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Governor proposes changing inverse condemnation rule for utilities

Under California law, utilities like PG&E and Southern California Edison are legally responsible for damage caused by their equipment even when there is no showing of negligence. This is called "inverse condemnation." The idea is that when government entities or utilities cause major damage to private property, their actions are in essence a taking of that property. Property takings are regulated by the federal and California constitutions, both of which mandate that any taking be justly compensated.

In practical terms, what that means is that PG&E, Edison and other utilities could be on the hook for all the damage caused by the 2017 California wildfires if those wildfires can be shown to have been caused by their equipment. 

There is already evidence that PG&E actions or equipment failures caused some of the fires in Northern California. As we've discussed before on this blog, the California Department of Forestry and Fire Protection (Cal Fire) has completed its review of some of those fires and found that all of them were caused either by falling trees or tree parts or by PG&E equipment failures or errors. That said, there are more than 150 fires left to review.

The idea behind the inverse condemnation rule is to place the burden of massive losses on the utilities, as they are both most likely to be responsible and most able to bear it.

Recently, however, Governor Jerry Brown proposed a different rule. Instead of a "strict liability" rule where the utilities are responsible whenever their actions or inaction causes damage, he would hold them liable only when they acted unreasonably.

Under the current rule, all that is needed is a tie between a utility's equipment, action or inaction and the damage. That means that the utility can be held responsible even if it follows all applicable safety regulations. Under the new rule, following the safety regulations would be enough to prevent the utility from being held liable.

However, such a change might not help PG&E. Cal Fire has found violations of state law in at least 11 of the fires.

According to Bloomberg, JPMorgan Chase & Co., has estimated PG&E's gross liability from the 2017 wildfires at $17.3 billion. What that represents is $17.3 billion in losses by homeowners and other private property owners, many of whom may not have been insured.

A coalition of residential and industrial customers urges lawmakers to "prioritize safety, accountability and affordability and not give investor-owned utilities a blank check paid for by customers."

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