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AB-235 Electrical corporations: local publicly owned electric utilities: California Wildfire Catastrophe Fund Act.(2019-2020)

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Date Published: 01/18/2019 09:00 PM
AB235:v99#DOCUMENT


CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Assembly Bill No. 235


Introduced by Assembly Member Mayes

January 18, 2019


An act to add Chapter 7 (commencing with Section 8400) to Division 4.1 of the Public Utilities Code, relating to utilities.


LEGISLATIVE COUNSEL'S DIGEST


AB 235, as introduced, Mayes. Electrical corporations: local publicly owned electric utilities: California Wildfire Catastrophe Fund Act.
Under existing law, the Public Utilities Commission has regulatory authority over public utilities, including electrical corporations, while local publicly owned electric utilities are under the direction of their governing boards. Existing law authorizes the commission to fix just and reasonable rates and charges.
Existing law provides for the issuance of rate reduction bonds by the California Infrastructure and Economic Development Bank for the recovery of transition costs, as defined, by electrical corporations. Existing law authorizes the commission to issue financing orders, to support the issuance of recovery bonds, as defined, by the recovery corporation, as defined, secured by a dedicated rate component, to finance the unamortized balance of the regulatory asset awarded Pacific Gas and Electric Company in commission Decision 03-12-035.
Existing law, under specific circumstances, authorizes the commission, upon application by an electrical corporation, to issue financing orders to support the issuance of recovery bonds to finance costs, in excess of insurance proceeds, incurred, or that are expected to be incurred, by an electrical corporation, excluding fines and penalties, related to wildfires, as provided.
This bill would create the California Wildfire Catastrophe Fund Authority, which would be governed by a board of directors. The bill would authorize electrical corporations and local publicly owned electric utilities to participate in the authority. The bill would require each participating entity to make an initial contribution and annual contributions to the authority, and would require the board to deposit those contributions into an account dedicated to receiving contributions from that participating entity. The bill would require the shareholders of certain large electrical corporations to make an initial contribution of an unspecified amount to the authority, if the large electrical corporation chooses to participate in the authority. Upon a participating entity incurring costs relating to a wildfire and submitting a claim for those costs to the board, the bill would require the board to reimburse the participating entity for those costs, as specified, and would require the board to determine if the participating entity will be required to make increased annual contributions over a specified period of years to make the authority’s applicable contribution pool whole. The bill would exempt contributions to the authority from all state taxes and would require the contributions to be held in trust for the participating entity that made the contribution.
This bill would require the commission to deem an initial or annual contribution, except an increased annual contribution, just and reasonable. The bill would require the board, in consultation with the commission, to determine how to apportion an electrical corporation’s increased annual contribution between its ratepayers and shareholders, as applicable, based on its determination of the degree to which the electrical corporation acted negligently.
This bill would authorize the board to take specified actions, including to issue bonds payable from, and secured by, a pledge of the board of all or any part of the contributions to the authority to finance claims by participating entities, as specified, and to sell those bonds at public or private sale. To pay a participating entity’s claim, the bill would require the board, if it determines it to be just and reasonable to do so, to secure a bond by a pledge of all or any part of the participating entity’s annual contributions. The bill would require the commission to deem those pledged contributions just and reasonable for the duration of the bond if the relevant costs underlying the claim meet specified requirements. The bill would require the interest earned on these bonds to be free from state personal income tax and corporate income tax, and would require the board, if necessary, to apply to the Internal Revenue Service to obtain an exemption from all federal taxes on the interest on the bonds. The bill would require the authority, before January 1, 2022, and annually thereafter, to report to the Legislature on its operations in the prior fiscal year.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 The Legislature finds and declares all of the following:
(a) The effects of climate change are happening now and will continue to increase both around the world and in California, creating a new climate norm that must be addressed.
(b) These changing conditions have significantly increased both the likelihood and severity of wildfires in California, with each fire season entering into new and uncharted territory.
(c) Eleven of the 20 most destructive fires in California’s history have occurred since 2015, with five occurring in 2017 alone.
(d) Wildfires related to climate change affect all Californians, with the state’s large population and economy significantly heightening the risk of catastrophic damage due to a wildfire.
(e) Catastrophic fires cause loss of life, tremendous property damage, public health impacts, environmental degradation, including that caused by reduced progress towards the state’s goals for reducing the emissions of greenhouse gases, and damage to local economies.
(f) To mitigate the economic impacts of catastrophic events on society as a whole, it is important to explore sources of funding that can be available to compensate for losses. The California Wildfire Catastrophe Fund Authority will quickly and adequately reimburse victims of wildfires.
(g) This funding should provide coverage when wildfire costs exceed available insurance.
(h) Climate change is a significant contributor to the severity of California’s wildfires. In extreme cases, utilities and ratepayers cannot shoulder the financial burden alone. The State of California has a role to play in combating climate change’s impact on wildfire severity.
(i) Risk reduction and mitigation standards should be established that reduce the impact and cost of wildfires.
(j) Preventing and mitigating property and infrastructure damage and injuries from catastrophic fires and other major events is much safer, better for local economies, and far less expensive than emergency repair and reconstruction.

