United States: Catastrophic Wildfire Recovery—Newest Type Of Utility Tariff Bond

With Governor Brown's approval on September 21, 2018, California's SB 901¹ became law and the first to expressly² allow the issuance of utility tariff bonds³   to finance certain recovery costs relating to catastrophic wildfires that are determined to be "just and reasonable"⁴   and approved by the California Public Utility Commission (CPUC) in a required financing order.

With substantial losses of life and property in recent California wildfires⁵ and the possibility of successful "inverse condemnation"⁶   claims being made against California electric companies—threatening their financial condition and potentially leading to their insolvency—the new law is both an efficient means of socializing such losses and a possible financial lifeline for affected California electric companies.

Footnotes

1 Adding (among other provisions) Article 5.8 (commencing with section 850) to Chapter 4 of Part 1 of Division I of the California Public Utilities Code.

2 In newly added Article 5.8 of the California Public Utility Code.

3 Which I have discussed previously in several articles, including " Utility Tariff Bonds: New and Refined Applications for Proven Stranded Cost Securitization Technology," " Securitization, Mach II" and " Unstranding "Stranded Cost" Securitizations: New Applications for a Proven Technology."

4 Under section 451.1 of the Public Utility Code (also added by SB 901), such determination is to be made after consideration of the conduct of the related utility. Section 451.1 further directs that, in evaluating the reasonableness of cost and expenses sought to be recovered, the CPUC consider certain matters specified in section 451.1(a)(1) through (13).

5 Estimated losses in 2017 wildfires exceeded $18 billion and included 77 lost lives and destruction of, or damage to, over 10,000 structures. Early reports suggest that the 2018 wildfires may be worse. In the Camp Fire alone, more lives have been lost (85 as of November 25, 2018) and almost 15,000 structures have been destroyed or damaged.

6 See Pacific Gas & Electric Co. v. Superior Court (Abu-Shumays), Case No. C087071, pending before the California Court of Appeal, Third Appellate District.

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