SAN FRANCISCO (CN) – A federal bankruptcy judge ruled Wednesday that the principle of inverse condemnation applies to investor-owned utilities like Pacific Gas and Electric, meaning the company can be held liable for wildfire damage caused by its equipment even if it was not negligent.
"It widens the potential liability," explained University of California Hastings law professor David Levine in a phone interview.
PG&E had argued it should not be held to the same standard as public entities because the state's utility regulator does not let it automatically pass on inverse condemnation costs to ratepayers.
U.S. District Judge Dennis Montali rejected that argument Wednesday, finding California courts have consistently focused on the concept of public use rather than cost spreading when deciding the state legal concept applied to regulated private companies.
“This court is not tasked to determine what the law should be and is merely tasked with interpreting what the law is and has been for 125 years," Montali wrote. "The California Legislature has not taken up debtors’ cause to their satisfaction, and this court will not attempt to take its place."
Montali traced the history of inverse condemnation back to 1894, when the California Supreme Court found a private railroad company could be held liable for damaging a person's property because the railroad was for "public use."
Two California appeals courts more recently held that investor-owned utilities are subject to inverse condemnation. But PG&E said those decisions, from 1999 and 2012, occurred before the California Public Utilities Commission (CPUC) ruled in November 2017 that utilities cannot automatically pass those costs onto ratepayers.
Imposing such a standard on an investor-owned utility equates to an unconstitutional taking of property, PG&E argued.
"The application of inverse condemnation to PG&E is nothing more than the transfer of private property from one private entity (PG&E) to another (the inverse plaintiff) without any compensation, let alone just compensation," PG&E argued in a court brief.
In 2017, the CPUC denied San Diego Gas & Electric Company's application to recover inverse condemnation costs related to wildfires that occurred in 2007. It found the utility did not “reasonably manage and operate its facilities." Montali accused PG&E of misreading that decision.
"It does not state that inverse condemnation costs will never be passed on to ratepayers," Montali wrote.
Montali's decision is likely to drive up the estimate for PG&E's total liability for wildfire damage. U.S. District Judge James Donato is overseeing the estimation process, and a bench trial is scheduled to start on Feb. 18.
An attorney for wildfire victims insisted the decision won't have a major impact on the estimate because the question of inverse condemnation applying to PG&E was never seriously in doubt.
The California Supreme Court has repeatedly denied petitions to review lower court rulings that held the concept applies to investor-owned utilities, said attorney Robert Julian of the Tort Claimants Committee, which represents fire victims.
"This was a wild goose chase from PG&E and its lawyers from the start," Julian said. "Someone at the helm of PG&E is wasting state dollars and trying to deny the victims the recovery they are entitled to."
PG&E said in a statement it was disappointed with the court's ruling, but that it "understands and appreciates there are diverse opinions" on the subject.
"PG&E continues to believe that imposing strict liability without regard to fault under inverse condemnation is a flawed legal doctrine and bad for our customers, our economy and our state," PG&E spokeswoman Jennifer Robison said.
The utility filed for bankruptcy Jan. 28 as it faced a potential $30 billion in liability for wildfires allegedly sparked by its equipment in 2017 and 2018. Critics, including San Jose Mayor Sam Liccardo, say the company "distributed $7 billion to shareholders" over the last decade while it "chronically underinvested in maintenance and safety."
Also on Wednesday, attorneys for victims of the 2016 Ghost Ship warehouse fire in Oakland asked Montali to let them put PG&E on trial in May 2020 to determine whether it is liable for the fire that killed 36 people. A hearing on that motion is scheduled for Dec. 17.
The next major issues to be resolved in the bankruptcy case are a contested request for approval of an $11 billion settlement with insurers and a dispute over whether $7.5 billion in state and federal government wildfire claims should be estimated or considered liquidated damages. Hearings on those disputes are scheduled for Dec. 4 and Dec. 17, respectively.
A state court jury trial on PG&E's liability for the 2017 Tubbs Fire, which killed 22 people and caused $6.2 billion in damage, is also scheduled to start on Jan. 7 in San Francisco Superior Court.
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