Attorney accuses legislators of breaking the law to create ‘slush fund’

Legislators who didn't show up to a meeting Wednesday on plans to transfer $2 billion to the state wildfire fund might face legal action from an attorney challenging the validity of the law that created the fund.

"The wildfire fund is taking on a life of its own which has become a slush fund Gov. Gavin Newsom has complete control over," Michael J. Aguirre said Thursday.

Aguirre and his law partner, Maria C. Severson of Severson Aguirre LLP in San Diego sued the state last month claiming AB 1054 was a bailout by lawmakers for utilities that have spent thousands of dollars in political contributions. Cannara and Nelson v. California Dept. of Water Resources Karla Nemeth, 19-CV04171 (N.D. Cal., filed July 19, 2019).

Wednesday's meeting in Sacramento was hosted by the California Earthquake Authority, which has been tasked with implementing the wildfire fund and facilitating a plan to impose rate hikes on customers as part of AB 1054's directive.

The measure was hurriedly signed into law July 12 just before the summer recess. It allows utilities to pass uninsured wildfire costs onto customers via rate hikes unless customers can prove utilities didn't act prudently before a fire struck. Under the existing law, utilities must prove to regulators that they managed their equipment prudently if they want to socialize costs to customers.

Resolutions involving investment policies to fast-track money to utilities were adopted Wednesday, according to Aguirre.

"The bottom line is, customers are going to be charged billions while utilities like Pacific Gas & Electric Company won't have to pay a penny because they're in bankruptcy," he said.

Designees voted anyway to accept and manage billions of dollars of public funds by Aug. 15 and denied Aguirre's request to stay the proceedings despite his pending challenge to AB 1054.

A spokesperson for the Department of Water Resources said Thursday the state cannot comment on pending litigation.

It's common to have designees show up to meetings instead of the governor and other legislators, earthquake authority spokesperson Chris Nance said Thursday, refusing Aguirre's contention that there was a nefarious reason behind the lawmakers' absence at the meeting.

Nance also noted that the $2 billion is a loan given to utilities to support the wildfire fund, as authorized by AB 1054. That loan will be repaid and administered by the earthquake authority, he added.

"We approved all necessary administrative steps to move forward the overall $21 billion fund as part of 1054's directive," said Nance. "We're just doing our jobs as directed per the legislation signed into law by the governor."

Aguirre said he urged the earthquake authority's general counsel, Tom Welsh, earlier this week to cancel Wednesday's meeting until issues surrounding his litigation are resolved.

In an email, Aguirre told Welsh he was legally obligated to advise the governor, speaker of the Assembly, state Senate president pro tem, treasurer and insurance commissioner that they couldn't delegate their duties to the earthquake authority to transfer $2 billion from the Surplus Money Investment Fund to the wildfire fund.

"You are also required to adverse the earthquake authority board they can't deliberate on the agenda items by way of serial meetings, which appears to have already occurred," Aguirre wrote. "Any action today at the CEA will be subject to an open meeting law challenge rendering any actions taken today will be null and void."

Aguirre said Thursday the earthquake authority is acting as decision makers, leaving no accountability with the governor and state directors.

"They're getting away with violating a bunch of laws," Aguirre said.

Aguirre went to federal court Wednesday to block the state's request to extend the Aug. 15 deadline to Sept. 13 to respond to his challenge of AB 1054.

Only the California Public Utilities Commission can approve utility rate hikes, which they haven't done, Aguirre argued. Furthermore, Aug. 15 is the day the state is set to transfer $2 billion to utilities as part of the wildfire funding plan.

Deputy Attorney General Gabrielle Boutin of the state Department of Justice filed a motion Monday requesting more time to respond to Aguirre's lawsuit. Sufficient time is necessary she argued, pointing to the complexity of the bill, and all of Aguirre's constitutional challenges to numerous statutes amended and enacted. All issues must be researched properly by the state, she added.

Aguirre contended that the state should already have analyzed the bill's merits before pushing it to be signed into law. Furthermore, the state should know whether forcing customers to pay for a utility's negligence in starting a fire would violate state or federal constitutions.

"Should not that work have been done before?" his opposition questioned. "Should not state officials have already determined if there were legitimate facts to find the new law was an 'urgency' measure?"

The state's request for an extension is ironically inapposite to their own accelerated process to pass AB 1054 with minimal discussion, Aguirre argued. Furthermore, the state's problems could be solved by bringing it to the judge most familiar with the underlying issues -- U.S. District Judge William Alsup of the Northern District of California. Alsup is overseeing PG&E's criminal probation.

Mike S. Danko from Danko Meredith APC, who isn't involved in the case but well-versed with the mechanics of AB 1054, agrees courts should take a closer look at the bill.

PG&E is sucking money out of a system that isn't being improved while raking in profits and passing wildfire costs onto ratepayers through hikes which won't work in the long run, Danko reasoned.

"[Aguirre] is asking questions that really should be on everyone's minds -- there's no doubt that 1054 was expedited. The question isn't so much about who can approve what funding plan," Danko said Thursday. "But what I'm interested in is, how much of 1054 was the result of political influence that allows utilities to bypass the California Public Utilities Commission to impose rate hikes onto customers? It's a legitimate inquiry the courts should look at."