Pacific Gas & Electric Corp (PG&E) recently released an estimate of its expected losses from last year’s Northern California wildfires. In a filing with the Securities and Exchange Commission, PG&E said it planned to take a $2.5-billion charge against its profits for the quarter ending June 30.
However, the utility admitted that charge represented the low end of the reasonable estimate of its losses and that it was unable to give a high-end estimate. This is because it is the subject of a state investigation and more than 200 private lawsuits in connection with the fires. The state has said the total property damage from the fires could top $10 billion.
As we’ve discussed before, California’s constitution applies inverse condemnation liability to public utilities. Inverse condemnation is when a government agency (or a California utility) takes private property, either directly or by destroying its value, without first paying just compensation to the property owner. An inverse condemnation action can be filed to obtain that compensation.
The idea of holding utilities liable for inverse condemnation is to put the burden of economic losses on the party most likely responsible and most able to bear the losses.
In the case of wildfire damage, California utilities can be held liable for compensation to property owners if their equipment sparked the fires — even if investigators cannot prove negligence. Earlier this month, the California Department of Forestry and Fire Protection issued a report tying 12 of last year’s wildfires to PG&E activity and equipment.
PG&E’s $2.5-billion estimate does not include any losses from the Tubbs Fire, the most destructive of the fires last October. Although PG&E told the SEC it wasn’t probable that the utility would be held responsible for the Tubbs fire, it admitted that it was too early to know the cause of that fire.
The 2017 Northern California wildfires could be the most costly natural disaster in PG&E’s history. Even at $2.5 billion, the cost is equivalent to almost two years’ profits. The utility apparently only carried $840 million in insurance — a mistake that will apparently cost the company dearly.
The preliminary wildfire cost estimate also swamps the next most costly disaster — the 2010 San Bruno natural gas explosion. That cost the company $1.6 billion in fines, costs and settlements, causing PG&E to float the idea of bankruptcy.
PG&E has been floating the idea of bankruptcy again as it lobbies legislators to change the law on inverse condemnation as global climate change makes catastrophic wildfires more likely.
Those who have suffered wildfire losses in any part of California should pay attention to official reports holding utilities liable for inverse condemnation.