Legislators consider Brown proposal to limit utility liability for wildfires

SACRAMENTO — State lawmakers met for hours on Wednesday to debate a proposal by Gov. Jerry Brown that would change how liability is assessed for wildfire damages.

Brown’s long-awaited proposal would allow utilities such as Pacific Gas & Electric Co. to potentially avoid much of the liability they now face when their power lines cause fires. But it would leave in place a somewhat unusual inverse condemnation law in California, which allows courts to hold utilities liable for fires even when they followed existing safety rules.

On one side of this debate are the utilities, which argue they could go bankrupt without changes. On the other are homeowners, who claim they could be left holding the bag for damages they didn’t cause.

“The fundamental problem that we face as a state, and you face as a committee, is that the current system for allocating and managing the risk of wildfires in California is unsustainable,” said attorney Michael Wara.

Wara was the lead witness before a conference committee set up to evaluate SB 901, the bill to change wildfire liability rules. He is a research fellow at the Steyer-Taylor Center for Energy Policy & Finance at the Stanford Woods Institute for the Environment.

There could be consequences for changes that impose too much liability on utilities, he warned.

“Because of the threat to the finances of the electric utilities, wildfire fundamentally threatens the climate and clean energy goals of the state,” Wara said. “Utility risks will and already are increasing the expectation for the return on equity for the folks that own PG&E shares.”

Witnesses frequently mentioned events occurring outside the Capitol: firefighters are battling 10 active blazes as triple-digit temperatures blanket much of the state. 2018 has so far been worse than 2017, a year that saw dozens of deaths and an estimated $10 billion in liability for PG&E over fires caused when trees came into contact with power lines.

Brown proposes to change state law to give judges discretion to limit damages when utilities can show they acted “reasonable” by following safety rules, such as cutting back trees and brush from lines regularly. Damages would be determined by a “utility’s proportionate fault.”

In return, utilities would be required to submit safety and reliability plans to the California Public Utilities Commission every two years. The proposal would also limit the ability of utilities to transfer liability to third parties, such as independent contractors hired to clear the space around lines.

In a nod to homeowners and their supporters in the Legislature, Brown also proposed increasing fines for utilities that violate safety standards and would bar them from passing these costs on to ratepayers.

Some of the proposed changes to SB 901 borrow from another bill, SB 1088. The author of both bills is Sen. Bill Dodd, D-Davis. His district borders Santa Rosa, which was devastated by wildfires in October. SB 901 would apply only to liability after the beginning of this year.

But it would not give utilities something they have long sought: the repeal of California’s inverse condemnation statute. State law holds utilities responsible for all property damage if their equipment causes a fire, regardless of whether they were negligent.

But, as Wara noted, California’s approach is unusual. In most other states, he said, utilities face a “negligence standard” that generally protects them if they have made a good faith effort at prevention.

“Other than Alabama, California, as far as our research has been able to determine, is the only state in the country where inverse condemnation has been applied to private entities that have the power of eminent domain,” Wara said.

But he added “courts in California have created some nuance in the doctrine” that balance the interest of ratepayers with the state’s desire for utilities to invest in infrastructure.

Shares of PG&E and other potentially affected utilities rose in the wake of Brown’s proposed amendments. Utilities have pushed for a host of related changes, including more stringent building codes and fire risk reduction requirements for rural homeowners. PG&E spent almost $630,000 on lobbying in Sacramento in the first three months of this year.