A year on, wildfire fund is still debated

More than a year has passed since a $21.5 billion wildfire insurance fund was established by Assembly Bill 1054 to help investor-owned utilities offset liabilities that exceed insurance policies. But critics worry the safety net will make utilities less vigilant about taking wildfire safety measures.

"The people of California are not safer. If anything they are more at risk because AB 1054 took away the safety standard the utilities have to satisfy, and now they have no standard," said San Diego lawyer Michael J. Aguirre, a persistent critic of the utilities who sued to try to stop lawmakers from setting up the fund.

Most of California's biggest and most devastating wildfires have been sparked by utility equipment. Lawmakers drafted AB 1054 as a response to the growing number of these blazes that threaten the viability of utilities. But critics say the utilities are more focused on pleasing their investors than spending on infrastructure upgrades that might prevent the fires. They also say taxpayers should not foot the bill for utilities' malfeasance.

Under the terms of the fund, investor-owned utilities such as Pacific Gas & Electric Co., San Diego Gas & Electric and Southern California Edison Co. can dip into the fund if they meet safety qualifications and are certified by the state. Once a utility meets the requirements, the burden shifts onto a wildfire claimant to prove the company was not prudent in managing its equipment -- a shift from a previous requirement for utilities to meet the burden of proof.

PG&E emerged from bankruptcy in June after meeting its safety requirements under AB 1054. Around the same time, the company pleaded guilty to 84 counts of manslaughter in connection with the 2018 Camp Fire in Butte County. A few months later, PG&E was again the subject of an investigation into another wildfire, the Zogg fire in Shasta County that killed four people.

"While the cause of the 2020 Zogg fire remains under investigation and there are a number of unknown facts surrounding the cause of the 2020 Zogg fire, the utility could be subject to significant liability in connection with this fire," the company wrote in a filing to the U.S. Securities and Exchange Commission.

The Shasta County district attorney also is conducting a criminal probe of PG&E.

Southern California Edison Co. is also facing potential liabilities in the Silverado and Bobcat fires.

Regarding the Silverado fire in Orange County in October, Edison wrote to the California Utilities Commission, "It appears that a lashing wire that was attached to an underbuilt telecommunication line may have had contact with SCE's overhead primary conductor which may have resulted in the ignition of the fire. The investigation is ongoing."

The Bobcat fire in September in Azusa burned more than 155,000 acres. That blaze, too, is being investigated as possibly being sparked by Edison's equipment.

Although no utility has had to dip into the fund this year, some lawyers said they believe it helped to stabilize the energy companies.

"With the passage of AB 1054, we think we're in a better place overall, but it's too early to see if the benefits of the legislation pan out," said Willis Hon, a partner at Nossaman LLP.

The law was never meant to directly change the regulatory requirements applicable to investor owned electric utilities, said Bradford Kuhn, another partner at Nossaman. Instead it was supposed to create a regulatory framework better suited for a scenario of year-round wildfires to allow the commission and stakeholders to efficiently work through those issues, he said.

"The end result is that AB 1054 has created a more coherent framework for the state to navigate questions of wildfire safety," Hon said. "There is tremendous work to be done still as demonstrated by the catastrophic wildfires that we did experience this year that were potentially attributable to utility equipment."

He added, "The real test for AB 1054 has not happened yet, as the investments in wildfire safety are still being implemented and we have not yet tested the cost recovery mechanisms before the CPUC implemented under AB 1054."

The law does not address larger questions around inverse condemnation liability, both partners said.

"In comparing whether we are better off with or without AB 1054, we questioned where things would be right now without it," Hon said. "With the financial uncertainty of 2020 and impacts of COVID-19, absent AB 1054 we believe it would have been incredibly difficult for utilities to raise capital needed to make adequate wildfire safety improvements."

Gerald B. Singleton of Singleton Law Firm in San Diego has represented claimants from fires throughout the state. He said AB 1054 made it possible for claimants to continue pursuing inverse condemnation liability against utilities, which is designed to ensure losses are spread throughout all ratepayers.

"You don't have to show negligence. All you have to show is that PG&E equipment caused the fires," Singleton said. "So PG&E could have done everything right, but if their equipment caused the fire, they are liable for inverse. So they have to pay for out of pocket losses and economic damages."

But that would leave investors asking why they should put money into a company that could be found strictly liable without any proof of negligence, Singleton pointed out.

"So it's either get rid of inverse, or create a backstop where there is a bailout in the event there is a major event caused by inverse. That's where AB 1054 comes in," Singleton said. "If a company is negligent, does something wrong and does not comply with safety standards, then AB 1054 doesn't help them. But where AB 1054 helps is, if there is a situation where there is a major fire and they are found responsible under inverse, they can apply for AB 1054's fund and recover that money."

Another positive result of AB 1054 was that the lawmakers decided to allow inverse liability to remain intact, after talking about getting rid of it, Singleton said.

"The reason they put it into 1054 was to keep it intact, which is critical. The whole idea behind inverse is that we have this good that benefits millions in California, and when there are accidents or missteps, they affect a small number of people. It's not fair for just one group to bear the brunt," Singleton reasoned. "AB 1054 states to all investors who put in money into utilities that as long as plans are followed, there is no question they will get all the money back that they put into it."

Aguirre, who sued several state agencies trying to invalidate AB 1054, contended the utilities will not have any incentive to be safe any longer.

"They're free to operate dangerously with no repercussions," he alleged. "That's why we had the Zogg fire, and that's why PG&E did less safety work than they did last year, and it's evidenced in their probation case."

While Aguirre's challenge to AB 1054 was tossed out by U.S. Judge James Donato of the Northern District of California, the case is pending before the 9th U.S. Circuit Court of Appeals. Aguirre contends the state's actions violated constitutional rights of ratepayers by forcing them to pay for fires the utilities cause.

"You're making a certain group of people wealthy but you're not providing any actual service. There is so much money involved. Customers are paying their bills and it's a massive cash flow," Aguirre said.