California’s three investor-owned electric utilities have agreed to chip in a combined $10.5 billion to a new fund to cover the costs of future catastrophic wildfires caused by power company equipment.
Southern California Edison and Pacific Gas & Electric’s decision Thursday to contribute to the fund marks a win for Gov. Gavin Newsom and lawmakers who argued it will help stabilize the state’s utilities and protect ratepayers. San Diego Gas & Electric had already agreed to contribute to the fund.
How much each utility gives depends on its risk of catastrophic wildfire and prior history with safety. Pacific Gas & Electric will pay the most when it emerges from bankruptcy, with San Diego Gas & Electric paying the least.
The utilities can tap into the fund to cover costs from wildfires caused by their equipment when those damages go beyond what is already covered by their insurance policies. The companies must also meet new safety standards and spend billions of dollars on fire prevention measures.
After two destructive wildfire seasons, with some of the worst blazes blamed on utility equipment, bond ratings agencies had threatened to downgrade utilities if lawmakers didn’t act. The bill ultimately won support from labor unions, environmental groups and wildfire survivors.
Pedro J. Pizarro, president and CEO of Southern California Edison’s parent company, said in a statement the law “works toward restoring California’s regulatory framework to provide the financial stability that utilities require to invest in system safety, reliability and resiliency while continuing to drive toward a clean energy future.”
But at least one ratings agency, Moody’s, did not immediately upgrade either Southern California Edison or San Diego Gas & Electric’s credit outlook, though it said the fund should reduce the risk of a future utility bankruptcy.
The credit rating agency Moody’s said Thursday that the announcements show the fund could help pay claims from wildfires without raising rates as much as might be the case without the fund.
“Although safety investments made by the utilities could strengthen their resilience to wildfires over the long term, the state will remain exposed to potentially rising wildfire risk in the immediate term,” the agency said in a statement.
Pacific Gas & Electric is on the hook for $4.8 billion once it exits bankruptcy, and then it will kick in $193 million a year for 10 years. Southern California Edison will pay $2.4 billion up front then $95 million annually. SDG&E will contribute just $450 million over a period of several years.
That money will come from utility shareholders and debt financing, not customers.
But consumers will pay another $10.5 billion under the law, through the extension of an existing charge on electric bills.