SEC. 2.

 It is the intent of the Legislature in enacting this act to do all of the following:
(a) Create a means for electrical corporations and local publicly owned electric utilities to use alternative risk financing when traditional insurance is unavailable or uneconomic to mitigate extraordinary costs arising from wildfires in California.
(b) Provide a tax-free means for those utilities to make capital contributions towards those purposes.
(c) Continue to require those utilities to purchase commercial insurance that is economically feasible and within the guidelines set by the California Wildfire Catastrophe Fund Authority’s board of directors and to take all reasonable steps to mitigate against wildfires. The authority created pursuant to this act will serve as an additional risk financing instrument to mitigate against wildfires and will not replace measures currently being undertaken by those utilities.
(d) Require those utilities participating in the authority to provide initial contributions and annual contributions to the authority, and for those contributions to be held in trust for those utilities to insure the costs of wildfires.
(e) Authorize the authority’s board of directors to purchase reinsurance, issue bonds, and pursue other risk financing instruments to insulate and protect the fiscal health of the authority and the utilities making contributions to be managed and disbursed by the authority.

SEC. 3.

 Chapter 7 (commencing with Section 8400) is added to Division 4.1 of the Public Utilities Code, to read:
CHAPTER  7. California Wildfire Catastrophe Fund Act

8400.
 This chapter shall be known, and may be cited, as the California Wildfire Catastrophe Fund Act.

8401.
 For purposes of this chapter, all of the following definitions shall apply:
(a) “Authority” means the California Wildfire Catastrophe Fund Authority created pursuant to Section 8405.
(b) “Board” means the California Wildfire Catastrophe Fund Board of Directors created pursuant to Section 8410.
(c) “Electric utility” means an electrical corporation or a local publicly owned electric utility.
(d) “Electrical corporation” has the same meaning as defined in Section 218.
(e) “Large electrical corporation” means an electrical corporation with more than 100,000 service connections in California.
(f) “Local publicly owned electric utility” has the same meaning as defined in Section 224.3.

