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Ninth Circuit rejects challenge to California wildfire ‘bailout’ fund

A lawyer for two ratepayers said state lawmakers and regulators relied on a false set of assumptions when they approved a monthly surcharge to cover utility companies’ future wildfire liabilities.

SAN FRANCISCO (CN) — Finding no legally fatal flaws in the process for approving a $13.5 billion wildfire “bailout” fund, the Ninth Circuit on Thursday upheld the dismissal of a lawsuit challenging a monthly surcharge on California ratepayers’ electric bills.

Two PG&E customers who sued the state in 2019 had argued California regulators used a legally deficient process to approve a $2.50 monthly surcharge on California electric bills, which is expected to generate $13.5 billion over 17 years. With matching contributions from power company shareholders, the money will be used to compensate future victims of wildfires caused by utility-owned equipment when certain conditions are met.

The surcharge was approved pursuant to Assembly Bill 1054, a state law passed in 2019 that authorized the creation of accounts to cover future wildfire costs for investor-owned utilities like Pacific Gas and Electric.

PG&E customers Alex Cannara and Gene Nelson argued the bill was crafted in a series of secret meetings between PG&E executives, Governor Gavin Newsom and his staff without adequate public input. They also insisted the state’s failure to provide an evidentiary hearing before the surcharge was approved by the California Public Utilities Commission rendered the process unlawful.

In a 16-page opinion published Thursday, a three-judge Ninth Circuit panel rejected that contention. Writing for the majority, Donald Trump appointee U.S. Circuit Judge Danielle Forrest found the regulatory approval process met the minimum standards to qualify as a fair rate-setting procedure under the Johnson Act of 1934, which deprives federal courts of jurisdiction over state-regulated utility rate-setting decisions.

“The CPUC allowed anyone interested to become party to the proceedings, circulated notice of the hearing in the CPUC’s widely disseminated monthly newsletter, assisted people unfamiliar with CPUC procedures, allowed all parties to present their opinions at multiple stages of the process, allowed oral argument, accepted comments on the proposed decision, and responded to those comments in the final decision,” Forrest wrote.

The panel also refused to accept arguments that the Johnson Act should not prohibit federal court jurisdiction because the suit challenged a state statute — AB 1054 — that only “incidentally” affected utility rates.

“If we allowed plaintiffs to avoid the Johnson Act based on their characterization of their challenge, we would render the act a nullity,” Forrest wrote.

Chief U.S. Circuit Judge Mary Murguia, a Barack Obama appointee, and U.S. Circuit Judge Ryan Nelson, a Trump appointee, joined Forrest on the panel.

In a phone interview Thursday, plaintiffs’ lawyer Michael Aguirre said the bailout fund and surcharge were approved based on the false belief that it would raise PG&E’s stock price. That was the major reason lawmakers supported AB 1054, he said, because half of a $13.5 billion bankruptcy settlement for PG&E fire victims depends on PG&E’s stock value.

Aguirre said the commission should have held an evidentiary hearing to determine if the "bailout" fund would actually increase PG&E’s stock value as projected.

“It was a prop-up-the-stock strategy,” Aguirre said. “We thought that was an assumed set of facts that wasn’t true, and it turns out it wasn’t true.”

This past September, the trustee overseeing a settlement fund for victims of the 2015 Butte Fire, 2017 North Bay fires and 2018 Camp Fire said the trust was $2.5 billion short of its intended value due to PG&E’s lower than expected stock price. The trustee, John Trotter, urged lawmakers to take action to address the shortfall, noting that “it seems unfair” that future victims of PG&E-caused fires will be fully compensated while past fire victims will not be.

Aguirre said he plans to join with Camp Fire victims on the steps of the California State Capitol in Sacramento next month to urge lawmakers to take action to make victims whole.

The attorney added that the decision to change the “prudent manager” standard, which determines if a utility can be held liable for wildfire damages, under AB 1054 has failed to adequately improve wildfire safety as expected.

Aguirre said his clients intend to seek an en banc rehearing in the case because “this is such an important issue.”

A spokesperson for California Attorney General Rob Bonta’s office, which defended the state against the lawsuit, deferred comment to the governor’s office.

Governor Newsom’s office and the California Public Utilities Commission did not immediately return emails requesting comment Thursday.

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