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California governor proposes fund to pay for wildfire liabilities; PG&E shares rise

Stock MarketsApr 12, 2019 08:37PM ET
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© Reuters. FILE PHOTO: Governor of U.S. state of California Gavin Newsom visits the premises of a migrant assistance office in San Salvador

(Reuters) - California Governor Gavin Newsom on Friday proposed a new fund to pay for wildfire liabilities and said he would hold the state's largest utility more accountable for insuring safety against the growing number of blazes in the state.

The creation of a fund that would allow utilities to pay for wildfire damage claims sent PG&E Corp shares soaring nearly 12 percent before closing 3.95 percent higher on Friday.

"PG&E is a textbook example of what happens when a utility does not invest in safety after numerous deadly reminders to do so over many years," a report released by Newsom said.

PG&E said in a statement that it is "embracing the calls for change," and committed to resolving wildfire victims' claims fairly and expeditiously.

Newsom's report calls for shifting liability for wildfire damage to a fault-based system. The current system, known as inverse condemnation, exposes the state's utilities to liabilities from wildfires regardless of their negligence, as long as their equipment is involved.

The current system pushed PG&E to seek bankruptcy protection in January, as it faced liabilities in excess of $30 billion related to the deadliest wildfires in the state's history.

SPREAD THE COSTS

The governor's report proposed creating two funds to help utilities pay for wildfire damage claims and spread the cost more widely among stakeholders.

Another large utility, Southern (NYSE:SO) California Edison Co, said in a statement that it "is encouraged by the broad scope" of Newsom's report, "which reflects the need to address wildfire liability and regulatory reform."

Shares of Edison International (NYSE:EIX), the parent company of Southern California Edison, rose 7.2 percent.

Travis Miller of Morningstar Research Services LLC said the news was positive for shareholders, though there is "a long road ahead to implementing policies.” The government's support for the utilities “should alleviate some of the market’s concerns about future liabilities,” he said.

The report was harshly critical of PG&E, saying it is "taking advantage of the bankruptcy process to promote the interests of investors over fire victims and other stakeholders."

The state will monitor and intervene in the bankruptcy proceedings to protect California's interests, it said.

FEDERAL FOREST LANDS

Damage estimates for the 2018 wildfire season are staggering, with insured losses alone exceeding $12 billion, the report said.

"The current system for allocating costs associated with catastrophic wildfires - often caused by utility infrastructure, but exacerbated by drought, climate change, land-use policies and a lack of forest management - is untenable both for utility customers and for our economy," the report said.

It calls on the federal government to better manage its forests, as the owner of 57 percent of California's forest lands.

President Donald Trump in January threatened to cut off federal relief to California for wildfires for what he called mismanagement of the state's forests.

The Federal Emergency Management Agency is providing assistance to survivors after wildfires in November collectively damaged or destroyed over 20,000 structures and killed at least 89 people.

The largest blaze was the Camp Fire that destroyed most of the Northern California town of Paradise, killing at least 86 people - the deadliest wildfire in the United States in at least a century.

More than 25 million acres of California's wildlands are classified as under very high or extreme fire threat. About a quarter of the state's population, or 11 million people, lives in that high-risk area, the report said.

California governor proposes fund to pay for wildfire liabilities; PG&E shares rise
 

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