The warning could not be clearer.
When PG & E Corp. Last month went bankrupt, S & P Global Ratings almost smashed for the other two major California power utilities, owned by Sempra Energy and Edison International, and said they could go lower.
The reason: reverse conviction. In the opinion of the state of this legal doctrine, utilities can be held liable for fires lit by their equipment, even if they follow any safety rule. With deadly fires becoming larger and more common, the two remaining large energy companies in California can only be one fire from destruction. Now they urge the legislators to do something about it, and quickly.
"This is a really serious problem that could absolutely damage the health of utilities in this state," said Pedro Pizarro, Edison's CEO, in an interview. "I do not want to speculate about bankruptcy, but this is serious, and the current approach is simply not sustainable."
Up to now, a solution has proved elusive. But there are potential routes from the marsh.
Lawmakers in California have searched for a solution most of the past year. In August, they adopted a bill designed to help utilities to cover the obligations of a wave of fires in 2017. But it does not provide assistance for 2018 fires, a critical issue after November's Campfire, the deadliest in the history of the state. Because the PG & E equipment was seen as a potential source of ignition, the company estimated that it faced $ 30 billion in natural disasters when it filed for bankruptcy.
The new governor of California, Gavin Newsom, has put together an advisory panel and instructed them to speed up their efforts; He wants a report before July. Utilities and legislators all offer ideas, but there is no guarantee that they will find a solution that will help the energy companies without becoming a financial burden to the state, or increase the anger of taxpayers and voters.
The doctrine of the reverse conviction is rooted in the California Constitution, so any immediate change would require a constitutional amendment, according to the office of the State Legislative Council. An amendment should win a two-thirds majority in both the parliament and the senate and then be approved by voters. Given the public anger at PG & E, that road is closed, legislators say.
"There is no idea that anyone intends to do so, at least in the Democratic party," Senator Jerry Hill said.
The utilities say that another option is that the legislator changes the way in which reverse conviction is applied. Instead of using a standard of strict liability, the State could instead check whether the utility company has reasonably acted reasonably when operating its equipment. There is a precedent for this: a judgment of the Supreme Court of 1997, in which this standard was used in a case of the water district.
"We have actually looked at this very well, and we believe that according to the law, yes, the legislator has the power to change that standard," Pizarro said. "We do not want to get off the hook if we are negligent, and if we are negligent, we must be held accountable. & # 39;
Utilities threw this idea to Sacramento last year, without success. Lawmakers said electricity companies and water districts were too different to make this a plausible connection.
Some legislators focus on alternative ways to compensate victims of fire, thus relieving the financial pressure on utilities.
Assembly Chad Mayes submitted a bill in January to create a California Wildfire Catastrophe Fund. Utilities would pay the fund annually and a government agency would see to it. The money would support bonds and utilities could use the proceeds to settle nature fire claims.
Many of the details have to be worked out, Mayes said. Can utility companies pass on part of the costs to customers? If so, how much? Does the state have to clear the fund with money from its cap-and-trade greenhouse gas program? Yet Sacramento is committed to solving the problem, "because we have to turn on the light," he said.
"The idea is to pre-finance the disaster, not after the disaster," said Mayes, a republican representing desert communities around Palm Springs. With the law passed last year "we tried to finance the disaster."
Of course there is always the chance that the state can not do anything at all. Nobody knows what Newsom is going to do and when PG & E said it was preparing for bankruptcy, he did not take any public action to stop it.
But idleness would have a significant effect on utilities and their customers. The ever-present risk of more fires means that the creditworthiness of companies can be led to messy status, making it more expensive or even impossible for companies to gain access to capital. And higher borrowing costs would almost certainly lead to higher monthly bills.
"The rating agencies are now looking at California and saying:" There's just too much risk here, "
Copyright 2019 Bloomberg.
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