’t be responsible for future wildfire damages without considering whether they acted “reasonably.”
The proposal wouldn’t affect the billions of dollars in potential liabilities PG&E and Edison face for blazes in 2017, Brown said. But it’s a win for PG&E, which has been lobbying hard to change state policies that currently hold utilities responsible for the costs of wildfires that their equipment ignite, even if they weren’t negligent.
California investigators have already named PG&E equipment as the ignition source of 16 of last year’s swarm of windswept fires in Northern California wine country that destroyed thousands of homes and killed 44 people starting in October. The probes alleged violations of state law in 11 of those incidents. PG&E said in June that it will take a $2.5 billion pretax charge tied to some of those blazes. The San Francisco-based utility owner could be on the hook for billions more.
“The fact that the governor is coming out reiterating specific support for doing something to fix inverse condemnation is being seen as significant,” said Kit Konolige, an analyst at Bloomberg Intelligence in New York. “It’s good news in the sense that it’s a data point that says, ‘Hey, something’s going on. The governor seemingly in discussions with legislators is talking about pushing ahead with it.’ But it’s not a done deal. It ain’t over ’til it’s over.”
PG&E rose 2.3 percent to close at $42.49. It was trading at $41.17 before news of Brown’s proposal broke. Edison rallied 1.6 percent to $66.06. Sempra gained 0.8 percent Tuesday to $114.50.
“PG&E shareholders are trying to find any kind of comfort that they can that the liability for the wildfires will be at least be below the worst-case scenario,” said Travis Miller, a Chicago-based utility analyst for Morningstar Inc., said by phone Tuesday.
JPMorgan Chase & Co. has estimated PG&E’s total gross liabilities from 2017 at as much as $17.3 billion. Investors have been awaiting the report from the California Department of Forestry and Fire Protection on PG&E’s role in the Tubbs blaze – also the deadliest of last year’s fires.
Under Brown’s proposal, the inverse condemnation provision would be changed so that a court balances “the public benefit of the cause” of the fire with harm caused to private property and determines whether the utility acted “reasonably.” An independent evaluator would review each utility’s compliance with a required wildfire mitigation plan.
The California constitution currently requires the state to reimburse local agencies and school districts for certain costs mandated by the state. The proposed bill would provide that “no reimbursement is required by this act for a specified reason.”
The plan will be reviewed by committee of legislators, who will have their first hearing Wednesday in Sacramento. Lawmakers are also considering a bill that would allow PG&E to issue bonds backed by customer charges to pay off claims from last year’s fires. Requests for comments from legislative leaders weren’t immediately returned.
Lawmakers face a deadline of Aug. 31 to pass legislation.
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