Fight over utility wildfire bailout goes to the 9th Circuit

Customers asked the 9th U.S. Circuit Court of Appeals on Thursday to block California's efforts to allow utilities to pass on billion of dollars in wildfire liabilities to ratepayers.

Maria C. Severson and Michael J. Aguirre, lawyers for the customers, said that a trial judge should have allowed their lawsuit challenging the constitutionality of a controversial wildfire funding bill to proceed.

A scheme between several state agencies, investor-owned utilities and Gov. Gavin Newsom was decided without a proper hearing before utility regulators, the consumer lawyers said.

Their clients, utility customers Alex Cannara and Gene Nelson, sued last year, a week after Assembly Bill 1054, which created the wildfire fund, was signed into law. The lawsuit names as defendants Newsom, the California Public Utilities Commission and several state agencies. Cannara v. Nemeth et al. 3;19CV04171 (N.D. Cal., filed Jul. 19, 2019).

The wildfire fund bill created a $21.5 billion pool of money for utilities to dip into to offset future liabilities, and weakened the prudent manager standard, which meant the burden to prove negligence was shifted away from the utilities.

"The utility companies, sharing a decades-long history of collective disregard for safety requirements established by California law, have killed more than 100 people; utility customers have no such culpability," Thursday's brief states. "Yet, because of their deep political relationships with, and contributions and access to state officials, those utility companies secured for themselves legislation to escape further liability from their disregard for safety--at plaintiffs' and all other utility customers' expense." Cannara et al. v. Karla Nemeth et al., 20-16202 (9th Cir. 2020)

In June, federal Judge James Donato of the Northern District of California dismissed the lawsuit after concluding the California Public Utilities Commission gave reasonable notice of hearing to ratepayers when it made its decision to force customers to contribute to the fund via rate hikes. Donato sided with the state, which argued the district court lacked jurisdiction under the Johnson Act of 1934.

The customers' lawyers said their complaint was not intended to challenge the state's authority to ratesetting but rather should be considered a constitutional challenge to an act of the California Legislature. The legislation itself violates customers' 14th and Fifth Amendment rights, creating an unlawful government taking in the form of a surcharge to redistribute utilities liabilities in violation of the 14th and Fifth Amendments, they argue.

"The Court seemed to ignore the allegations in the district court complaint that the decision to impose fees onto customers was already decided before the CPUC opened any proceeding thereby making the Johnson Act inapplicable," the brief states.

The Johnson Act might have been intended to limit federal intervention in independent state ratemaking, but the unlawful act of ratemaking by the CPUC violated procedural due process by robbing customers a chance to contest the charge or hold an evidentiary hearing to see if the charge is fair, the plaintiffs state in their appeal brief.

An examination of the legislative history of the Johnson Act shows it was intended to protect customers from utility abuse. The Act's authors recognized balancing need for federal judiciary oversight against the independence of state utility ratemaking agencies, while also curbing abuses of oversight by such utilities, Severson argued.

"Supporters of the Johnson Act made clear in their deliberations that district court jurisdiction would only be divested if there was no fair notice or hearing," the brief states. "The supporters of the Johnson Act seemed intent to protect the patrons of the utilities from 'grave abuses' and delay tactics of greedy utility corporations, not to prevent the 'patrons' charged from turning to the federal court."