Despite protests by California's major investor-owned utilities, regulators denied San Diego Gas & Electric Co.'s request to recover $379 million in 2007 wildfire litigation costs.
Facing potentially billions of dollars in exposure to future wildfire costs from October wildfires that swept through its northern California service territory, PG&E Corp. subsidiary Pacific Gas and Electric Co. urged the commission to approve San Diego Gas & Electric's, or SDG&E, wildfire costs. Edison International subsidiary Southern California Edison Co. also joined with PG&E and SDG&E in saying they all face the uncertainty of future damages that could be assessed against them because California courts tend to impose strict liability on utilities arising from wildfire damage claims.
The utilities argued that obtaining insurance to cover sweeping damage awards that courts provide to victims of wildfires is increasingly difficult and can only continue to operate under a state policy of inverse condemnation that presumes utilities will socialize costs through rates for legal damages they cannot recover from insurance claims. The utilities have thousands of miles of transmission and distribution facilities, much of which are located in areas prone to wildfires.
Under strict liability, the utilities argue they can be held responsible for life and property damages from fires that courts determine are the result of electrical equipment failures, even when all appropriate efforts to trim foliage and reinforce equipment to prevent poles and wires from being knocked down in high winds are made.
J. Petrocelli of the Alameda County, Calif., Sheriff's Office walks through the burned out remains of a home destroyed in a massive wildfire. Source: AP Photo |
The Public Utilities Commission concluded in SDG&E's case the utility did not reasonably manage and operate its facilities prior to the October 2007 Witch, Guejito and Rice wildfires, despite the Sempra Energy subsidiary's arguments to the contrary.
The utility argued the PUC had already conducted a "prudence review" in a prior proceeding concerning those fires and agreed to pay $14.35 million to the state's general fund in a 2010 settlement and that the commission could not again impose prudence as a condition for recovery of reasonably incurred litigation settlement and defense costs.
However, the PUC's Office of Ratepayer Advocates and other parties countered that reviews of whether costs were reasonable and appropriately incurred are always integral to commission cost recovery proceedings and that the settlement in no way obviates the need for such scrutiny.
The Witch Fire resulted when faults occurred between two poles on a 69-kV line in remote back country of San Diego County caused arching and dispersal of hot particles in a grassy field below the power lines. The PUC concluded SDG&E should have acted earlier to de-energize the line due to high wind conditions and repeated faults on the line.
A tree limb broke and knocked down a 12-kV powerline that caused the Rice Fire in Fallbrook, Calif., also in a remote area of the county. The PUC concluded SDG&E should have kept the tree trimmed for greater clearance from the line.
A loose lashing wire for communications equipment came into contact with an SDG&E's 12-kV power line and ignited the Guejito Fire near Escondido, Calif. The PUC concluded SDG&E failed to maintain required clearance between the equipment and line and see that the lashing was repaired.
Commissioner Liane Randolph introduced the decision as lead commissioner in the proceeding, saying the decision is not a final statement on the overall application of inverse condemnation, nor is it a statement on SDG&E's current practices in which the utility has become an industry leader with innovative steps in fire prevention. The case concerns conditions as they existed in 2007, she said.
Commissioner Carla Peterman said the doctrine of inverse condemnation does not displace reasonableness review of whether SDG&E was a prudent manager of its assets.
Commissioner Clifford Rechtschaffen agreed, saying the PUC cannot allow utilities to recover costs without reviewing whether they acted responsibly in incurring them for that would provide utilities with an incentive to be less careful.
The impact of strict liability and inverse condemnation on utilities is a matter the legislature and courts may wish to address, the commissioners said. However, Commission President Michael Picker said the commission must apply the Public Utilities Code as it exists today.
Picker and Commissioner Martha Guzman Aceves joined in the unanimous decision, but said they may file joint concurring opinions because, in their view, two of the cases were "close calls."
Noting the Witch Fire, Picker pointed to the difficult judgment calls utilities are forced to make whether to de-energize lines under adverse conditions, such as wildfires, because electricity is needed for street lights, phones and emergency response equipment.

