Episode 5: The $22B Question– Who Pays When a Town Burns Down?

In this episode we discuss the multi-billion dollar California Wildfire Insurance Fund that the crisis that was the bankruptcy of PG&E created– how it works, who pays to fund it, who benefits from it, and what it means for wildfire recovery. We also ask, how does a privately held for-profit utility like SCE get an insurance fund funded by utility account holders and taxpayers? Should it continue to exist? Should for-profit utilities exist? 

Remembering our neighbor Tim Olausen and his horses. RIP, Tim. 

We wrap this episode with more shout outs to local small businesses on N Allen in Altadena including 75yo legacy business Altadena Beverage, plus Prime Pizza, Armen Market and coffee pop-up turned brick and mortar shop, Bevel Coffee, that need your support. 

Transcript

SPEAKER_01: 0:03

Welcome back, everybody. This is After the Ashes, a beautiful Altadena podcast, one that breaks down the legislation and issues of recovery after our Eton wildfire. So this is Kimberly, your co-host, and we also have Shauna and Steve with us. And today we will be looking at who pays when the town burns down. So we're going to talk a little bit about the California Wildfire Fund, how it works, who who pays, who benefits, and what we might possibly do next. So I'll hand it to you, Shauna. Yeah, I'm going to jump in on this one just to give a little context. I think that this is probably something that a lot of us... We'll take a break now. I know. Steve looks so relaxed, everyone. He just leaned back in his chair. He's contemplating a snack. So the Wildfire Fund should, at this point, be something that none of us would have ever had on our radar and now have very likely a more intimate awareness of than we would ever like to. This is a$22 billion fund that is taxpayer and utility customer funded, specifically for liabilities in the case of an event like our fire. And this was set up, I'm going to let Steve do a little bit more of the history and the background in his deep dive. But this is something that came about after PG&E bankrupted following the Camp Fire in Paradise, California, that really left a A lot of those folks, all of those folks holding the bag. And this is legislation. What

SPEAKER_02: 1:37

do you say with the utilities going bankrupt because of policies in California?

SPEAKER_01: 1:40

Because why not when you can do that instead of paying your share? It's the billionaire playbook. Yeah. But I digress. I'm just

SPEAKER_02: 1:49

thinking Enron, but keep

SPEAKER_01: 1:50

going. I know. So this is a very good news, bad news scenario because on one hand, as Steve is going to really delve into today and is an incredibly important conversation or poignant conversation as to why this fund is so problematic in the first place and shouldn't exist. But for our purposes today, right now in the moment, we need to be somewhat thankful that it exists and that we have funded this because, frankly, it is the only thing that is going to exist. It's the only mechanism that exists currently for all of us to even remotely see compensation. I think we all know no one's going to be made whole after this. But any legal settlements that are ultimately paid out will come from this fund. It's important to also know that SCE, if they are found negligent, if because they have not been found negligent yet, even though it's looking like the writing is on the wall and there's some indicators from them that they believe that is where those chips are going to fall. But. If they are, they'll be on the hook for a couple billion dollars. But, you know, for context, this is a privately held utility that is for profit and makes tens of billions of dollars a year. And that's really, that's frankly just in like a couple of quarters, if you go look at their earning statements. So, you know, long story short, this will not impact or harm them at all, which kind of begs the question, why are we- Steve, why are we paying for this, Steve?