8405.
 There is hereby created the California Wildfire Catastrophe Fund Authority, to be governed by the board.

8410.
 (a) There is hereby created the California Wildfire Catastrophe Fund Board of Directors.
(b) The board shall be composed of nine members as follows:
(1) The Governor shall appoint seven members as follows:
(A) Two members to represent electrical corporations.
(B) Two members to represent local publicly owned electric utilities.
(C) One member with a background and expertise in insurance.
(D) One member with a background and expertise in commercial investing.
(E) One member to represent electrical ratepayers.
(2) The Speaker of the Assembly shall appoint one member with a background and expertise in wildfire mitigation.
(3) The Senate Committee on Rules shall appoint one member to represent electrical ratepayers.
(c) The Governor shall appoint a member of the board as chairperson.
(d) Board members shall serve staggered three-year terms, and those members serving an initial term of less than three years shall be members appointed by the Governor, who shall determine which of the Governor’s seven appointees shall serve initial one-year terms and two-year terms.
(e) Board members may be reappointed for additional terms, without limitation.
(f) The authority shall reimburse board members for their reasonable expenses incurred in attending meetings and conducting the business of the authority.
(g) In making these appointments, the appointing authorities shall not knowingly appoint a person with a conflict of interest. Notwithstanding any other law, the employment of an employee of an electrical corporation or local publicly owned electric utility appointed pursuant to subparagraph (A) or (B) of paragraph (1) of subdivision (b) shall not be considered a conflict of interest.

8415.
 In administering the authority, the board shall do all of the following:
(a) (1) Accept notice from an electric utility that has elected to participate in the authority.
(2) Require the shareholders of a large electrical corporation that has chosen to participate in the authority to make an initial contribution of, at a minimum, $_____ to the authority.
(b) Accept moneys appropriated from the Greenhouse Gas Reduction Fund created pursuant to Section 16428.8 of the Government Code.
(c) (1) Before January 1, 2021, determine the amount of the initial contribution that each participating electric utility shall contribute based upon actuarial principles and modeling accepted in the insurance industry.
(2) Accept the initial contribution from each electric utility and deposit that contribution into an account dedicated to receiving contributions from that electric utility or into an account dedicated to receiving contributions from those electric utilities with which it is sharing limits pursuant to Section 8423.
(d) (1) Annually determine the amount of the contribution that each participating electric utility shall contribute during the subsequent year to the authority based upon actuarial principles and modeling accepted in the insurance industry.
(2) Accept the annual contribution from each participating electric utility and deposit that contribution into the account dedicated to receiving contributions from that electric utility or into the account dedicated to receiving contributions from those electric utilities with which it is sharing limits pursuant to Section 8423.
(e) Establish a target for total contributions from each electric utility in an amount equal to between five and fifteen times the electric utility’s total underlying wildfire liability insurance limits, and revise that target as necessary in response to changes to those limits.
(f) (1) (A) Upon a participating electric utility incurring costs relating to a wildfire and submitting a claim for those costs to the board, reimburse the electric utility for those costs pursuant to this paragraph.
(B) Reimburse the electric utility for a claim if it is for an amount equal to between five and fifteen times the electric utility’s total underlying wildfire liability insurance limits.
(C) Reimburse the electric utility for a claim only if the claim would otherwise be recoverable under the terms and conditions of the electric utility’s excess liability insurance policy issued by an insurance provider.
(D) The board shall not reimburse the electric utility for a claim unless the electric utility purchased insurance applicable to wildfire liability in amounts within the limits required by the commission, or its governing board, as applicable, the electric utility recovered the majority of proceeds available pursuant to its underlying wildfire liability insurance policies, and the claim is in excess of the electric utility’s total underlying wildfire liability insurance limits.
(2) (A) Upon reimbursing an electric utility for a claim, determine if the electric utility shall make increased annual contributions over a specified period of years to make the authority’s applicable contribution pool whole.
(B) Determine, in consultation with the commission, how to apportion an electrical corporation’s increased annual contribution between its ratepayers and shareholders, as applicable, based on its determination of the degree to which the electrical corporation acted negligently.
(3) An electric utility subject to increased annual contributions shall not withdraw from the authority until its obligations to the authority have been fully satisfied.

8416.
 (a) Before July 1, 2020, an electric utility shall notify the authority if it has chosen to participate in the authority.
(b) A participating electric utility may withdraw from the authority by providing 12 months’ written notice to the board. An electric utility that withdraws from the authority shall be entitled to a reimbursement of its contributions, except for the electric utility’s portion of the authority’s administrative costs, purchased reinsurance, and other risk financing instruments. However, an electric utility that has elected to share its limits pursuant to Section 8423 shall not be entitled to any reimbursement of its contributions, except by providing 18 months’ written notice to the board to cover potential incurred but not reported losses, and the remaining contribution pool is adequately funded following this reimbursement as determined by an actuary retained by the board.

