Wildfires: Utility blocked from charging ratepayers for wildfire costs

Nov. 30--In a closely watched decision that could impact whether ratepayers are on the hook for billions in costs related to the Napa-Sonoma fires if PG&E is found at fault, the California Public Utilities Commission on Thursday denied a request from San Diego Gas & Electric to charge its customers $379 million related to three huge fires that the utility's power lines caused in 2007.

By a 5-0 vote the commissioners, who are appointed by Gov. Jerry Brown to regulate utilities, said that San Diego Gas & Electric had not operated its electrical system in a reasonable and prudent manner when the fires began, as state law requires.

As a result, the commissioners ruled, San Diego Gas & Electric's shareholders, not its ratepayers, must absorb the costs.

"There's no dispute that each of the fires was caused by SDG&E and that SDG&E did not meet its burden to act as a prudent manager," said Commissioner Liane Randolph.

Over the past three months, California's three largest utilities -- PG&E, San Diego Gas & Electric and Southern California Edison -- have lobbied the commission furiously to allow San Diego Gas & Electric to pass along the costs to its ratepayers. They have said that with climate change and more people moving into fire-prone areas, it's becoming more difficult for them to find enough insurance to cover the risk.

And they have said it's not fair that courts have found utilities must face strict liability if their power lines, transformers or other equipment causes wildfires that can burn thousands of homes and kill dozens of people, even if they were not negligent, a legal concept known as "inverse condemnation."

On Thursday, San Diego Gas & Electric said it couldn't have avoided the fires.

"SDG&E strongly disagrees with today's decision. The CPUC got it wrong," said Lee Schavrien, San Diego Gas & Electric's senior vice president and chief regulatory officer. "The 2007 wildfires were a natural disaster fueled by extreme conditions including the worst Santa Ana wind event this region has ever seen."

But consumer groups and some elected officials have argued that letting San Diego Gas & Electric and other utilities pass along the costs of wildfires caused by power lines to their customers increases the likelihood of wildfires by providing a disincentive for utilities to spend the money to improve safety, to properly maintain their lines and to shut off electricity during extreme conditions.

"I am relieved that the CPUC made the right decision to shield ratepayers from being burdened with the costs of the 2007 San Diego wildfires that were caused because San Diego Gas & Electric didn't reasonably manage its power lines," said State Senator Jerry Hill, D-San Mateo.

Hill, chairman of a key state Senate subcommittee on gas, electric and transportation safety, said Thursday's decision is important in the wake of October's devastating Napa and Sonoma County wildfires.

"If the commission had sided with the utility companies, it could have set a dangerous precedent for the future of disaster cost recovery," Hill said.

In one of the worst disasters in modern California history, a series of fires that began Oct. 8 in Napa, Sonoma, Mendocino and other Northern California counties burned more than 245,000 acres, destroyed 8,900 homes and killed 44 people.

Cal Fire continues to investigate the causes and has not said yet how the blazes started. But Cal Fire investigators are looking at whether power lines owned by PG&E were at fault for some of the fires, which were spread by windy conditions. The utility has told investors it faces massive liabilities if it is found to have caused the fires.

Last month, according to a review of emergency radio traffic by the Bay Area News Group, dispatchers sent fire crews to at least 10 different locations across Sonoma County over a 90-minute period starting at 9:22 pm on Oct. 8 -- the time the first fires were reported -- to respond to 911 calls and other reports of sparking wires, exploding transformers and problems with the county's electrical system amid high winds.

"Extreme weather and catastrophic wildfires pose real risks to our entire state," PG&E said in a statement Thursday after the PUC decision. "To address these growing risks and those posed by the impacts of climate change we must work together to find the right solutions. Wildfires and the way they are treated currently have real-world and potentially long-term impacts on the operations, risk management and financial standing of every energy company in the state."

PG&E's share price has fallen 22 percent since the October fires. It has $800 million in liability insurance to cover the fires, but on Monday in a regulatory filing, it noted that State Insurance Commissioner Dave Jones estimated four weeks ago that the insured losses from the California wildfires so far total $3 billion.

"The estimate does not account for uninsured losses, interest, attorneys' fees, fire suppression costs, evacuation costs, medical expenses, personal injury and wrongful death damages or other costs," PG&E said in the documents filed with the Securities and Exchange Commission.

The San Diego fires 10 years ago were massive.

Investigators from Cal Fire and the PUC concluded that three October 2007 blazes -- the Witch, Guejito and Rice fires -- were caused by San Diego Gas & Electric's power lines.

The Witch and Guejito fires combined to burn 197,000 acres. They killed two people, injured 40 firefighters and destroyed 1,141 homes and 239 vehicles. The Rice fire burned 9,472 acres and destroyed 206 homes. It was caused by a dead tree limb falling on power lines.

The PUC ruled that San Diego Gas & Electric did not trim back trees as required by state law in the Rice fire -- and that the utility was at fault in the other two. In the Witch fire, the power line that caused the fire shorted three times in three hours, investigators found, creating sparks, and it took the utility more than six hours to turn off its electricity.

After the fires, San Diego Gas & Electric faced $5.6 billion in legal claims. It settled approximately 2,500 lawsuits from people who suffered damages, bringing its costs down to $2.4 billion. The $379 million it sought to charge ratepayers are costs not covered by its insurance.

In August, two PUC administrative law judges disagreed with the utility's claim that the fires were beyond its control. The judges, S. Pat Tsen and Sasha Goldberg, concluded that SDG&E "did not reasonably manage and operate its facilities" and thus could not pass along costs to ratepayers.

PUC commissioners agreed Thursday, upholding their ruling, although the PUC chairman, Michael Picker, called it "a close call" and said state lawmakers need to pass a law allowing the PUC to divide up liability more specifically when there are multiple factors and causes in fires caused by power lines.

"The result here is quite clear. We can't apply a standard that provides an incentive for a utility to act imprudently or unreasonably," said Commissioner Cliff Rechtschaffen. "That would send precisely the wrong signals to the utilities."

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