SPEAKER_02: 3:23

You know, this is an issue, again, it touches on so many different levels in policy. Where do I start? We pay for it because there was a reaction to the PG&E Paradise wildfire and the liabilities that were associated with that. And we're seeing more rampant wildfire, you know, damages and, you know, disasters in the last few years owing to climate change. So... The question became after that, and PG&E was going to bankrupt itself. And again, I don't know. I have to research it, whether or not they were going to bankrupt the company or whether they were going to bankrupt the subsidiary that was involved in this. But the idea being that if it went away, that there would be no money to get from the wildfire victims. In California, again, from my understanding, and I'm not a lawyer, I play one on TV, we have this thing called inverse condemnation. And it's a precedent that we don't, from my understanding, no other state has it. Now, if I'm wrong, you can send me the nasty grams and tell me I'm wrong, but my understanding is there's no other state. And inverse condemnation is a really interesting legal precedent. And what it means is the inverse of, you know, condemnation means that the government would have to then take, compensate you if they condemn your land, right? And what they're saying here is this legal precedent that we built this whole wildfire fund on is that a private business or a private organization that's highly regulated to the point that they're effectively government would have to compensate you with the same principle, the same liability that government would as inverse condemnation. And that is important because effectively you're admitting on one level that these private corporations are effectively government. But on another level, you're saying, but not really, you know, you'd still function as a private organization. And I think that gets to the heart of this discussion about this wildfire fund, which was created in 2019. And I get the purpose of it, you know, let's backstop it so that if something, God forbid, happened again, like Paradise, people could be compensated for it. And, you know, we're not sitting here, we have a backup fund that can do this. But what it really becomes is an insurer of last resort. And it's the backstop from a moral hazard on so many different levels that, you know, it really is, it's this weird world where are these utilities public or are they private? And actually what's become as a result of this wildfire fund is We're using public risk capital to back up a private corporation. And so we get a quid but no quo. It's corporate welfare. Well, it's even more than that because it's a bad deal for the residents because here we as rate payers put money into these. The three IOUs, I think it's funny, they're independent operating utilities, but they're called IOUs. Oh, the irony. It's like Department of Angels being DO but let's put that aside for a second. And you've got these IOUs that, you know, effectively pay into this fund. The municipal utilities don't, so like LADWP doesn't. And, you know, they're basically, you know, we as rate payers for these IOUs basically put our money in and, you know, the hold and trust in the event that there's a wildfire as a result of these IOUs. Oh, and by the way, they put in their portion, but, you know, your rate... profit that they make on it is used to pay for that. So you're paying both sides. Yes, the taxpayers in the state of California are not necessarily doing it. The users are. And so that's the interesting thing about this. If the users are paying it, what benefit do we get?

SPEAKER_01: 7:30

We're effectively paying our own settlements. You're not getting money from

SPEAKER_02: 7:35

Edison. You're getting it from yourself.

SPEAKER_01: 7:36

Correct. And we're going to then... That's insurance. We're then going to give Edison more money to pay for the next fire if this system is perpetuated. Our rates will go up again and we're going to pay for the next disaster.

SPEAKER_02: 7:49

But the concept of the insurance is that all the rate payers from PG&E, Edison, and San Diego Gas and Electric are backing up the other IOUs. But I mean, we call this a fund, but it's actually an insurance pool. And, you know, in California, those of us that have earthquake insurance know that's an optional thing that our regular insurers will not carry. I can't imagine... any insurance company is going to insure you against a fire caused by a utility in the future when this fund exists. And I mean, that's going to be a major mess because what's going to happen if you have to wait three years for a settlement? So we're at a point now, the reason why this is a timely conversation is that we are about to deplete this fund. There's not going to be any money left. And so we're at a point now where what does reform look like? Like what are the lessons learned and how can we do this better so that we we have a fund or some form of insurance that's backing if it's going to be an insurer of last resort then let's create an insurer of last resort but that broadens the question of well there's a lot of questions about insurance so you know what is it we're looking at here and what what can we learn from this so that we can do it better and so that we're not creating the Ford calculus, so to speak. And for those of you that don't know the Ford calculus, this is a very personal story for me because my dad's cousin worked for the Carter administration back in the late 70s. He was an undersecretary of transportation. And it was my dad's cousin, Howard. He was a great guy. And, you know, what you did was typically you worked as an undersecretary and then you went and worked for one of the big three, Ford, GM, or Chrysler. Well, when he was there, he had a conscience. And the old model was major corporations was it's cheaper for us to pay out the legal settlement than it is for us to do a recall or take the liability for our mistake. And they called it the Ford Calculus. Now Ford made that calculus when the Ford Pinto was getting hit from behind and it would explode and people were dying. And my dad's cousin Howard said, this is ridiculous. We're not going to allow this. You're going to do a recall and you're going to pay the fines. And Ford never forgave him and he was never able to work for the big three after he left government. But the point was he did the right thing. In a sense, the wildfire fund creates a forward calculus for the utilities. Guess what if I don't maintain my lines? Well, there's a wildfire fund that the ratepayers are going to pay for. Where's the risk to the shareholder? And again, I am no socialist by any stretch of the imagination.

