Jeff Smith 4 p.m., March 30
- Community Blog
- Encanto Gas Holder
Many Opponents to new SDG&E/IOU Proposed WEBA Liability Limit
The recently amended A0908020 application by San Diego Gas and Electric Company and two other California investor owned utilities (IOUs according to state power regulators) for authority to have power utility customers pay for uninsured IOU wildfire liabilities now includes a recommendation that California's Public Utilities Commission limit the legal liabilities that the utilities may face in future wildfires.
From the tone of the comments and protests received by CPUC in response, not many Californians like this new idea.
SDG&E, Southern California Edison Company, and Pacific Gas and Electric Company were ordered last year to revise and amend their initial Wildfire Expense Balancing Account (WEBA) application after the assigned CPUC commissioner and the administrative law judge found issues raised by filed protests to be legitimate concerns not addressed the original A0908020 filing of August 2009. WEBA authority was proposed that year by the IOUs because purchased insurance policies by SDG&E ran short of the over-$1 billion in legal costs and related expenses stemming from the 2007 wildfires in the County of San Diego. IOUs argue that regardless of the consequences of utility management practices, wildfires involving overhead power lines or gas pipelines are an ordinary cost of power utilities doing business in California under their own industry standards, and therefore all associated utility costs are collectible from consumers.
In the amended A0908020 WEBA application filed two months ago in response to a threatened protest motion by Michael Aguirre and his client Ruth Henricks, a team of attorneys from SDG&E, PG&E and SCE made numerous signed statements on the rationale behind the application. “Because of insurers’ heightened perception of wildfire risk, this market is unstable and insurance availability can change quickly. In fact, if there is a utility-related wildfire in the future, insurance companies may refuse to offer the Utilities any coverage for third-party wildfire claims. Although the Utilities have more insurance now than when they filed the 2009 Application last summer, the need for protection from the risk of devastating fire losses is unchanged. The Utilities therefore request prompt Commission action authorizing recovery through retail rates of the costs arising from wildfires for which they are at risk due to the limited availability of liability insurance.”
In an eery foreshadowing with tragic consequences, the IOU attorneys in the August amended application stated before last month's PG&E San Bruno gas line explosion and suburban wildfire: “Although wildfire liability is more commonly associated with electric facilities than gas, this application seeks cost recovery for gas utility operations as well. While less frequent, gas facilities can contribute to the ignition or propagation of a wildfire. The gas and electric operations of PG&E and SDG&E are covered by the same policies, so the limited availability of insurance to cover wildfire liabilities affects gas and electric operations equally, and SoCalGas owns some electric distribution facilities, and is covered by the same policy as SDG&E.” In the San Bruno matter, PG&E had informed CPUC in 2007 that the gas line was dangerously in need of replacement but made no move to replace the high-pressure gas line before it exploded with lethal catastrophic results earlier this year.
PG&E stated that it would not seek WEBA protection for its 2010 San Bruno legal costs, and has already pledged at least $100 million for post-incident recovery. The PG&E announcement on San Bruno and WEBA had no effect as the IOU application regarding future wildfires is still pending, with CPUC evidentiary hearings starting not until next year.
As for the revised applications major new wrinkle, the IOU attorneys from SDG&E, PG&E and SCE have proposed that CPUC “[c]ommence a second phase of this proceeding to consider Commission action to limit the Utilities’ civil liability exposure for wildfires.” At the same time, the attorneys did their best to protect utility stockholders, which are concentrated among Sempra Energy and other institutional utility holding companies: “Shareholders will receive annual compensation for the retained risk of self-insurance.”
The Utility Reform Network (TURN) stated in its filed protest against the amended A0908020 application: “This application raises several issues that should be addressed by the Commission. This protest provides a non-exhaustive list of issues that TURN intends to examine in this proceeding. TURN expects that hearings may be necessary to resolve issues raised in this Application. Based on TURN’s initial review of this amended Application, TURN recommends that, unless the application is modified, the Commission reject the applicant’s filing.”
TURN further stated “From a ratepayer perspective, this application places ratepayers in a worse position than the status quo, under which ratepayers may be required to shoulder the burden of third party claims that exceed the limits insurance coverage but ratepayers are not required to line shareholder pockets for the privilege of providing this financial protection. The fact that the Utility proposal will protect shareholders from the cost of fires in which utility facilities are involved and may be due to the negligence of its employees make the shareholder contribution proposal even more distasteful. TURN is strongly opposed to any such shareholder compensation and urges the Commission to reject this application if such provisions are not removed. … If the Commission approves this application but does not reduce the authorized return on equity, it will significantly skew the balance of risk and reward as between ratepayers and shareholders, and ratepayers will be required to shoulder the burden of this application with while receiving zero benefits.”
