SDG&E wants money for fire insurance

UCSN says fires are utility's fault

Comic Woody Allen once postulated that murderers should be given the death penalty before they commit the crime, thus sparing the life of the victim. That’s typical of Woody’s wild imagination, but it’s no wilder than what’s happening on today’s regulatory scene: corporate wrongdoers want their victims to pick up the tab for companies’ misbehavior, and pro-business government regulators nod approvingly.

You don’t believe that? Get this: San Diego Gas and Electric is asking the Public Utilities Commission to charge ratepayers $28.9 million a year because the company wants protection from soaring insurance costs resulting from the company’s negligence in wildfire prevention. The commission’s own Consumer Protection and Safety Division, along with the California Department of Forestry and Fire Protection (called Cal Fire), found that in the Witch Creek and Rice Canyon fires of 2007, SDG&E was in violation of state utility rules. The company didn’t properly maintain and run transmission and operation lines by following such safety measures as keeping trees away from those lines.

What’s more, SDG&E did not cooperate in a timely fashion in the probe, according to investigators at the Consumer Protection and Safety Division. Then, the utility tried to get the commission to delay publication of the report, according to San Diego’s Utility Consumers’ Action Network (UCAN), a citizens’ group that keeps an eye on the utility and other entities such as the city’s water department.

More than 1200 homes were destroyed or damaged in those two fires. The residents were SDG&E customers. Now those same customers, known as ratepayers in utility lingo, are being asked to pick up the tab for the utility’s increased insurance costs. The company wants its shareholders to get off the hook on this expense. UCAN says it’s “the most arrogant and bizarre rate hike ever demanded by a utility.”

Says Michael Shames, head of Utility Consumers’ Action Network, “SDG&E creates a fire that causes ratepayers damages and then tries to get the same ratepayers to pick up the cost. There is no accountability.” The consumer group has filed protests against the utility’s attempt to recoup costs from victims. Utility Consumers’ Action Network also wrote the state insurance commissioner, complaining that “the state’s insurers are cutting availability and increasing costs for fire-related insurance.” The insurance companies are leaving the state “high and dry.”

Similarly, Ruth Hendricks, a customer of San Diego Gas and Electric, filed a protest. “SDG&E’s failure to comply with fire safety rules was systemic and was based upon an apparent business decision to operate its business at unsafe levels of risk,” says her filing. The utility’s “negligent, reckless and knowing conduct resulted in predictable massive losses.”

“The idea that SDG&E would go to the Public Utilities Commission and ask them to make ratepayers pay for the company’s negligent behavior shows how absurd this is,” says Mike Aguirre, Hendricks’s attorney. “The best way to get SDG&E to be more careful is for the commissioners to do something that affects the company’s bottom line.”

But Shames holds out little hope that the Public Utilities Commission will do the right thing. The agency is “blatantly utility-friendly,” says Charles Langley of UCAN. In attempting to get the commission to let it systematically shut off power to the backcountry during fire season, SDG&E noted that its own equipment had caused 167 fires in the five and a half years ended in mid-March of this year.

The notion that victims should pay for a company’s malfeasance has rankled Judge Jed Rakoff of U.S. District Court in Manhattan. The case before him revolves around Bank of America’s purchase of Wall Street’s severely ailing Merrill Lynch, consummated early this year. Close observers of this imbroglio believe that during the banking crisis of late 2008, the U.S. Treasury Department and Federal Reserve pressured B of A into making the deal and not backing out after it became clear that the original price was absurdly high.

The Securities and Exchange Commission, which is supposed to regulate Wall Street, this year charged that Bank of America “materially lied” to its shareholders by not disclosing billions in bonuses that would be paid to Merrill executives when the merger went through. Presumably, the shareholders might have nixed the deal had they known of this largesse for a loser.

The New York attorney general and a House of Representatives committee are looking into the matter. So is a criminal grand jury, reportedly. Bank of America’s claims that it did inform its shareholders simply make no sense. The Securities and Exchange Commission took its usual easy way out: Bank of America agreed to pay a fine of $33 million without admitting or denying guilt. It’s called a “consent decree.” Wags describe it thusly: “I didn’t do it, but I will never do it again.”