SPEAKER_01: 10:32

That's my job.

SPEAKER_02: 10:33

So I understand that. But at the same time, I'm also somebody who understands fairness. And this is not fair. I mean, if it's going to be socialized in this respect... then why are these not public utilities?

SPEAKER_01: 10:49

I think that's an excellent point.

SPEAKER_02: 10:50

Now, please don't send me hate mail. I know that I just said words that probably should never have left my lips.

SPEAKER_01: 10:56

But to what, I mean, how could anyone disagree at this point? You can't, it's playing it by both sides to ultimately filter more wealth into fewer pockets. I mean, this is what's happening across the entire country for the last two decades. Listen, you know, just for anyone who doesn't follow Robert Reich, listen to Robert Reich. If you want to be disturbed, on how the multiple levels or just read Heather Cox Richardson, who's an incredible historian to follow how money we continue to allow corporations, private corporations for profit to milk our country for every penny it's worth. And I think I just want to address the one point you made about, you know, the line maintenance, right? I mean, we have set up a system where it is effectively more cost effective for our private utility to burn a town down and murder dozens of people and pay those settlements than it is to actually maintain their equipment Altadena has been begging to have lines undergrounded or because it is a constant argument that there's not enough money there's not enough money which is bullshit I'm sorry it is bullshit there is money if it were not about lining shareholders pockets but if we were to do that or even to do something far consider far less far considerably or considerably less expensive and And maintain the lines by insulating them because, you know, we have the technology. It's insulated line that would have prevented these kind of fires and even the smaller fires we saw on the day of the Eaton fire that sparked up prior to our fire, the major fire at what, 6.17 p.m.? Prior to that in the afternoon, residents were reporting lines down in people's backyards and starting small fires in residential neighborhoods. And again, the answer that SCE has had, and I'm sorry, I'm going to go there because we have to go there and I don't think we're going to have another episode to talk about this. The answer in Altadena that, you know, and this is another one of those things that the beautiful Altadena group has really pushed hard to try and have some advocacy around for years is the tree butchering. The SCE answer to this problem is not to spend what it would require to even just do the minimum maintenance that is appropriate in an urban forest and, you know, insulate those lines They rather just butcher our trees. They literally deadhead the top of our trees. They kill our century-old trees to hack them haphazardly any way possible around these lines. But again, this is what we have allowed to be acceptable because this is the more cost-effective means for a for-profit utility that, guess what, doesn't serve us to function.

SPEAKER_02: 13:39

All right, I'm going to be the cold-hearted capitalist here.

SPEAKER_01: 13:41

Okay, and then we're going to come for you because Kimberly's a little socialist too.

SPEAKER_02: 13:45

I live in Altadena. I'm surrounded by socialists. No, I mean, so this is where my head is. If you want the profits and you want the benefit of being a private utility, then you have to act like a private company. And the minute you cede that over, you are moving down the road of, you know, public ownership and public management. Look, I come from, I was educated in Canada. We had many public utilities. And, you know, the issue is, you I also think of it it just keeps going back to the whole Enron experience where we try to deregulate and when we try to deregulate back in the early 2000s for those of us that are old enough to remember that we had rolling blackouts not because we didn't have enough power but because we created this complex system to solve a problem that really didn't exist

