EDITORIAL: The utilities’ liability for California’s wildfire woes

Aug. 18--When all the options are bad, choosing the least-bad option won't make anybody happy.

That's what's likely to happen with a stack of proposed legislation to deal with liability for the catastrophic wildfires that have scorched hundreds of thousands of acres across California.

The state's investor-owned utilities are lobbying for a change in the law that reduces their liability for fires caused by electrical equipment, like wires and transformers. Under a doctrine known as "inverse condemnation," they're liable for the damage from fires sparked by utility equipment -- for example when tree branches make contact with wires during high winds -- even if the utility wasn't negligent.

The utilities are seeking this change because of a decision made last fall by the California Public Utilities Commission. The CPUC refused to allow San Diego Gas & Electric to charge ratepayers for about $400 million in damages from 2007 wildfires that exceeded the limits of its insurance.

Among the proposals floating around Sacramento are bills including Assembly Bill 2346, which would allow investor-owned utilities to set up Wildfire Expense Memorandum Accounts and require the recovery through rates of those costs.

Another bill, Senate Bill 819, would prohibit an investor-owned utility from recovering through rates the cost of damages in some circumstances.

Gov. Jerry Brown made a proposal that would "reform" inverse condemnation so that utilities were not liable for damages unless they were negligent.

That would shift the cost to insurance companies. State insurance commissioner candidate Steve Poizner told the editorial board it would certainly result in an increase in homeowner insurance premiums across the state.

With the utilities facing billions of dollars in damages for recent fires, the doctrine of unlimited strict liability, combined with a lack of certainty about the ability to pass through costs to ratepayers, has the potential to put the investor-owned utilities into bankruptcy. Even without bankruptcy, the utilities could face a credit downgrade that drastically increases their costs and jeopardizes existing contracts.

But ratepayers aren't doing so well, either. Utility bills in California have been climbing, and the cost of electricity in California, due to the state's laws and policies, is far higher than the national average.

Of all the groups of people who could be slammed with the cost of wildfire damage -- taxpayers, ratepayers, insurance customers and stockholders -- the only group that signed up for risk is stockholders. Everybody else is a captive customer.

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But if the cost is put on shareholders alone, the financial health of the utilities will be endangered to the point that they may cease to exist. Then what? A government takeover?

Customers of the Los Angeles Department of Water and Power can attest that this is not likely to be an improvement.

Part of the answer to this quandary must include better forest management and better practices for vegetation management near utility equipment. Although climate change is certainly increasing the risk of wildfires, more can be done to mitigate the risk. AB2911 would authorize electrical utilities to traverse private property to conduct vegetation management. SB1260 would establish protocols for prescribed burns.

These are important components of a comprehensive strategy to prevent out-of-control wildfires from devastating the state. And the state and federal government must work together on a plan to clear 129 million dead trees from the forests. The environmental damage from wildfires, as well as the financial damage, cannot be mitigated with wishful thinking.

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