PG&E looking to pass cost on
Even if it followed rules, utility could face big fine
The lethal wildfires in the North Bay could exact a heavy cost on Pacific Gas and Electric Co., even if the utility did nothing wrong.
State investigators are trying to determine whether PG&E’s power lines and poles — some of which came crashing down in a windstorm the night the fires began — sparked the flames. The first lawsuit from burned-out homeowners accusing PG&E of negligence was filed a little more than a week after the fires began.
If investigators do find that PG&E’s electrical lines started the fires, the company will probably be liable for economic damages, regardless of negligence. And even if PG&E faithfully followed every state rule for maintaining its equipment, it still could face costs already estimated to top $1 billion.
The reason lies in a legal concept called “inverse condemnation.” For utility companies in fireprone California, it’s an expensive problem — so expensive that they’re looking to pass some of the costs along to their customers.
People who lost property to the flames could take PG&E to court and say that the company’s actions destroyed their homes in the course of providing a public service — namely, supplying electricity. They could then demand payment for their lost property.
It’s the flip side of “condemnation,” the process by which a government agency can take someone’s property to provide a public benefit — like building a road — so long as the agency compensates the property owner.
“There’s no fault there — all you have to do is prove their facilities, their equipment, were a cause of the fire,” said attorney Frank Pitre, who has sued PG&E over the 2010 San Bruno pipeline explosion as well as the 2015 Butte Fire in Amador and Calaveras counties.
California Insurance Commissioner Dave Jones has estimated total insured losses from the Wine Country wildfires at $1.05 billion, a figure that is likely to grow.
Similar liability issues have been raised in Texas following Hurricane Harvey, said Robert H. Thomas, a land use, eminent domain and appellate lawyer based in Honolulu, who operates the blog www.inverse condemnation.com.
After that disaster, the Army Corps of Engineers was sued for damage caused to homes when water was purposefully released from swollen reservoirs so that it didn’t go another direction and swell an already overflowing river.
“I call it the ‘you broke it, you bought it,’ theory,” Thomas said.
A Sacramento County judge ruled in June that under inverse condemnation, PG&E may be held liable for damages in the Butte Fire, which began when a pine tree leaned into a power line. The blaze blackened more than 70,800 acres, destroyed 549 homes and killed two people.
Property holders suing PG&E over the Butte Fire are also trying to prove negligence, saying its program for trimming trees around its power lines helped cause the fire. Negligence could open the company to other types of damages, such as punitive damages, that inverse condemnation doesn’t cover, Pitre said.
PG&E estimates the Butte Fire litigation could cost it $750 million.
So worried are utility companies about paying for wildfire damage that in one closely watched case, they’re trying to make their customers shoulder some of the cost.
San Diego Gas and Electric Co. had to pay $2.4 billion for fires sparked in October 2007 by its power lines. The company has now asked the California Public Utilities Commission to let it pass on to its customers $379 million of that bill, the amount that wasn’t covered by insurance.
PG&E and the state’s other investor-owned electric utility, Southern California Edison, support San Diego Gas and Electric position. The outcome of the case could set a major precedent about who pays for destructive wildfires.
The property owners who sued SDG&E over the 2007 fires asserted inverse condemnation. At first, the utility argued that this legal principle should not apply to a private company, but several courts rejected its argument. The utility decided to settle.
Now, the company argues that if utilities all face strict liability for wildfire damage linked to their equipment — regardless of how well they operate and maintain that equipment — they should be able spread those costs among their customers. The San Diego utility’s proposal would add $1.67 to a typical residential customer’s monthly bill for six years.
Two administrative law judges with the utilities commission have recommended that the agency’s five voting commissioners reject San Diego Gas and Electric’s request to pass along the costs, citing what they called the company’s “imprudent management of its facilities.”
But just four days before the Wine Country fires began, PG&E and Edison sent the commission a letter backing the San Diego utility, complaining that the administrative law judges did not address the issue of inverse condemnation and its implications for utility companies. A commission vote on the issue is now scheduled for Nov. 9.
“Wildfires and the method with which they are treated presently have real world and potential long-term impacts on the operations, risk management and financial standing of every energy company in the state,” PG&E spokesman Donald Cutler said in a statement. “We felt it was important that the commission hear the perspectives of all the energy companies that operate in California.”
This summer, PG&E also asked the commission to let the company create a “wildfire expense memorandum account,” to track costs associated with the Butte Fire, citing the judge’s decision that PG&E may be liable for damages under inverse condemnation. The company could later ask the commission to let it pass some or all of those costs on to customers. So far, the commission has not authorized PG&E to create the account.
“In theory, customers don’t pay for utilities’ mistakes,” said Mindy Spatt, spokeswoman for The Utility Reform Network consumer group. “But time and again we’ve seen the utilities ask to make customers pay for those mistakes.”
As for the fires still burning in the North Bay, PG&E will track all the costs of responding to the emergency, tallying them in a “catastrophic event memorandum account,”a type of account California utilities use to track any disaster. The company may then ask the commission to pass those costs on to its customers.
PG&E has not yet filed its first estimate of those costs, but they could be significant. The fires knocked out power to 359,000 customers, prompting PG&E to mobilize 4,300 workers and set up four base camps across the North Bay.
Chronicle staff writer Cynthia Dizikes contributed
to this report.