SPEAKER_01: 14:33

look at what's happened in Texas

SPEAKER_02: 14:35

and so you know and it got gamed by the system because it was more profitable to trade this power out of California and bring it back in than it was to keep it here and The road to hell is paved with good intentions. Always is. And I think that the intention of this fund was to solve an immediate problem. But we're at a juncture now where we can go, okay, is this functioning the right way? Or now have we lost the threat? Look, what is the answer? I don't have the answer. I mean, there are plenty of options. And I'd like to see what the utilities have to say about how this can be done more effectively. Them going back and asking for the same thing over again and us just ceding it where it's like, okay, well, you know what? The rate payers are going to pay for this fund, our insurance policy. It's an insult.

SPEAKER_01: 15:27

Well, and at what point is even it unsustainable? Because you can pull this lever every 10 years, even every five years, but you can't pull this lever multiple times a year. And our current future, our current climate change future dictates that this is not going to happen infrequently. This is going to happen increasingly often and in communities just like ours, all around. I mean, we keep looking at other neighboring examples. It's going to be La Crescenta, right? I mean, they're ones who are rife for a burn. Well, Sierra Madre's burned before and they have some unique things, but I look at La Crescenta because they have such a significant amount of brush that has not burned recently. They have a ton of fuel, right? And they don't have the protection of the burn scar, which, by the way, we had the protection of the Bobcat burn scar and this happened. And that's something to think about, too. But the point being, how sustainable is this? I

SPEAKER_02: 16:29

mean, what would you do if you were queen for a day?

SPEAKER_01: 16:31

If I were queen for a day, we wouldn't have private utilities. Anything that is supposed to serve the public would be publicly funded.

SPEAKER_02: 16:38

But if they're going to bankrupt it, then what? Let's just say we take away the fund and they go bankrupt. What does that look like?

SPEAKER_01: 16:45

Well, I think what it looks like is that you don't put yourself in that situation knowingly on a regular basis because you actually upgrade and maintain your equipment. So I guess I'm thinking the same thing too, but how, how can we better like regulate that? I mean, right. That would be our responsibility, right? Like to do the, the

SPEAKER_02: 17:07

regulation. I mean, look, it's the same thing with insurance. You can have all the stuff on the books you want if you aren't enforcing in.

SPEAKER_01: 17:15

Exactly. We should talk about the CPUC a little bit. I don't know a lot about the CPUC. I don't think we need to go too deep, but that is the Public Utilities Commission that is the oversight committee. The CPUC may sound familiar to some of you listening because in the last couple of years as our utility bills changed, a lot of folks, especially those of us solar, started to see a lot of our bill administered by CPUC and the bill actually broke it in half and it It was very confusing and we fielded many a conversation in our BA group because people were like, what the heck is this? And including me, frankly, until Daniel Harlow explained it to me at length. And I was like, okay, thanks, Harlow. If you need something like this explained, I highly recommend Harlow. But it was a lot, right? And it does, again, we've overcomplicated this to such a point that we can't even read a fucking utility bill. Well,

SPEAKER_02: 18:08

but that's my point is that, you know, is this a moment where, you know, we can zero some accounting business In other words, we can start at ground zero and say, okay, look, this potentially isn't working. Can we reimagine this differently? Now, if we can't and this is the best we got, then this is the best we got. But I'm not going to take it on the utilities that say that.

SPEAKER_00: 18:32

I think

SPEAKER_02: 18:33

we need to have public comment. I think we need to have a process here where we're not just going to go re-up another$10 to$20 billion to sit there and just wait around for the next time and then just close our eyes and hope it doesn't happen again. This is a major problem that we need to really seriously look at. Our world is changing fast. Again, this is back to the resources that California has available. We are a country within this country. I mean, let's be honest. There are two states I've been to, maybe New York you can add as a third, that really are their own country, Texas and California. You go to Texas, you damn well know you're in Texas. You come to California, you damn well know you're in California. And this is something we need to look at on a much broader scale. And we need to think about this... far more creatively than we have. And again, I want to be educated more on it because I feel like the answer to me, as Kimberly said, is not wrong. Like, if they're public utilities, then let's just stop with the farce. You know, let's... Let's actually condemn it. Not inversely. Let's just do it and take over the damn utilities

SPEAKER_00: 19:51

and

SPEAKER_02: 19:51

run them as a state utility. Like if the municipalities don't want to do it, then we can do it as a state.

