California Wildfire Vote May Have Limited Fallout for PG&E

(Bloomberg) -- California regulators rejected a request by a San Diego utility to bill customers for a decade-old wildfire, even as they made clear their decision shouldn't necessarily be seen as a precedent for last month's deadly fires in wine country.

San Diego Gas & Electric won't be allowed to recoup $379 million in costs from Southern California wildfires because the utility didn't properly manage and operate its facilities, the California Public Utilities Commission decided in a 5-0 vote Thursday.

PG&E Corp., which has said it would seek to recover some costs from customers if found liable for last month's fires, fell as much as 3.7 percent on the vote. The stock recovered some of its losses after commissioners made clear that the decision shouldn't be viewed as a guidepost for what it will decide on future wildfire cases.

PG&E Chief Executive Officer Geisha Williams said she was "disappointed" with the decision.

“If these wildfires become endemic and part of the effects of climate change day in and day out, I don't believe it is sustainable for utilities to absorb that on a long-term basis,” Williams said Thursday at a ClimateTECH event in San Francisco hosted by the New York Times Co. "I don't think it is fair to put the burden on energy companies."

Michael Picker, who heads up the commission, said at the meeting that the SDG&E decision “may or may not have any precedent for any future fires that come before us,” He and other commissioners said the state legislature may want to re-examine the concept of inverse condemnation, where private utilities are held liable for damages caused by their equipment even if they weren't found negligent.

Potential Liabilities

Utility investors have been closely watching for the outcome of the San Diego case after state investigators said last month they were probing whether PG&E's equipment may have started wildfires that tore through California's wine country and killed 43 people. 

Under inverse condemnation, PG&E can be held liable for damages if it is shown its power lines ignited the fires even if it followed all safety regulations. Maximum total liabilities for the Northern California fires could reach $13 billion, according to JPMorgan Chase & Co. PG&E has seen its market value plunge by more than $7 billion since fire officials said they were probing the company's potential role in the disaster.

"The commission appeared to stress that this decision is not a final statement about the overall applicability of inverse condemnation with respect to investor owned utilities and does not pertain to last month's wildfires,” said Paul Patterson, a utility analyst at Glenrock Associates.

Lobbied Regulators

PG&E and the state's other big utility, Southern California Edison, had lobbied regulators in support of SDG&E in its case. SDG&E, owned by Sempra Energy, said it had incurred costs because of the application of California's inverse condemnation rule, which assumes the utility can pass along liability costs through rates to all customers. SDG&E also said that the Southern California wildfires were due to circumstance beyond its control.

SDG&E said in a statement that it disagrees with the PUC decision and the 2007 wildfires were a natural disaster fueled by "extreme conditions" including high winds. 

PG&E's Williams said investors may hesitate to put their capital in California utilities if they continue to be exposed to large wildfire liabilities. That would come at a time when the state wants utilities to make large investments to help California reduce its dependence on fossil fuels, she said.

In a proposed decision posted before Thursday's vote, judges with the commission said they rejected SDG&E's arguments and that inverse condemnation was irrelevant to the case. The judges said it was the responsibility of the commission to decide if SDG&E had acted prudently and reasonably in incurring the wildfire costs.

“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 powerlines,” state Senator Jerry Hill said in a statement. Hill plans to introduce legislation that would block utilities from passing along wildfire costs to customers if they are found negligent.

To contact the reporter on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net.

To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, Stephen Cunningham, Will Wade

©2017 Bloomberg L.P.