The securities agency wraps up 90 percent of its cases through settlements. But Rakoff was not buying the B of A agreement. “Shareholders who were the victims of the bank’s alleged misconduct now pay the penalty for that misconduct,” he wrote in a scathing decision rejecting the settlement. “If the bank is innocent of lying to its shareholders, why is it prepared to pay $33 million of its shareholders’ money as a penalty for lying to them?”

The bank said it took advice from its lawyers, and they are protected by the lawyer-client privilege. The securities agency asked the bank to waive the privilege, but it refused. So the agency said that pursuing the matter any further would be too expensive and time-consuming. Rakoff would have none of it: he wants the miscreants identified.

The judge says the case has to go to trial in February. The securities agency, although defending the original consent decree, says it will go to court and possibly make more charges against B of A. Cynics wonder what will happen, because it certainly appears that Federal Reserve chairman Ben Bernanke and then–Treasury Secretary Hank Paulson may have been the bad guys holding the gun to the bank’s head.

San Diegan Gary Aguirre (Mike’s brother), who has been fighting the Securities and Exchange Commission for years, admires Rakoff’s courage and logic. The agency fired Gary Aguirre when he wanted to pursue one of Wall Street’s biggest big shots. Two congressional committees studied the matter and concluded Gary was right and the agency wrong. “It is utterly amazing to me that with the change of the guard at the SEC, they don’t at least put on a pretense of getting serious about regulation,” he says.

And that’s the point: there is general agreement that there must be more regulation, particularly of the financial industry. But if the corporate wrongdoers can pass on the cleanup costs to their victims, what’s the use?

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To look deeper at the SDG&E matter, it appears that the insurers are doing something that many folks have experienced after having an automobile accident, and not necessarily one that was their fault. Have a claim or two against your auto policy and the rates go up, 'way up. Prior to the accidents that resulted in the claims, you were paying for coverage that was, according to the industry, reflective of the risks they were covering. Yet, once you had a claim or two they said that your risk profile had changed, i.e. those who have claims tend to have more claims in the future. But there's not much evidence of that if they are talking about people with usual behavior profiles. No, what is actually happening is the insurance companies are trying to recover, after the fact, the losses they had when they paid the claims. As a result, many motorists who could make a small claim on their auto insurance decide to pay for the repairs themselves rather than risk a big rate boost.

Part of what SDG&E claims to be experiencing is the insurance industry wanting to recoup over the next several years much of the settlement cost it had as a result of the 2007 fires. But has the risk profile for SDG&E changed? Probably not in a negative direction, and if anything, SDG&E is now doing a better job of maintaining its transmission lines than in many years. That would mean their insurance cost should go down, not up. But the insurance industry is going to soak them for its losses on the fires.

I have no sympathy for SDG&E wanting to have the ratepayers cover the cost of their malfeasance. It's not just SDG&E that wants to do the ratepayer rip-off, it is also the insurance companies who now want several times more in premium each year to cover the transmission line risk than they were getting prior to 2007. Moreover, I'm hard-pressed to think of any equity investment of mine that was able to insure itself from management malfeasance, avoid taking an earnings hit when it had a screwup, and thus avoid a decline in shareholder value. No, the way it is supposed to work is that when management does a bad job, the earnings suffer, and the shareholders see their stock lose market value. But now in San Diego, we no longer play by the usual rules of corporate governance and capitalism.

Response to post #1: You are absolutely right about the insurance companies. They are supposed to take risk into account when they set rates, then they try to minimize their own risk to maximize their profits. This nefarious activity is what's behind the call for a public option in healthcare reform. This is why UCAN is protesting to the state insurance commissioner about this matter, as well as opposing SDGE's attempt to pass on the cost to ratepayers. Best, Don Bauder

Don, time for all San Diegans to face the facts that you yourself have documented so well for decades.

FACT #1: The Age of American Democracy/Capitalism/Land of Opportunity is over.