SPEAKER_01: 19:56

Amen.

SPEAKER_02: 19:57

I'm just saying like, if I'm going to pay the costs to do this, why shouldn't I get the upside? Why shouldn't I get the benefit of it? And again, I know there's a whole bunch of other things that go along with that, but at the end of the day, it just feels like you can't, you can't be, if it, You can't put lipstick on a pig.

SPEAKER_01: 20:15

You can't. And I think, again, as we talk about our state, the state of California, the significance of our state budget, this is an opportunity for California to make an example of ourselves in a really good way, right? Of like, hey, here's how you self-fund a recovery, right? Since we just addressed in our last episode the federal dollars that aren't coming. Here's how you fix. Well, there are

SPEAKER_02: 20:37

people looking to use

SPEAKER_01: 20:38

that. No, absolutely. Absolutely. But here's how you also, you know, can have the opportunity to create a new system and a new paradigm for how we manage these utilities in a very changing world, right? For those

SPEAKER_02: 20:50

of you that want socialized medicine, here's socialized utilities.

SPEAKER_01: 20:54

Except it's not, I wouldn't even go that far. Public utilities were the standard until we'd started deregulating. 100%. We remember this. Yes, thank you. So, I mean, we could talk about and debate this all day, but I'm going to wrap us a little bit, and with Kimberly's permission, I'm actually going to go on a little, oh, I wish you could see both of them looking at me right now. It's so good. They're like, holy shit, what is she going to do? What's she going to say?

SPEAKER_02: 21:19

Yes. Yes.

SPEAKER_01: 21:21

It's not what you think.

SPEAKER_02: 21:23

Well, I don't know.

SPEAKER_01: 21:24

I want to close this out with another small business shout out. But before I get to that, I want to say something else that I think is equally important. If you're a member of our group or if you follow us on Instagram, you would have seen a post last last. I can't remember what day it is, but late last week about a neighbor who many recognized in the community. Tim Oleson, who most of you knew as Mr. Tim, or certainly your kids knew as Mr. Tim. If they went to the country day school that was on around the corner from me on Santa Anita, Tim was my neighbor on East Poppyfields. He was many people's neighbor. And we lost him last week.

UNKNOWN: 22:07

Mm-hmm.

SPEAKER_01: 22:09

And I just, I wanted to, I'm trying not to cry actually. That one really, this one's really been tough. I bring it up because I really wanted to just make the point that this eight month trough, as we've talked about before, is a really dark place for a lot of people, really dark. And if you look at data post any kind of disaster, the suicide rates go through the roof. And I just want to implore anyone who's listening or who has a friend or a neighbor who's dealt with this and does not already have a therapist or a church or a community group or someone to lean into if you need someone to talk to or you need help please get it right because I know that there's a lot of people in our community struggling we've already lost a number of other people in the community our first suicide came just a couple days after the fire and she left a note that it was directly related to the fire so that's it I wanted to just flag a note of mental health that there are a lot of wonderful resources out there I mean if you just want to find community find it in my group, find it in another group. Our group has become a giant grief support group of 10,000 plus people. But you also have the county resource, the LA County Mental Health 24-hour access line, 988. And just to go back to remember, so we can all remember who Tim was, Tim and his father, Greg, lived on East Poppyfields, but Tim really did like therapy through his horses. And a lot of you remember him walking with Star, who was absolutely beautiful. And so many people, we've had such an outpouring of stories and photos and videos but also you know he more recently had his horse Nash who everyone should know Nash is fine Tim and Nash did make it out of the fire he walked his horse out during in the middle of the fire as many equestrian folks in our community did and Nash will be stabled with some more other Altadena horses and will be okay but you know not everyone is okay and that was it so with that you know all we have in this is each other let lean into whoever you can. I want to talk about small business again today because that is so important too. We need our small businesses. Small businesses keep communities running. Every dollar you spend at a small business, you see triple fold come back into your community compared to going to a big box store. So when possible, try to support your small businesses. Today we're going to talk about Altina Beverage. Altina Bev is actually another kind of legacy business. 75 years in business and let's keep it that way. The The current owners are Kate and Adam Vervoulis, who are also wine makers and do a lot of amazing things. If you're not familiar with the shop, it's on North Allen, just below Prime Pizza. Their address is... 1-850 Allen Avenue in Altadena. They are open every day of the week, 10 a.m. to 8 p.m. Aside from being an awesome little shop for all things gourmet food, gift, wine, spirits. They have some really

