CPUC's Division of Ratepayer Advocates, Other Parties Protested Against Utility Shareholder Protections while Ratepayers Pay Unlimited Uninsured Wildfire Liabilities

In its announcement of the “voluntary settlement” in state investigations of San Diego Gas and Electric Company (SDG&E) during the 2007 Rice, Witch Creek and Guejito Wildfires, KUSI assured the viewing public that the responsibility for the $14.8 million penalty-like payment by SDG&E to the investigating agency would fall on the utility's stockholders, not on SDG&E customers.

Previously, attorneys for SDG&E and other investor owned utilities (IOU) claimed that California's Public Utilities Commission (CPUC) “has a constitutional and statutory duty to give the Utilities the reasonable opportunity to recover their costs in full. The suggestion that shareholders should pay a portion of wildfire-related costs, regardless of the limits on the Utilities’ ability to control such costs, and regardless of the legal mandate that the Utilities provide service to fire-prone areas, would contravene this fundamental tenet of the regulatory compact. Costs arising from wildfires are an inherent cost of fulfilling the Utilities’ duty to serve, and as such they must be fully recoverable in rates” [emphasis in original].

The utility attorneys' claim was made in response to protests against the utilities' Wildfire Expense Balancing Account (WEBA) application filed in August 2009.

In the protests made by CPUC's Division of Ratepayer Advocates (DRA) and Consumer Protection & Safety Division, and by other parties, CPUC was urged to hold utility shareholders at least partially responsible for wildfire legal and other costs that were incurred due to utility negligence and ignition by utility power lines.

A specific objection by DRA was that the utilities' WEBA proposal was an unlimited liability to ratepayers while unfairly shielding shareholders, when utility operating practices were such that insurers substantially raised rates after the 2007 wildfires or simply abandoned the wildfire insurance market altogether. In other words, all industry insurers viewed the risk of insuring utilities with overhead power lines as an unacceptable risk to their own businesses at pre-2007 premium rates. At the same time, insurers were engaging in otherwise-acceptable reinsurance risks that eventually became factors in a massive insurance industry bailout during the Crash of 2008.

SDG&E shareholder payment of the $14.8 million in this settlement appears to end CPUC investigations of the 2007 wildfires. The settlement came only days after former San Diego City Attorney Michael Aguirre announced his intervention in CPUC wildfire insurance matters involving SDG&E.

The fact that SDG&E's offered the shareholder liability for payment in the voluntary settlement, together with the settlement's effect of ending CPUC's ongoing wildfire investigations, negates the claim by utility attorneys of CPUC's duty to allow utility recover of costs in full. Also, it appears that CPUC has power to force a review of reasonableness regarding any future wildfire claim made by any investor owned utility.

SDG&E sole owner Sempra Energy reported profits of just over $8 billion for 2009, with a quarterly dividend-to-retained-earnings ratio of about 40%. SDG&E will not have all of its overhead power lines underground within its service area until 2063.




IOU Responses to WEBA Protests (text cited in blog above on RESPONSE p. 4)

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