TODAY’S STUDY: California’s Answer to Climate Change-Driven Wildfires

Wildfires and Climate Change: California’s Energy Future

April 12, 2019 (Governor’s Strike Force)

Executive Summary

Climate change has created a new wildfire reality for California. The state’s fire season is now almost year round. More than 25 million acres of California wildlands are classified as under very high or extreme fire threat. Approximately 25 percent of the state’s population – 11 million people – lives in that high-risk area.

Wildfires are not only more frequent but far more devastating. Fifteen of the 20 most destructive wildfires in the state’s history have occurred since 2000; ten of the most destructive fires have occurred since 2015. The results are visible to all: lives lost, grave fire damage to homes and communities, rising gas and electricity rates, pressure on the home insurance market, and the threat of insolvency for California’s utilities. The largest investor-owned utility in the state has filed for bankruptcy protection and two other major investor-owned utilities in southern California have had their credit ratings downgraded. Financial experts have opined that these utilities are likely one major fire away from bankruptcy. Making matters worse, this year has all the conditions for devastating fires, with a very wet season leading to high vegetation density. During fire season, that vegetation dries out and becomes fuel.

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Since the first days of his administration, the Governor has taken decisive action to strengthen California’s emergency preparedness and response capabilities to mitigate wildfires and build community resilience. In response to instability in the energy sector and to PG&E’s decision to file for bankruptcy, the Governor created a strike force to coordinate the state’s efforts relating to the safety, reliability, and affordability of energy, as well as to continue progress to achieve the state’s climate commitments. As part of these efforts, sixty days ago, the Governor directed the strike force to develop a comprehensive roadmap to address the issues of wildfires, climate change, and the state’s energy sector. That roadmap is attached.

The strike force report sets out steps the state must take to reduce the incidence and severity of wildfires, including the significant wildfire mitigation and resiliency efforts the Governor has already proposed. It renews the state’s commitment to clean energy. It outlines actions to hold the state’s utilities accountable for their behavior and potential changes to stabilize California’s utilities to meet the energy needs of customers and the economy.

It is imperative that utilities not put profits ahead of safety and service. That is why the state has and will continue to advocate in PG&E’s bankruptcy proceeding for fair treatment of fire victims, for California consumers, and for California policies and values.

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Preventing and Responding to Catastrophic Wildfires

The report begins by setting out steps that the administration, the CPUC, local communities, and utilities must take to reduce the incidence and severity of wildfires and to step up both community resilience and the state’s response capabilities. To accomplish this, it is critical that the state:

• Expand fire prevention activity by improving forest and vegetation management, accelerating fuel reduction projects on both public and private land, training the workforce needed to scale up these projects, investing in new technologies to model and monitor fire risk, and strengthening utility oversight so that they invest more in safety.

• Make communities more resilient by considering updating codes that govern defensible space, encouraging cost-effective hardening of homes, strengthening evacuation, encouraging other emergency planning, and improving land use practices to reduce the damage to life and property from wildfires.

• Invest in fire suppression and response by investing in new fire engines and aircraft, re-deploying National Guard personnel from the border to support fire suppression initiatives, purchasing detection cameras to provide advanced data to firefighters, and investing in a statewide mutual aid system to pre-position resources in high-risk areas.

• Call on the Federal Government to Better Manage Federal Forest Land. As the owner of 57 percent of California’s forestland, the federal government must also do its fair share to reduce fire risk. Specifically, the Governor has joined the governors of Washington and Oregon to call for the federal government to double the investment in managing federal forestlands in our states due to the high risk of wildfires.

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Renewing California’s Commitment to Clean Energy

Given that climate change is a core driver of heightened wildfire risk, California must continue its transition to clean energy. California has established ambitious greenhouse gas reduction targets and the utility sector has been critical to the significant progress our state has made. But, an unstable energy market presents new risks, and temperatures keep rising. Any solution must adapt to the changing market landscape while maintaining the state’s commitment to mitigating climate change.

To do this, the state should consider:

• Evaluating state-level resource backstop options to reduce gaps and inefficiencies that can result from an increasingly fragmented energy market – including the option of creating a state power procurement entity.

• Increasing transparency and reliability protections for customers by establishing standards to make energy provider information more transparent and facilitate statewide planning.

