Newsom faces his first defining crisis

The careers of political executives – presidents, governors and big city mayors – are often, fairly or not, defined by how they deal with the crises they encounter.

Franklin Roosevelt and the Great Depression (and later World War II), John Kennedy and the Cuban missile confrontation, Lyndon Johnson and the Vietnam War, Jimmy Carter and the Iranian hostage taking, and George H.W. Bush and the Iraqi invasion of Kuwait are just a few of the more obvious examples.

Gavin Newsom, a devotee of the “big hairy audacious goals” advocated in one of his favorite books, is confronting his first genuine crisis – actually two crises in one. They are the scourge of wildfires that exact a heavy economic and human toll, and their financial impacts on the major electrical utilities that threaten their corporate existence.

Last week, Newsom unveiled the framework of a plan to deal with both, with the centerpieces being lessening the financial risk to utilities to shore up their shaky creditworthiness, and creating a new multi-billion-dollar fund to quickly compensate fire victims.

“Climate change has created a new reality in the state of California,” Newsom said in a statement. “It’s not question of ‘if’ wildfire will strike, but ‘when.’”

It’s just a framework and given the legal, financial and political complexities of both issues, the devil will very much be in the details.

One might expect those details to emerge during weeks or even months of negotiations between Newsom and legislative leaders, plus talks with the countless outside interests such as the utilities themselves, their unions, consumer groups, fire victims, insurers, Wall Street lenders and stockholders.

However, Newsom wants the Legislature to act by July 12, when it is scheduled to take a month-long summer break and also the deadline for credit rating agencies to decide whether utilities, particularly bankrupt Pacific Gas and Electric, will have their debt downgraded, making it much more difficult for them to borrow money.

That’s a very tight time frame and the plan faces some stiff criticism, especially from consumer advocates who say it may unfairly shift the financial burden from the companies to their ratepayers when downed utility lines cause wildfires.

Newsom and other Capitol politicians are acutely aware that PG&E, et al, are not popular these days and that if they appear to let them and their executives off the hook for wildfire damages, there could be a political backlash.

Under current law, dubbed “inverse condemnation,” utilities are strictly liable for losses from wildfires their equipment causes. Utilities say that’s an unfair burden because they cannot control nature and are powerless, as it were, to prevent fires when hot weather and high winds cause even well-maintained electric cables to fall.

The Newsom plan would presume the utilities to be innocent if they have met the higher safety standards to be imposed and otherwise acted prudently, thus allowing damage claims to be shifted from stockholders to ratepayers.

The $21 billion damages fund – details still to be worked out – would be financed by the utilities themselves and by extending a utility bill surcharge, originally imposed to pay for power purchased during the state’s infamous energy crisis nearly two decades ago.

“We think this will be well received,” an administration official told CALmatters writer Julie Cart. “We think this provides a path to stabilize our two utilities that are facing potential downgrades and provides a path out of bankruptcy for PG&E.”

That’s the “big hairy audacious goal” that Newsom has set for himself and his political standing, not only in California but nationally, may hinge on the outcome.

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