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Calif. lawmakers should limit utility wildfire liability, regulators say

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Calif. lawmakers should limit utility wildfire liability, regulators say

Several California Public Utilities Commission members suggested the state legislature and courts should limit the liability exposure investor-owned utilities face as wildfire risks to residents increase.

The remarks were made as the commissioners unanimously denied San Diego Gas & Electric Co.'s application to recover $379 million from ratepayers that the Sempra Energy subsidiary could not collect from insurance companies and other parties to settle claims of damages from wildfires in 2007 that swept across San Diego County. (Application 15-09-010)

While PUC President Michael Picker said the decision "may or may not have any precedent on any future fire issues that come before us," investment analysts with Morgan Stanley viewed the PUC's Nov. 30 decision as a negative development for all three of California's largest investor-owned utilities.

Morgan Stanley pointed to PG&E Corp. subsidiary Pacific Gas and Electric Co.'s potential liability concerning Northern California's October wildfires that resulted in damages in the $6 billion to $10 billion range. California courts have held that under inverse condemnation, a utility is strictly liable, regardless of fault, if its facilities are the ignition source of the fire.

Risks too great to bear

"If investors in California's utilities face the risk of open-ended damages for fires in which PG&E equipment is involved, we believe many investors may conclude such risks ... are simply too great to bear," Morgan Stanley said in a Dec. 1 report.

Pointing out that several commissioners called upon the legislature to change the law, the analysts said the legislature could establish a self-insurance system in which utilities would pay for fire damages from utility equipment but would pass on those costs in customer utility bills.

Commissioner Clifford Rechtschaffen said publicly owned utilities can pass all wildfire damage costs to ratepayers but courts have failed to recognize that investor-owned utilities might not be able to do so, even if these companies are considered a vehicle for socializing these costs under a strict liability standard.

"This is an issue that the legislature and the courts may wish to examine and may be called upon to examine in the future," he said.

Commissioner Martha Guzman Aceves agreed, saying the commission also is not allowed to make nuanced findings and attribute costs to multiple contributing factors.

"In general we believe that where there are multiple causes in complex situations the commission should be able to apportion liability based on the utility's contribution to the outcome. In other states this exercise of judgement is allowed," she said.

Addressing the inverse condemnation doctrine, Guzman Aceves said the commission should not be required to pass through all utility-incurred costs regardless of whether the utility acted as a prudent manager.

"We respectfully call on the legislature to consider the overarching legal framework with both of these issues, including providing the commission with explicit authority to apportion responsibility in prudency reviews to multiple causes," Aceves said.

Key senator says he will introduce legislation

While applauding the PUC's decision on SDG&E, state Sen. Jerry Hill announced he will join with four other senators and assembly members to introduce a bill Jan. 3, 2018, to prevent electric utilities found culpable in wildfires from passing uninsured liabilities along to customers. Hill said the PUC made the right decision in the SDG&E case but could face even more intense pressure with potentially billions of dollars in wildfire claims in PG&E's service region.

Hill, who chairs the state Senate Energy, Utilities and Communications Committee's Subcommittee on Gas and Electric Safety, said he will consider balancing his legislation with provisions that would address wildfire damages that result from electric power service when utilities are not at fault.

"I don't agree with the inverse condemnation aspect where utilities are responsible if they did nothing wrong. Utilities are a necessary part of society ... If they have done everything proper, then it becomes a community problem and society should address it," Hill said.

A tax or a fee could be charged to help victims of wildfires, since everyone benefits from utility service, Hill said. Yet, the senator said that if a large utility such as PG&E is found negligent to the point where the penalty is bankruptcy, so be it.

"We have municipal utilities and community choice aggregators. There are a lot of options," Hill said. "If we look at PG&E as too big to fail, this calls for rethinking and some disruption in how utilities do business in California."

SDG&E issued a statement strongly disputing the PUC's decision and implied it would ask the courts to overturn it. SDG&E said the 2007 wildfires were a natural disaster that resulted from extreme winds, high heat and low humidity.

"The decision wrongly concludes that the applicability of inverse condemnation by California courts to privately owned public utilities is irrelevant," SDG&E said. "Courts apply inverse condemnation to utilities on the grounds that utilities can spread the costs through rates, but this decision ... has failed to allow SDG&E to spread the costs as the courts envisioned."

On Nov. 1, SDG&E officials told an adviser to Aceves how insurance premiums continue to increase. In light of recent fires, availability of insurance for wildfires will be challenging, they said.