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Utilities, Other Stakeholders Wrangle Over Inverse Condemnation

  • On behalf of: Peterson Law Group
  • Published: July 16, 2018

Earlier this month, Governor Jerry Brown announced the creation of a special committee to reassess state policy on financial responsibility for wildfires. Under current law, utilities like PG&E and California Edison can be held liable for wildfires sparked by their equipment even if they’re not found negligent. This is called “inverse condemnation,” and it’s a big issue for the utilities.

Last October’s wildfires in Northern California forced the evacuation of over 100,000, destroyed 8,800 buildings and resulted in the deaths of 44 people. Financially, the fires resulted in an estimated $10 billion in insurance claims alone.

As we’ve discussed before, the California Department of Forestry and Fire Protection (Cal Fire) has reviewed 12 of about 170 fires and found that they were caused primarily by downed power lines, PG&E errors and equipment failures, and fallen trees or tree parts, which could indicate that the utility failed to properly trim back brush and forest near the lines. PG&E insists that it met or exceeded regulations for pole integrity management and that all its programs meet reasonable standards.

Under inverse condemnation, if PG&E or its equipment are found responsible, the utility could be held liable for all financial damage to real estate from the fires. Unfortunately, the utility only took out $840 million in insurance and now fears that liability for the fires could drive it into bankruptcy.

The special committee set up by Governor Brown would not necessarily change the inverse condemnation rule, but Brown and some legislative leaders implied that climate change, not actions or equipment by utilities, caused the firestorm. That’s PG&E’s position, as well.

The committee is working from the starting point of an existing bill. However, the California State Association of Counties is concerned that the draft bill could change the legal standard for utilities’ liability to one that denies liability if the utilities “acted reasonably.”

PG&E argues that unlimited liability threatens the health of the utilities and is ultimately bad for ratepayers and the state in general.

Supporters of the current inverse condemnation law say that it protects victims and survivors by placing the burden of financial losses on the party responsible — which is also the party most financially able to absorb those losses.

“We will not stand for any changes to current liability laws that let investor-owned utilities off the hook while local governments and the citizens we represent are left holding the bag,” said a spokesperson for the California state Association of Counties.

Governor Brown has indicated that any bill changing the rules for utilities would apply only to future fires.

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