8417.
 (a) Except when electric utilities have elected to share limits pursuant to Section 8423, contributions made by each electric utility shall be held by the authority in a separate account and shall not be available to fund the claims of another electric utility.
(b) Contributions in an account for an individual electric utility shall be held in trust for the electric utility that made the contribution, except when that electric utility has withdrawn from the authority.
(c) Contributions to the authority, unless reimbursed to the contributor, shall be exempt from all state taxes. An electrical corporation’s contributions shall be immediately deductible on its state tax return.
(d) The board may use contributions to pay all costs arising from this chapter, including, but not limited to, a premium payable by the authority under a contract of reinsurance, an electric utility’s claim for costs incurred relating to a wildfire, and reasonable operating and other expenses of the authority.
(e) The commission shall deem an electrical corporation’s initial or annual contribution in an amount determined pursuant to Section 8415, except an increased annual contribution, just and reasonable pursuant to Section 451.

8420.
 (a) The board shall have the power to conduct the affairs of the authority and may perform all acts necessary or convenient in the exercise of that power.
(b) Without limitation, the board may do all of the following:
(1) Employ or contract with staff and professionals the board deems necessary for the authority’s efficient administration, including bond counsel, financial consultants, actuarial professionals, fire experts, insurance experts, and investment professionals.
(2) Invest and reinvest contributions in a fiscally responsible manner.
(3) Obtain reinsurance and financing.
(4) Enter into other obligations relating to the operation of the authority.
(c) The authority may sue or be sued.
(d) The authority may contract for the services of a chief executive officer, a chief financial officer, and an operations manager, and may contract for the services of reinsurance intermediaries, financial market underwriters, modeling firms, computer firms, actuaries, insurance claims consultants, counsel, and private money managers.
(e) The board shall apply to the Internal Revenue Service to obtain an exemption from all federal taxes on the authority and its holdings and for the deductibility of contributions on each electrical corporation’s federal tax return.
(f) The Bagley-Keene Open Meeting Act (Article 9 (commencing with Section 11120) of Chapter 1 of Part 1 of Division 3 of Title 2 of the Government Code) applies to meetings of the board. However, this subdivision shall not require the disclosure of confidential settlement negotiations regarding the payment of claims.

8421.
 (a) The board may issue bonds payable from, and secured by, a pledge of the board of all or any part of the contributions to the authority to finance electric utility claims and sell those bonds at public or private sale.
(b) Interest earned on any bonds issued by the authority shall at all times be free from state personal income tax and corporate income tax. If necessary, the board shall apply to the Internal Revenue Service to obtain an exemption from all federal taxes on the interest on the bonds.
(c) To pay a participating electric utility’s claim, the board shall, if it determines it to be just and reasonable to do so, secure a bond by a pledge of all or any part of the electric utility’s annual contributions, or the contributions of the electric utilities with whom it shares limits pursuant to Section 8423. The commission shall deem those pledged contributions just and reasonable pursuant to Section 451 for the duration of the bond if the relevant costs underlying the claim were otherwise recoverable under the terms and conditions of the electrical corporation’s applicable insurance policy.

8423.
 The board shall authorize the sharing of limits when an electric utility, in its sole discretion, determines that the sharing of limits furthers its risk financing objectives. The board may promulgate rules for the sharing of limits based on actuarial principles and modeling.

8430.
 The State of California shall have no liability for payment of claims or costs pursuant to this chapter.

8439.
 (a) Before January 1, 2022, and annually thereafter, the authority shall report to the Legislature on its operations in the prior fiscal year.
(b) The report shall be posted on the authority’s internet website.
(c) Copies of the report shall be made available to the public.
(d) A report to be submitted pursuant to this section shall be submitted in compliance with Section 9795 of the Government Code.