SPEAKER_00: 25:10

great spirits. My wife spends a lot of money there.

SPEAKER_01: 25:12

I try to be good, and they also have beautiful flowers. It's another great spot for flowers. They also are a really great community player hosting a lot of community pop-ups. So, for example, another Altadena business, and I should add, too, that they were also impacted by the fire and have been permanently displaced from Altadena as a result of the fire. But another business that was there this weekend was Le Pain Beurre, which is another Altadena cottage baker. Amazing bread. Sadly, I cannot eat it. There is no gluten-free option, but everyone raves. I've smelled it. It looks amazing. If you can have it, you should have it. And again, he's a baker who was also impacted, lost his home, lost his bakery and all of his material. So he's just getting up and running. And that's just one little example. So I highly recommend everyone go to Altina Bev, pop across the street and support Armin Market that's still standing, and of course, Prime Pizza. And I hope I'm not missing anyone on that corner. We're about

SPEAKER_02: 26:09

to get a coffee shop, too.

SPEAKER_01: 26:10

If I am, I apologize. Oh, Bevel Coffee. Bevel Coffee, who has their regular pop-up at Prime Pizza. And then if you're at Prime Pizza, you can also find Casa, which is Brisa Lopez's business that used to be located regularly on North Lake adjacent the Rancho and Cafe to Lecce both of which are gone sadly so she has now relocated there and you can also sometimes find her at Good Neighbor Bar which is adjacent West Altadena Wine who again phenomenal community members Altadena locals look at this this is like an everybody shout out today support small business that's right amen so we're just going to wrap up today but before we do we would like to hear from you so please tell us what you thought about the episode Send your questions our way, suggestions, ideas. Do you have a topic you want to hear about or a guest you would like to hear from? Please send us. And Shauna, where can people send messages to? As always, come join us on Facebook. If you're on Facebook and you can stomach Facebook, I go back and forth most days. We are Beautiful Altadena official group and we also have multiple subgroups. We have a sub stack, Beautiful Altadena and an Instagram by the same name at Beautiful Altadena. And of course, if you're on sub stack, You must follow Steve Sachs, my lovely co-speaker, co-host here.

SPEAKER_02: 27:35

Co-wonk.

SPEAKER_01: 27:36

Co-wonk. Alta policy wonk on Substack. Indeed. And thank you again, Kimberly, for keeping us in line as always. It's a pleasure. So this is After the Ashes, a beautiful Altadena podcast. We'll see you next time. This is Kimberly. Make sure to check in on your neighbors.

SPEAKER_02: 27:55

This is Steve. Have a good one.

SPEAKER_01: 27:57

And this is Shauna saying next time we might have a tagline. No guarantees. I thought you were going to say the adults. I thought I was going to say something else. I'm full of surprises, full of surprises. The adults are still in the room. They are, but that's Steve's line. I need my own line. Oh, okay, okay, okay. I let you do it. Thanks, everybody.

SPEAKER_02: 28:19

Bye now.