By Hudson Sangree

SACRAMENTO, Calif. — A panel created by last year’s Senate Bill 901 unanimously approved its own recommendations to the governor and legislature Friday that include overturning the state’s strict liability standard for utility-sparked wildfires and establishing a fund of up to $40 billion to compensate fire victims.

The Commission on Catastrophic Wildfire Cost and Recovery was tasked with finding ways to deal with the costs and liabilities of massive wildfires, fueled by drought and climate change in recent years. Commissioners decided a top priority was getting rid of the state’s practice of inverse condemnation, which holds utilities liable for fires started by electrical equipment regardless of negligence. The costs are often passed on to ratepayers.

“The current method of allocating costs for these fires — socialization through utilities and ratepayers — has destabilized the state’s energy sector, with the largest utilities facing increasing costs of capital and an imminent threat of bankruptcy,” the commission wrote in its report.

Pacific Gas and Electric filed for bankruptcy in January, citing $30 billion in liability for massive wildfires in 2017 and 2018, including the Camp Fire, the state’s deadliest, in November 2018. Southern California Edison and Sempra Energy, the parent company of San Diego Gas & Electric, watched their credit ratings crumble and stock prices sink in the wake of the Camp Fire and PG&E bankruptcy.

The commission’s five members consist of Chairwoman Carla Peterman, a former member of the California Public Utilities Commission; Dave Jones, a former state lawmaker and insurance commissioner; Michael Kahn, former CAISO chair and prominent lawyer; Pedro Nava, also a former lawmaker and head of the state’s Little Hoover Commission; and Michael Wara, a Stanford University researcher and expert on climate and energy policy.

They were given about six months to come up with proposed solutions to vexing problems. The commission held five public hearings between February and June. The last was Friday at Sacramento City Hall.

During that hearing, some members expressed strong support for doing away with inverse condemnation, saying the huge costs are undermining the reliability of the electric system.

“Having inverse in a no-fault situation results in billions of dollars in costs, and that is stressing the system in a way that we find inequitable and problematic,” Kahn said. He urged moving to a negligence standard, requiring a showing of fault before a utility could be held liable for wildfires.

Others have urged similar measures. A separate “strike force” created by Gov. Gavin Newsom recommended altering inverse condemnation in April, and Newsom indicated then that he supported the idea. (See Calif. Must Limit Wildfire Liability, Governor Says.)

At a press conference, he pointed to a chart showing a massive increase in wildfire damages in the past two years — with nearly $20 billion in 2017 and almost $25 billion in 2018.

“Who the heck’s going to pay for that? Everybody wants someone else to pay. … The person behind the curtain is going to pay for that,” the governor said. “I’m of the opinion … [that] we all have a burden and responsibility to assume the costs.”

Newsom and legislative leaders, however, put out a joint statement last month, when the wildfire commission issued its draft report, that took a more cautious approach to changing inverse condemnation.

“We are committed to continuing the exploration of the impact of strict liability on the costs to ratepayers, on wildfire victims and on the solvency of our utilities,” it said. “If the trend of massive, catastrophic wildfires persists, we may need to pursue additional changes.”

‘Into the Blender’

Doing away with inverse condemnation may be difficult, if not impossible, however. The principle is enshrined in the state constitution, under the premise that utilities are given the governmental power of eminent domain to establish easements for power lines and must pay for any damage to private property.

The political climate also doesn’t favor utilities. Many voters remain angry with PG&E and other investor-owned utilities for burning down large swaths of the state — and, in PG&E’s case, causing the deaths of more than 100 people — in the fires of 2017 and 2018.

At Friday’s hearing, fire victims and their lawyers strongly protested any move to upend inverse condemnation, saying people who lost their homes in utility-caused fires four years ago are awaiting compensation, with some still living in camping trailers. Taking away the victims’ quickest avenue for compensation will only result in further hardship, they said.

“People who aren’t getting paid are at the mercy of the utilities, which they will be if you take away inverse condemnation,” said Sacramento lawyer Steven Campora, a longtime foe of PG&E. Campora represented victims in the 2010 San Bruno gas line explosion that killed eight and resulted in PG&E’s conviction on six felony charges in 2016.

The judge overseeing PG&E’s probation in that case ordered the utility’s new CEO and board members to tour the devastation in the town of Paradise, scene of the Camp Fire, which they did on Friday as the wildfire commission was holding its final hearing. (See PG&E Probed by Plaintiffs’ Lawyers, SEC.) The Camp Fire killed 85 people and largely leveled the town of 27,000 residents in the Sierra Nevada foothills.

Other recommendations approved by the wildfire commission included:

• Revising and clarifying the “prudent manager” standard that allows IOUs to recover wildfire costs from ratepayers if the CPUC determines a utility prudently managed its system. “The commission received testimony that the current standard for determining prudency is unclear and protracted,” it said in its draft executive summary. Commissioners generally supported the plan.
• Establishing an Electric Utility Wildfire Board to consolidate “governance of all utility catastrophic wildfire prevention and mitigation into a single entity separate from the California Public Utilities Commission,” which now handles many of those tasks, though some critics say it’s ill-equipped to do so. Commissioners voiced mixed reactions to the proposal.
• Creating a “large and broadly sourced Wildfire Victims Fund, to more quickly and equitably socialize wildfire costs, and maintain the health of state’s utilities.” The proposal, which some commissioners said would require up to $40 billion, was controversial because it remains unclear how it would be funded — whether by ratepayers, utilities, their shareholders or a combination of contributors.

Nava said the commission’s proposals are unlikely to be adopted wholesale, if at all. “These recommendations are going across the street [to the State Capitol and] into the blender, right?” he said. Lawmakers will probably pick and choose the pieces they favor while rejecting others, he said. “There will be a certain amount of cherry-picking.”