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Allocating Responsibility for Wildfire Costs

An honest assessment of the realities of current and future climate change tells us that no matter how committed we are to preventing and fighting fires and to reducing carbon emissions over the long-term, the state will experience further fire damage in the coming years. If we continue on our current legal and regulatory path, we will get similar results – more deadly and destructive fires that put utilities near insolvency. That is unacceptable for fire victims and utility customers and is incompatible with an economy that requires safe, reliable, and affordable power. Any real plan must allocate costs resulting from wildfires in a manner that shares the burden broadly among stakeholders, including utilities (ratepayers and investors), insurance companies, local governments, and attorneys. Taxpayers have substantially increased their contribution to mitigating fire risk and fighting fires when they ignite.

Any successful approach for allocating responsibility for wildfire costs should be based on the following principles: (1) maintaining safe and affordable power, (2) holding utilities accountable to prioritize safety, (3) treating wildfire victims fairly, (4) requiring equitable stakeholder contributions, (5) reducing overall costs from wildfire damage, (6) promoting California’s clean energy goals, and (7) recognizing the contribution of California taxpayers.

The strike force has identified the following three concepts for evaluation against these principles:

• A liquidity-only fund that would provide liquidity for utilities to pay wildfire damage claims pending CPUC determination of cost recovery potentially coupled with modification of cost recovery standards.

• Adopting a fault-based standard that would modify California’s strict liability standard to one based on fault to balance the need for public improvements with private harm to individuals.

• Creation of a catastrophic wildfire fund coupled with a revised cost recovery standard to spread the cost of catastrophic wildfires more broadly among stakeholders.

These concepts should be publicly debated, as each has impacts, tradeoffs, and consequences that must be addressed. Some concepts rely on voluntary contributions from utility investors, who in exchange will demand more clarity in the regulatory standard for cost recovery from ratepayers.

The choices are difficult, the future is uncertain and the solutions are imperfect. But legislative action is necessary for the stability of the state’s energy market to meet the needs of Californians, and to achieve the state’s clean energy goals.

Under the status quo, all parties lose – wildfire victims, energy consumers, and Californians committed to addressing climate change. Victims face a great deal of uncertainty and diminished ability to be compensated for their losses and harm. Customers face rising rates and instability. California’s ability to achieve its climate goals is frustrated. Utility vendors and employees face uncertainty and likely significant losses. The bottom line is that utilities either in or on the verge of bankruptcy are not good for Californians, for economic growth, or for the state’s future.

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Strengthening Utility Market Regulation

Utilities must be active participants in the quest for safe, reliable, and affordable power. This report recommends strengthening utility regulation by reforming the California Public Utilities Commission (CPUC) to:

• Expand safety expertise by improving the CPUC’s ability to review wildfire mitigation plans, conduct inspections and audits, and enforce safety standards at investorowned utilities.

• Clarify cost recovery standards by setting clear guidelines in statute for when the CPUC can pass on the costs of claims from wildfire damage to ratepayers.

• Improve decision-making by overhauling procedures, delegating more decisions to technical staff so that judges and commissioners focus on core questions of ratesetting, and improving enforcement.

• Review high-risk industry regulatory models and explore options for incorporating the latest climate impact research, in concert with the Governor’s Office of Planning & Research, as well as academic and industry experts in risk reduction.

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Holding PG&E Accountable for Safety

PG&E is a textbook example of what happens when a utility does not invest in safety after numerous deadly reminders to do so over many years. Even today, PG&E is taking advantage of the bankruptcy process to promote the interests of investors over fire victims and other stakeholders. California will advocate for fair treatment of victims and employees, as well as to uphold the state’s clean energy commitments in the bankruptcy process. The state will:

• Monitor – and intervene – in the bankruptcy proceedings to protect California’s interests. PG&E is a private entity, but its misconduct has had grave consequences for the state and its people.

• Evaluate options to satisfy wildfire claims from the last two years so fire victims are treated fairly.

• Demand that a reorganized PG&E serve the public interest. After years of mismanagement and safety failures, no options can be taken off the table to reform PG&E, including municipalization of all or a portion of PG&E’s operations; division of PG&E’s service territories into smaller, regional markets; refocusing PG&E’s operations on transmission and distribution; or reorganization of PG&E as a new company structured to meet its obligations to California.

The status quo is unsustainable. A better future is possible – one grounded in clear rules, effective regulation, and a new emphasis on safety so every Californian can access safe, reliable, affordable power. As the climate changes and risks rise, California must once more lead the way…

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