As anticipated, San Diego Gas & Electric Company (SDG&E) has filed a Petition for Writ of Review in the California Court of Appeal challenging the California Public Utilities Commission (CPUC) decisions denying rate recovery to SDG&E for the costs of settling claims resulting from the devastating 2007 San Diego wildfires.
The CPUC decisions (D.17-11-033 and D.18-07-025) concluded that it was inappropriate to review the reasonableness of SDG&E’s settlements with property owners affected by the Witch, Guejito and Rice wildfires, or to allow SDG&E to recover any of the $379 million in costs, because of a threshold finding that SDG&E’s imprudent management of utility facilities had contributed to the fires. SDG&E argued at the CPUC, and again in the current appeal, that the CPUC’s factual findings of imprudence were erroneous. SDG&E also argued that in any event the CPUC should not deny rate recovery for the unreimbursed costs of settling wildfire claims because California law has established a strict liability right for any party with property damage from utility-related wildfires to recovery for their losses under a legal theory of “inverse condemnation.”
Inverse condemnation obliges utilities to compensate owners for property damage and loss, regardless of the utility’s fault, since all of the costs of utility service (including wildfire damage) should be shared by all ratepayers instead of by affected individuals. The problem with this theory, according to SDG&E and the other California investor-owned utilities, is that the CPUC can deny their requests to pass through such costs to ratepayers. That is what happened in the SDG&E decisions, leaving utility shareholders responsible for wildfire costs that, under inverse condemnation law, are supposed to be socialized through rates.
Two of the five CPUC Commissioners signed a concurrence to the original SDG&E decision, acknowledging the contradiction between the state law on inverse condemnation and the CPUC’s right to deny recovery to the utility, and urging the California appeal courts and Legislature to address it. SDG&E’s petition discusses the concurrence, and notes that the Court of Appeal’s action on the petition will have implications throughout the state, in light of the large wildfires of 2017 and 2018.
As discussed in other recent posts, the California Legislature has been busy considering a variety of wildfire liability and related insurance measures. However, from recent statements, it appears that the California Legislature will not pass a bill addressing the inverse condemnation issue this session. That means utilities, investors, insurance companies, ratepayers and property owners affected by recent wildfires will be watching closely to see how the Court of Appeal addresses SDG&E’s petition.
Our attorneys are following this appeal, and are also closely monitoring other proceedings at the CPUC, in the Legislature, and in the courts related to wildfire liability and inverse condemnation. For more information, contact Samantha Neumyer, Ron Liebert or Lynn Haug at 916-447-2166.