Specifically about CPUC limiting power utility liability in a second WEBA proceeding phase, TURN argues, “the Commission does not have the authority to limit the civil liability of the utilities and any attempt to do so may directly conflict with the provisions of Section 2106 of the California Public Utilities Code which states, 'Any public utility which does, causes to be done, or permits any act, matter, or thing prohibited or declared unlawful, or which omits to do any act, matter, or thing required to be done, either by the Constitution, any law of this State, or any order or decision of the commission, shall be liable to the persons or corporations affected thereby for all loss, damages, or injury caused thereby or resulting therefrom. If the court finds that the act or omission was wilful, it may, in addition to the actual damages, award exemplary damages. An action to recover for such loss, damage, or injury may be brought in any court of competent jurisdiction by any corporation or person. No recovery as provided in this section shall in any manner affect a recovery by the State of the penalties provided in this part or the exercise by the commission of its power to punish for contempt.' ”
Disability Rights Advocates filed its protest, stating “When the utilities first filed their application to create a Wildfire Expense Balancing Account ('WEBA') last August, DisabRA filed a protest because the proposal would have exposed energy ratepayers to potentially infinite liability for the costs of wildfires ignited by utility equipment, even if those wildfires were caused by the utilities’ negligence or illegal conduct. DisabRA was concerned that people with disabilities would suffer disproportionately from any WEBA-related rate increases because of their relatively lower incomes and higher energy use compared to Californians without disabilities. DisabRA also pointed out that a system that allowed utilities to draw a blank check against the ratepayers for all wildfire expenses could remove incentives to invest in efforts to reduce the risk of wildfires, creating obvious safety hazards for the public at large but particular risks for people with disabilities. The Assigned Commissioner and Administrative Law Judge found merit in these objections as well as those expressed in the protests of other parties and '[a]lthough unusual at this early stage in the proceeding,' directed the utilities to amend their application to address the protesters’ concerns.”
“DisabRA is deeply concerned that this Application puts consumers at risk of unanticipated rate increases of substantial magnitude. Such increases could have extremely damaging effects on disabled customers, who also (along with all other customers) would bear the increased risks of wildfire that could indirectly result from the proposed financing scheme. We respectfully request that the Commission include these issues within the scope of A.09-08-020 and diligently investigate all reasonable alternatives to this Application that would reduce or eliminate these concerns.”
On a second WEBA proceeding phase: “As explained in DisabRA’s protest to the original application, reducing the utilities’ financial responsibility for the effects of wildfires (either by passing those costs on to ratepayers or by making them unrecoverable) could reduce incentives to maintain the utilities’ system in the safest possible manner. This would place all Californians at risk but could have particularly devastating consequences for people with disabilities, who are often les[s] well equipped than those without disabilities to independently evacuate in the event of a wildfire.”
In the protest by AT&T and the California Cable and Telecommunications Association, “It appears the Amended Application would allow, and perhaps even encourage, Joint Applicants to pursue unreasonable litigation and recover unreasonable litigation costs from ratepayers. To the extent this is true, AT&T and CCTA protest the Amended Application.” As for a WEBA proceeding second phase to consider CPUC measures to limit IOU liability, “AT&T and CCTA concur with Joint Applicants in recommending that any limitations on civil liability be addressed in a second phase of this proceeding. Any such limitations may have wide-ranging consequences, which must be carefully considered with full participation by entities potentially affected. For example, limiting the liability of one company, or group of companies, may cause a shift in potential liability to other companies. If and when any limitation on civil liability is proposed, AT&T and CCTA plan to carefully review the proposal and comment as appropriate.” The response by AT&T and CCTA appear consistent with their representation of concerns by utilities that are not part of the energy industrial sector.
The protest by Ruth Henricks and her attorney Michael Aguirre includes the following information: “In October 2007, San Diego County was hit by two massive conflagrations, the Witch Fire and Rice Fire. During the Witch Fire, two civilian deaths occurred and about 48 firefighters were injured. Approximately 1,141 homes, 509 buildings and 239 vehicles were destroyed. Another 7 homes and 25 outbuildings were damaged. The Rice Fire burned about 9.472 acres, damaging about 206 homes, 2 commercial properties and 40 outbuildings. … As to the Witch Fire, CPSD [CPUC's Consumer Protection and Safety Division] made specific findings that SDG&E was responsible for starting the fire and had maintained its grid system in violation of PUC operating guideline GO 95, Rule 38. As to the Rice Fire, the CPSD found the cause to be SDG&E’s failure to properly maintain its power lines in a safe condition.”
