Judge wants evidence state didn’t hold wildfire fund hearings

Utility customers have 45 days to show that state agencies failed to hold public hearings before enacting a controversial wildfire liability funding bill, a federal judge ruled.

Michael J. Aguirre of Aguirre Severson LLP in San Diego challenged the constitutional validity of Assembly Bill 1054, enacted July 12.

The law created a $21.5 billion fund for utilities to dip into to offset future wildfire liabilities. Under the law, utility customers and taxpayers must contribute $13.5 billion to the fund; the state Department of Water Resources can issue as many bonds as necessary to capitalize the fund; and the California Public Utilities Commission can order rate hikes to pay off any bonds.

Aguirre, a former federal prosecutor and San Diego City Attorney, has challenged the law on several fronts. He believes the bill was birthed from a scheme to bail out utilities that negligently cause wildfires and weakened the CPUC's prudent manager standard, allowing utilities to socialize wildfire-related costs via rate hikes.

The federal challenge to the law before Judge James Donato of the Northern District of California contends the state failed to conduct a proper evidentiary hearing to justify requiring the public to capitalize the fund. Cannara et al v. Nemeth et al. 3:19-CV-04171 (N.D. Cal., filed Jul. 19, 2019).

Attorney General Xavier Becerra and the CPUC's lawyers have argued in court papers the federal Johnson Act doesn't allow disputes from an administrative decision by a public entity to be heard in district court.

The Johnson Act directs federal constitutional challenges to ratemaking decisions back to state courts and administrative bodies, which is why the CPUC is immune from claims under sovereign immunity, CPUC's lawyer, Christofer C. Nolan, argued in a dismissal motion. The Johnson Act requires no formal notice or hearing, but the state held plenty last year, none of which plaintiffs participated in, Nolan wrote.

After hearing arguments Thursday, Donato asked for additional briefing on how the CPUC could proceed with rate-making rules without an evidentiary hearing.

Aguirre has argued the CPUC's previous statements claiming new rules imposed to fund AB 1054 would actually lower rates and reduce fires that were made without evidence or proof.

The Attorney General and CPUC argued AB 1054 was enacted as an urgency measure to keep the state powered and avoid credit ratings downgrades to fall to near junk bond status.

Donato asked Aguirre why his lawsuit was not initially filed in state court and asked how the Johnson Act doesn't bar him from presiding over the case.

"The Johnson Act is not a bar because there was not a reasonable hearing, which is an exception," Aguirre argued.

"There was a scheme to impose on the innocent ratepayers $13.5 billion special charge, and to change the law to create a presumption so all fires that PG&E starts from this point forward after July are automatically deemed to have been reasonable; therefore the costs can be transferred over to the ratepayers," said Aguirre.

Boutin told the judge that Aguirre chose not to appear in a series of CPUC proceedings throughout last fall. The meetings involved orders initiating a rulemaking, followed by prehearing conference statements and several more briefing opportunities to the parties before and after the proposed decision to impose the charge, Boutin said.

Donato ordered the state to lay out in its response exactly when the disputed hearing took place, who was invited, what occurred and the outcome of the hearing. He also disagreed with Boutin's position that non-PUC individual defendants being sued in the case have sovereign immunity, which the judge maintained doesn't apply to requests for injunctive or declaratory relief.

"I'm fairly satisfied that all the elements of the Johnson Act are easily met against the plaintiffs. Although, if you want to put some more detailed evidence about the reasonableness of the notice and hearing, I'm open to that," Donato told Aguirre.