Wildfire liability bill gets hostile reception at legislative hearing

SACRAMENTO — Gov. Jerry Brown’s proposal to change the laws around wildfire liability got a chilly reception in a special committee hearing on Thursday.

At issue is the state’s inverse condemnation law, which attempts to balance utilities’ right to use eminent domain by holding they can be held liable for fires causes by their lines, even if the utility was not negligent. Brown’s proposal would partially relieve them of some of this liability in exchange for a new regime that requires them to file safety and reliability plans every two years.

California’s inverse condemnation standard is unusual among U.S. states. But attorneys — including legislators sitting on Conference Committee on SB 901 — warned that a change in the standard would be “tied up in court for years” and may even be unconstitutional.

SB 901 is a bill containing much of Brown’s proposed language. Pacific Gas & Electric Co., which faces billions in potential liability from last year’s fires, has been lobbying for it along with other utilities.

“I see you drew the short straw,” committee co-chairman Sen. Bill Dodd, D-Davis, told James M. Ralph, an attorney with the California Public Utilities Commission, as he sat down to present Brown’s proposal.

Ralph laughed off the comment. He argued that utility companies are mandated to provide power to customers within their service area, even those in remote areas. He argued that power companies should be treated more like flood control districts, which are not subject to inverse condemnation.

“The transmission and distribution of electricity is inherently dangerous,” Ralph said. “The severity of the danger is only heightened by climate change.”

But Ralph would soon endure several tough exchanges with lawmakers — none tougher than his back and forth with Assemblywoman Eloise Gomez Reyes, D-San Bernardino. Reyes is an attorney who was heavily backed by the Consumer Attorneys of California in her successful bid to unseat a Democratic incumbent in 2016.

“I would not characterize this as a bailout,” Ralph said, objecting to Reyes’ use of the word in her comments. “The governor’s proposal holds utilities accountable if they act negligently.”

“What needs to be proven during an inverse condemnation?” Reyes shot back. “One of the jury instructions asks that the cause of the fire, a substantial factors had to have been utilities. Inverse condemnation is not going to be found until that’s proven.”

After taking aim at the notion that utilities faced a kind of automatic liability if their lines are implicated in a fire, Reyes said utilities can also pursue damages against third parties that damage their lines. She concluded by warning that if the law was changed, “this would be in litigation for years, perhaps decades.”

John Fiske, a partner with Baron & Budd and a member of the California Fire Lawyers group of firms, picked up some of these themes in his testimony. He noted a utility will only be held liable if a fire results from the “intended use and design” of power lines, and not if, say, a drunk driver rams into a utility pole. They also can “spread their risk” among contractors, he added.

“The governor’s proposal is unconstitutional because it robs property owners of their constitutional rights to, one, just compensation and, two, a jury trial,” Fiske said. “The governor’s proposal also opens new pathways for protracted litigation against local and state agencies, an unintended consequence of a rushed proposal.”

Fiske and others said that some other utilities, especially San Diego Gas & Electric, have spent large amounts of money fireproofing their lines. But representatives from utility companies pushed back, noting they support Brown’s proposal.

Arlen Orchard, CEO of the Sacramento Municipal Utility District, said his ratepayers could be on the hook for billions in damages under the current system.

“We don’t have shareholders,” Orchard said. “Our wildfire insurance costs are four times higher than a year ago.”

Henry Weissmann, a partner at Munger, Tolles & Olson LLP in Los Angeles, said the current system “in effect makes utilities the insurers of last resort.” Weissmann is outside counsel to Southern California Edison.

But Rex Frazier, president of the Personal Insurance Federation of California, said insurers already face massive liability of their own. They are legally barred from factoring climate change into their rates, with the result that many insurers are trying to get out of the California market. He said utilities need an incentive to expand their fire prevention efforts.

“Changing wildfire liability will lead to more fires, not less,” Frazier said.