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Gov. Newsom’s Proposal to Pay for Wildfire Claims: Let Utility Ratepayers Pay, Not the Companies

A proposal put forward by California’s Gov. Newsom to deal with liability claims arising from California wildfires caused by utility companies was reported on in a recent New York Times article. In the words of the reporters, “the key element” of Governor Newsom’s proposal is a $21 billion fund used to “shield the utilities’ ratepayers and the companies themselves” from liability claims.

How will this fund be financed? From the reporters: “Half of the $21 billion wildfire fund would be covered by the utilities; the other half would be financed by bonds paid off by utility ratepayers.”  This essentially means that ratepayers get to pay for both halves of this fund.

1. The half paid by the utilities: To pay for the fund, the utility companies’ rate of return which is “typically” 10.5 percent may decline. [1] However, the companies get all of their money from their customers or ratepayers paying their utility bills.

2. These same ratepayers will cover the other half of this $21 billion fund by paying-off the bonds used to raise funds to finance it. That amount will presumably come to much more than $10.5 billion since those who buy bonds expect to receive interest payments and/or for the bonds to increase in value.

According to a report in The Sacramento Bee, Newsom said that his proposal “treats wildfire victims fairly and protects California consumers.”

If this is how Governor Newsom protects consumers, they would probably be much better off not being protected by Newsom unless they believe paying for damages they were not responsible for is a form of protection.

Notes.

1. New York Times at https://www.nytimes.com/2019/06/21/business/energy-environment/newsom-california-wildfire-utilities.html California’s three investor-owned utilites are seeking a higher return that is opposed by Newsom.

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Rick Baum teaches Political Science at City College of San Francisco. He is a member of AFT 2121.

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