In its final day of its 2018 session, California’s legislature was able to pass a highly controversial bill to protect Pacific Gas & Electric from the potentially bankrupting costs it’s facing from last year’s wildfires. 

But a bill that would have taken the first steps toward expanding the state’s grid operations to incorporate the Western U.S. failed to clear its final hurdle. 

AB 901's new rules to push wildfire damages on to ratepayers

AB 901, the wildfire legislative package that came together in the final week of the session, was able to pass the Senate and Assembly by comfortable margins, and now awaits a signature from Gov. Jerry Brown, who has signaled his support. Its passage is a victory for PG&E, which has said that it could face bankruptcy if it’s found liable for the damages caused by the biggest and most destructive Northern California wildfires last year, estimated to be as high as $15 billion.  

AB 901 would give the California Public Utilities Commission (CPUC) the authority to allow utilities including PG&E to pass on some of their wildfire-related costs on to ratepayers through increased bills — a first for the state. 

In terms of future wildfire costs, the CPUC would be able to apply a “reasonableness” review to determine which costs can be passed on to ratepayers, versus those that must be borne by the utility’s shareholders. 

But for PG&E’s 2017 wildfire costs, the CPUC would have the authority to conduct a “stress test” that takes PG&E’s financial status into account, and limit costs to the “maximum amount the corporation can pay without harming ratepayers or materially impacting its ability to provide adequate and safe service.” Any costs over that threshold would be allowed to be covered through bonds issued by PG&E and backed by increased rates on customers. 

The bill’s backers cast it as a choice between allowing PG&E to go bankrupt, which could place long-term financial constraints on its ability to invest in fire prevention, customer efficiency and renewable energy. Versus passing a bill that would spread ratepayer costs over an extended period of years.

Backers dropped an even more controversial proposal to reform the state’s “inverse condemnation” legal standard that holds utilities responsible for all damages caused by their equipment. The proposal, backed by Gov. Brown, faced heavy opposition from insurance companies, homebuilders, and the groups representing PG&E customers suing the utility for last year’s wildfires. 

But AB 901’s opponents called it a “bailout” that allows PG&E to dump the costs of its alleged negligence onto its ratepayers. This summer, state fire investigator CalFire determined that PG&E equipment caused 12 fires that burned more than 150,000 acres and killed nine people. Of those fires, the agency referred eight of them to the appropriate county district attorney’s offices for review, “due to evidence of alleged violations of state law” for failing to clear brush around its lines and properly maintain its power equipment.

The Sacramento Bee tallied dozens of supporters of AB 901, including the California Association of Counties, the Silicon Valley Leadership Group, the California Professional Firefighters, the State Building and Construction Trades Council, the California Forestry Association. Opponents included AARP California, the California Farm Bureau Association, Sierra Club California, Western States Petroleum Association and other groups. 

AB 813 fails to advance a plan to expand California’s grid 

While PG&E emerged with a victory before last week’s furious lawmaking deadline, the long-running push to expand California’s grid outside of its borders went down to its third defeat in as many years. AB 891 failed to emerge from committee to face a Senate vote on Friday, leaving it to expire after the close of session on midnight Friday. 

AB 813 would have authorized California utilities to become part of an interstate grid, as part of a long-range plan for state grid operator CAISO to expand beyond the state’s borders to incorporate much of the Western United States. Thirty-eight separate “balancing authorities” west of the Rockies exchange energy largely through bilateral agreements, an inefficient system compared to the interstate transmission grid markets run by independent system operators and regional transmission organizations in the Midwest and Eastern U.S.

Proponents say an expanded grid operator will allow California to access ever-cheaper wind and solar power from across the region, driving down energy costs and boosting jobs and the economy to the tune of about $1.5 billion per year by 2030. The Natural Resources Defense Council (NRDC) and the Environmental Defense Fund say that an expanded grid could also open new markets and customers for the solar and wind power that’s being curtailed at an increasing level in California — and that failing to expand could make this curtailment problem worse over the coming decades. 

But AB 813 drew opposition from environmental, consumer and labor groups that were concerned with both the concept of grid regionalization and the details of its approach. The Sierra Club, which has taken the loudest stance against the bill, has claimed that regionalization could undercut in-state clean energy development, as well as draw California into market constructs that support out-of-state coal-fired power plants that might otherwise be forced to close. 

Critics have also said that expanding CAISO could leave it more vulnerable to interference by federal policies and politics hostile to clean energy policies. While CAISO is now regulated by the Federal Energy Regulatory Commission like other interstate grid operators, it also has a board appointed by its state’s governor and approved by its legislature, rather than by an independent commission — a unique level of state control over its governance that it would lose if it expanded. 

As the Trump administration has pressed ahead with much-maligned attempts to force utilities to buy power from uncompetitive coal and nuclear power plants in the name of grid resiliency, these critiques gained more political force. While AB 813 supporters added amendments meant to insulate the state’s energy and carbon goals from being undermined through regionalization, they weren’t enough to overcome political resistance.

Gov. Brown has been a major supporter of regionalization since the concept was launched in 2015. But he shelved 2016 efforts to craft legislation due to “important unresolved questions” about how it should be structured, and his support for AB 813 last year failed to give it the support it needed to move out of legislative committee. 

NRDC senior attorney Ralph Cavanagh called AB 813’s failure this year a “temporary setback,” on the grounds that California will be forced at some point to expand its grid markets to meet its new SB 100-mandated renewable energy goals at a reasonable cost. 

But the Clean Coalition, an energy policy group and AB 813 opponent, has proposed an alternative approach to regionalization by expanding CAISO’s existing Energy Imbalance Market, while relying more on distributed energy resources (DERs) to solve the state’s curtailment and supply-demand imbalances. 

An independent study by the Next 10 Foundation found that the economic benefits of regionalization generally outweighed the costs. But that analysis did not include any studies of how DERs could replace the need for transmission investments that would be likely to be part of a more heavily integrated regional grid.