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PG&E, California Utilities Could be Burned Financially in Wake of Wildfires

As California elected officials made a plea Friday for $7.4 billion in federal assistance in the wake of the state's unprecedented series of wildfires last month, Pacific Gas and Electric Co. (PG&E) and other major investor-owned utilities braced themselves for regulatory and legal brush fires that could burn them financially.

Two past instances from 2007 and 2015 may offer a glimpse at what is in store for PG&E in the aftermath of wildfires in the Northern California wine country that killed 43 people and destroyed approximately 8,900 residential and commercial structures.

PG&E, which put together a response team of more than 4,300 workers and dealt with 360,000 electrical outages and another 42,000 natural gas shutoffs, is the subject of an investigation by state regulators and is subject to a detailed root cause investigation by CAL FIRE, the state agency that responds to wildfires.

It is already clear that some of PG&E's facilities and infrastructure were involved in the fires, but if the investigations find that negligence by the utility was part of one or more of the wildfires, the San Francisco-based combination utility could be fined and its shareholders would have to pay for the utility's cost of restoration. As experience with past fires has showed, insurance can only cover part of the utility's exposure.

"It is too early to make assumptions about liability," according to PG&E CEO Geisha Williams, who gave a detailed report on the wildfires during a conference call with analysts.

Williams said that when wildfire sites potentially involved utility facilities, PG&E provided incident reports to the California Public Utilities Commission (CPUC). "The incident reports are factual in nature and do not reflect a founding, defining cause," she said. Twenty of those reports were submitted to the CPUC.

The known financial impact of the fires is limited to the cost of the utility response and restoration efforts, liability insurance costs, and some legal expenses, Williams said.

In California, a legal principle called "inverse condemnation" is applied to utilities involved in natural disaster responses. If utility facilities are found to be involved in a wildfire, the utility is considered liable for property damage and attorneys' fees, even if the utility did nothing wrong and followed all the applicable rules. The doctrine allows utilities to recover in rates all of those costs as long as they are separately not found negligent in the case of their facilities involvement in the fires.

"We don't believe that inverse condemnation is an appropriate doctrine, nor do we think it is appropriately applied to public utilities," said Williams.

A pending case could shed light on the liability of the utilities as early as this month, when the CPUC decides whether to allow Sempra Energy's San Diego Gas and Electric Co. to recover $379 million in rates for costs not covered by insurance from three wildfires in Southern California in 2007. 

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