ORIGINAL REPORTING: With faltering utilities, California backs 'tower of finance' solution to wildfire costs
As California utilities falter, legislators, governor back 'tower of finance' solution to wildfire costs; A well-built catastrophic wildfire fund can both protect citizens and save utilities.
Herman K. Trabish, April 26, 2019 (Utility Dive)
Editor’s note: This has become part of California lawmakers’ response to the wildfire issue, was approved by the Assembly, and is working its way through the state's Senate.
Wildfires scorched California in 2017 and 2018 and left two of its three dominant investor-owned utilities (IOUs) in dire financial straits. Meteorologists say this is the "new normal."
If California does not control the costs of these events, it could drain ratepayers, utility shareholders and taxpayers, and make the state's climate and renewables goals unachievable. But a solution is in the works that could help manage the costs.
Dubbed a "tower of finance," the model calls for finance strategies such as funding, commercial insurance and asset-backed bonds to be brought into use one method at a time to meet losses from costly climate catastrophes like wildfires. The idea is backed by the Governor's Strike Force report on wildfire mitigation solutions and is now making its way through the legislature.
Assembly Bill (AB) 235, introduced January 18 by Assembly Member Chad Mayes, R, would create the California Wildfire Catastrophe Fund Authority to build such a tower of finance. The bill would require utilities to contribute to a fund that finances wildfire victim claims. The Authority's board could also issue and sell recovery bonds secured by the fund and its annual contributions.
Wildfire costs have driven Pacific Gas and Electric (PG&E) into bankruptcy and are threatening Southern California Edison (SCE). Between the growing attention to AB 235 and the Strike Force endorsement, the "tower of finance" solution has begun to emerge as a possible way for California to move ahead safely and cost-effectively.
California's utilities endorse variations of the tower of finance approach. "For damage above commercial insurance, there is a critical need for an alternative risk financing vehicle, such as a catastrophic wildfire insurance fund sanctioned by the state," SCE VP for Risk Management David Heller told the Governor's Blue Ribbon Commission on Wildfires March 13. Both the bill and the 'tower of finance' model also have the cautious support of private insurers, victims' groups and environmental advocates… click here for more
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