By Hudson Sangree
SACRAMENTO, Calif. — The state’s three investor-owned utilities want lawmakers to limit their liability for forest fires sparked by power lines, but the companies’ proposal met with stiff opposition Thursday at a capitol wreathed in smoke from fires burning in nearby mountains.
The plan, advanced by Gov. Jerry Brown at the behest of Pacific Gas and Electric and others, calls for the state to change a longstanding rule that holds private and public utilities strictly liable when electric lines cause wildfires. Under current law, the utilities must pay for all destruction of private property through the legal remedy of “inverse condemnation” if their equipment was a substantial cause of a fire.
Brown’s plan would still allow suits for inverse condemnation but would require judges to balance the public benefits of the electric infrastructure with the harm caused to private property and to determine if a utility acted reasonably in a particular circumstance. It would also require the utilities to pay proportional damages and not be entirely responsible if others were also at fault.
In addition, the proposal requires utilities to submit wildfire mitigation plans and to harden their grids with upgraded equipment more resistant to weather and fire damage.
Last year’s infernos in California’s famed wine country and the Sierra Nevada foothills resulted in billions of dollars in damage to homes, vineyards and businesses. The current fire season, which is less than half over, appears to be keeping pace.
At Thursday’s hearing, some lawmakers said the proponents’ timing couldn’t have been worse. The largest fire in state history, the Mendocino Complex Fire, raged in the coastal mountains north of San Francisco, and another major fire had closed Yosemite National Park during the peak of the summer tourist season.
The smoke from the fires turned the air in Sacramento into a yellowish haze.
“I don’t know if you noticed, but there’s smoke in the air,” State Assemblywoman Eloise Gomez Reyes told James Ralph, chief of policy and legal affairs for the California Public Utilities Commission. Ralph presented the governor’s plan on behalf of his boss, CPUC President Michael Picker.
Brown originally sent his proposal in writing to the legislature on July 24 with the understanding that it would be part of SB 901, a measure dealing with wildfire prevention. To take effect, the bill must clear the legislature by the end of August, when lawmakers adjourn at the end of a two-year session.
To that end, members of the State Senate and Assembly have held a series of conference committee hearings — on July 25, Aug. 7 and Aug. 9 — to take testimony and gather information. Powerful interests on both sides have argued for and against the proposal.
New Normal
Among those fighting the plan are ratepayer groups, the state’s trial attorneys, insurers, farmers, and cities and counties. They all stand to lose financially if the utilities are given what some call a bailout.
The utilities — PG&E, San Diego Gas & Electric and Southern California Edison — argue multibillion-dollar payouts threaten their financial stability, undercut fire-prevention efforts and result in rate hikes for consumers.
Last year’s fires, which among other damage wiped out a large area of the city of Santa Rosa, caused destruction on an unprecedented scale. Many in California attribute such long and destructive fire seasons to climate change and say they are the “new normal.” (See Wildfires Reshaping Regulator’s Role, CPUC Chief Says.)
That makes the utilities nervous because they tend to receive much of the blame and pay most of the costs.
So far, investigators with the California Department of Forestry and Fire Protection (Cal Fire) have concluded that 16 of last year’s Northern California fires were caused by trees or branches hitting PG&E power lines, along with a power pole failure and a conductor that crashed to the ground.
Eleven of the 16 cases have been referred to county prosecutors to review for possible criminal violations of a state law that requires adequate clearance between power lines and vegetation, according to Cal Fire news releases in May and June.
Altogether, the fires killed 18 residents, destroyed nearly 3,000 structures and burned more than 180,000 acres. The cause of dozens of other blazes, in what Cal Fire calls the “October 2017 Fire Siege,” remain under investigation.
‘Insurers of Last Resort’
The financial fallout for PG&E is huge. Last quarter the company posted a net loss of $1 billion and took a $2.5 billion pre-tax charge for third-party claims related to 14 of the fires. Fitch Ratings downgraded the company’s stock in February, estimating that it could face $15 billion in liability over the next 10 years.
The amount is so massive because California is the only state that relies on inverse condemnation to hold utilities primarily liable for wildfire damage, even when the companies complied with all safety requirements and were only partly to blame for fires.
The current law unjustly “makes utilities the insurers of last resort,” Henry Weissmann, a lawyer for Southern California Edison, told the legislative panel Thursday. He said utilities should be held to a negligence standard of liability, which would require proof of wrongdoing, rather than facing strict liability, which does not.
Weissmann said utilities still would have an incentive to prevent fires under the less-stringent standard because they would continue to be subject to lawsuits and government oversight.
Jan Smutny-Jones, CEO of the Independent Energy Producers Association, told lawmakers that the state’s progress in sourcing energy from geothermal, solar and other sustainable power producers was threatened by California’s insistence that utilities, and ultimately ratepayers, foot the bill for catastrophes.
“All of this is predicated on the financial stability of the companies,” he said. “If a utility goes broke … that’s a significant impact.”
Freeing up funds for fire prevention would lead to a safer state, proponents argued.
Skeptics, however, said they found it hard to believe that utilities would behave more responsibly if their potential costs were lessened.
Sen. Hannah-Beth Jackson noted that one rationale behind inverse condemnation is that utilities are given the power of eminent domain for easements on private property. They are therefore fully liable for damage to private property, she said.
“Shouldn’t we expect you’ll do everything possible to protect our property?” Jackson, also a lawyer, asked a panel of utility executives and advocates.
Another major goal of California’s policy has been to make wildfire victims whole as quickly as possible without subjecting them to years of litigation to determine negligence. Applying a strict liability standard skips that fight and moves the parties directly to the issue of damages, Jackson said.
The lawmaker said she had trouble grasping how holding the utilities to a lesser standard of liability would increase public safety, as they contend.
“Why should we reduce their liability and expect they’re going to do more with less liability?” Jackson asked. “I don’t understand the logic here.”
The committee’s next hearings are scheduled for Aug. 14 and 16. The agendas for those hearings and other materials will be posted online at http://focus.senate.ca.gov/wildfirecommittee.
