California Regulators and Legislators Grapple with Utility Exposure for Wildfire Costs

California investor-owned utilities (IOUs) are facing a perfect storm of potential liability for property loss and related costs from recent wildfires. Climate change related events, including massive tree kills due to insect infestation, other impacts of drought, and increased incidence of atypical windstorms, have led to more frequent wildfires. In 2017 both northern and southern California experienced unprecedented firestorms, and secondary impacts such as mudslides in fire-affected areas. While the causes of individual fires are still under investigation, utilities are facing lawsuits from individuals, businesses and local governments for fire damage allegedly caused by electric utility infrastructure.

The question of who will bear financial responsibility for wildfire liability and increased insurance costs is currently being discussed at the California Public Utilities Commission (CPUC), in the courts, and in the California Legislature. The issues are multifaceted and complex.

• California law currently allows the courts to impose strict liability for wildfire property damage on utilities for fires linked to utility facilities, under the legal theory of “inverse condemnation.” This theory (as applied to privately owned utilities) is being challenged in the courts. For example, see: Butte Fire Cases, Case No. JCCP 4853 (Sacramento Superior Court) and Haber et al. v. Southern California Edison Co., Case No. BC 585858 (and consolidated cases) (Los Angeles County Superior Court).
• The CPUC has recently asserted its discretion to deny cost recovery for utilities’ settlement of “inverse condemnation” cases filed by homeowners and businesses, citing its authority to condition the utilities’ right to cost recovery on a finding that the utility had acted prudently in its management of the infrastructure causing a wildfire. If a utility is found to have acted imprudently, its shareholders could be forced to assume liability for all resulting wildfire costs. This issue (in the context of the 2007 wildfires in San Diego) is currently the subject of an application for rehearing at the CPUC and expected to be appealed in the courts.
• Utilities say that the increased risk of wildfire has affected the availability and cost of utility insurance policies. Since the costs are passed through, ratepayers could be affected by rising insurance costs.
• The California Legislature has responded to concerns raised by constituents, the CPUC, insurers, and investors by holding hearings on wildfire issues. Bills are pending that would address insurance requirements, utility planning and prudency review, and consumer protection for homeowners and businesses affected by wildfires.
• On May 10 the Governor issued an Executive Order to Protect Communities from Wildfire and Climate Impacts. The order addresses vegetation management, landowner education and outreach, and supporting the innovative use of forest products by the building industry.

Our attorneys are actively monitoring all of the interrelated wildfire issues at the CPUC, in the courts, and at the California Legislature. For more information, please contact Samantha Neumyer or Ron Liebert at 916-447-2166.