The Henricks/Aguirre protest further states, “Petitioner believes that increases in insurance premiums are a direct result of 'payback,' an insurance industry term describing the process in which an insurance company pays out large settlement and then increases its insurance premiums to pay back its loses. Petitioner believes that payback related to increased insurance premiums are a direct result of SDGE’s negligent maintenance or its power infrastructure and should be born, in large part, by stockholders. Permitting Applicants to recover funds which result from the IOUs mismanagement or negligence would be nothing more than providing insurance for a moral hazard and not an appropriate marshalling of ratepayer funds.”
Regarding the proposed second phase, Aguirre argued “The IOUs request to limit civil liability should be denied because it would serve as a disincentive for the IOUs to properly maintain infrastructure, damage the ratepayers who suffer and lose property as a result of wildfires, and this is not the proper forum for a piecemeal approach to the discussion. Should the Commission decide that limiting civil liability for the IOUs merits a decision, the Commission should required that a separate proceeding be created and require the IOUs to submit an application specific to limiting civil liability. Requiring a separate proceeding and a separate application would protect the interests of the public.”
The protest by the Mussey Grade Road Alliance of Ramona states, “The Alliance opposes limits on utility liability for two reasons. The first is that, as we have discussed here and in our first protest, potential liability provides a significant incentive for safe utility operation. The second reason is that it places the full burden of wildland fire losses on those who have suffered the loss. As representatives of a neighborhood that was devastated in the 2003 firestorm, we’ve seen first hand the disruption of lives and families that wildland fire can cause. If these fires are caused by a third party, California law has held that that third party should be held liable for making those who suffer losses whole – regardless of whether the third party is a utility or not. Offering partial or full liability shielding to utilities alone would be inherently unfair.”
The Alliance concluded, “The Alliance continues to be skeptical about the need for the relief requested in this amended application. Catastrophic wildland fire events are rare, and we do not see why handling their impacts through existing mechanisms the Commission has in place for catastrophic losses would place an undue burden on either the Commission or the utilities. Furthermore, the Alliance is deeply concerned that the proposal made in the amended application has no basis in historical data or analysis – that the amounts suggested by the utilities for their proposed liabilities seem to be completely arbitrary. This gives us little confidence that these proposed liabilities would actually act as an incentive for safety. We therefore urge the Commission to reject this amended application.” In a later filing, the Alliance asserted, “If wildland fires are caused by a party, then that party should be held liable for making those who suffer losses whole – regardless of whether the party is a utility or not. Therefore, providing partial or full liability shielding to utilities alone would be inherently unfair. The Alliance therefore opposes the proposal for a second phase of these proceedings for the purposes of reducing utility liability exposure.”
The City of San Diego and the County of San Diego jointly moved for party status in the WEBA proceedings, citing pending lawsuits against SDG&E and Sempra Energy “over government losses sustained in the 2007 Witch Creek, Guejito, and Rice Canyon Fires caused by SDG&E power lines. The City and County thus also have a vested interest in the Utilities’ application to transfer fire related risks to ratepayers via the proposed Wildfire Expense Balancing Account ('WEBA'), which might provide reimbursement to SDG&E for the very damages the City and the County seek from SDG&E and Sempra.”
The joint protest by CPUC's CPSD and Division of Ratepayer Advocates alleges: “The Joint Utility proposal regarding limiting liability lacks sufficient detail to justify scheduling a second phase of the proceeding. In addition, DRA and CPSD are uncertain whether the Commission even has the authority to limit utility liability. DRA and CPSD firmly oppose limiting utility liability in any dispute where there is evidence that utility negligence, recklessness or violations of the any Commission rule, General Order or any other law or regulation contributed to or caused the wildfire event. The Commission should reject the Joint Utility proposal to schedule a second phase of the current proceeding.”
More like this:
- CPUC's Consumer Protection and Safety Division In Need Of Wildfire Cause Data — Nov. 10, 2010
- CPUC Grants San Diego City and County Party Status in SDG&E/IOU WEBA Proceeding — Oct. 21, 2010
- Erroneous SDG&E/IOU WEBA Assumption – Part I — Oct. 13, 2010
- Uninsured Wildfire Billings Still Tied Up in Negotiations — May 19, 2010
- Sempra Energy Emphasis on Utilities over Commodity Trading a Plus for Power Line Undergrounding? — April 28, 2010