While the GOP is now wholly owned and controlled by “Special Interest,” the Democrats just watch and do nothing to stop the Rape of We The People, while our judges are padding their retirements with “favors” from special interests that have overruled the Rule of Law.

Capitalism is no longer in the Shareth mode, Wall Street pigs have emptied the Wealth of America trough and they are now in the Taketh Away mode with Madoff as their role model.

And the Land of Opportunity has been exported to Asia.

That should just about explain the Whys of almost everything you write about.

San Diegans are faced with two alternatives:

Find a way to escape our No One Really Cares cultural value, or Fight Back Like Hell For Ourselves.

Unfortunately Californians gave away our Democracy to the Initiative process that is totally controlled by Special Interests, so we have to end the era of Taxation Without Representation once again or wait for rising global warming sea levels to wash San Diego away and firestorms turn everything that stays above sea level into America’s Biggest Pile of Ashes, until the clean water supplies disappear completely and turn San Diegans into Anasazi v.21C that is.

Have a nice day anyway.

Response to post #3: Wall Street and industries such as pharmaceuticals, insurance, transportation, real estate, and defense control both parties, both houses of Congress, as well as state and local legislative bodies. That was true in the late 1800s and early 1900s, but the public was ready for change and Teddy Roosevelt led the charge to provide it. What about today? Climate change threatens the planet's survival. Little is done. Is the public ready for change today? I doubt it. Is there a leader willing to light the match? I doubt it. I hope I am wrong. Best, Don Bauder

As the new saying goes --- Whatever

More jobs lost everyday and no one fights back against the republicans who spent the last nine years causing all the economic problems we have today. NORC

Great setup for social chaos now that our political and economic institutions have betrayed us,

while our religious and educational institutions have failed us completely.

And the Democrats are any better? Bush can't be blamed for everything. I do recall that the 109th Congress's HoR had a Dem majority. I also seem to recall that the 110th Congress's Senate and HoR had a Dem majority as well.

Response to post #5: The economy remains weak. Unemployment and underemployment are soaring and retail sales are anemic. But the stock market is roaring upward, almost entirely because of excess liquidity. How many times do you see gold, stocks, and commodities run up while the dollar runs down? But it makes sense: one reason the dollar is plummeting is that the U.S. is printing so many dollars, and spending so much it will have to print dollars in the future. Result: oceans of liquidity. So the rich continue to get richer and the poor poorer. There is already too great a chasm between the upper 1 to 5% and the rest of the country. This could be dangerous from the standpoint of societal stability. Best, Don Bauder

Response to post #6: The Democrats are in the lobbyists' pockets, too. Best, Don Bauder

Response to Story, posts #4, #7, etc.:

Don, once again I must emphasize, based upon reading and thinking about decades of your excellent investigative reporting on the Decline and Fall of San Diego,


One model for action is the Free Speech Movement at Berkeley in the 60s when students stimulated advancements in civil rights, diversity and gender equity in California, as well as America.

QUESTION: How do we get The Reader to motivate your core constituency to save their future by making the right things happen with a sense of urgency?

It's time to stop the decline and fall of San Diego first, then maybe Californians and Americans will follow-up on our ideas and actions once again.

Response to post #9: One way to stop the decline of San Diego is to tell politicians, particularly the mayor, that when faced with a $200 million deficit, it is folly to talk about expansion of the convention center, building of a new city hall complex, construction of a new library in the ballpark district, and helping the Chargers build a stadium downtown or at the Qualcomm site. Such talk is insanity. Best, Don Bauder

Response to post #11: I notice you omitted throwing trillions of dollars at the bailout of the biggest banks. Good for you, fumber. Best, Don Bauder

Response to post #13: March on Wall Street. Don't bother with Washington. Best, Don Bauder

Hey, dude--like we Sandy Eggons, like, we ain't into protesting, man. It's not cool. Gotta go--my blackberry tells me there's some good byes on wide screen TV's . . .

Oh, yeah, say, ese, what are those rich dudes gonna do when we ain't got no money to buy their s***?

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