Fight over PG&E’s liability in Wine Country fires is just beginning
As reported in the San Francisco Chronicle on 21 June 2018, Pacific Gas and Electric Co. and its parent company, PG&E Corp., reported Thursday that they will take a $2.5 billion charge to cover expected losses from October’s deadly Wine Country wildfires. PG&E is blamed for sparking some of the most destructive blazes in California history, and warned investors that the financial pain may just be beginning. The damage charge, which will be recorded in the current quarter, is larger than PG&E Corp.’s 2017 profit of $1.66 billion. But PG&E executives said that it represents just the low end of the utility’s potential losses from the fires; the final amount could be much higher. In Australia, there were numerous large court cases against power companies in the aftermath of Black Saturday fire which should be considered for resilience against future fires in Australia.
The following article, written by David R. Baker, appeared in the San Francisco Chronicle on 9 June 2018.
Firefighters were still struggling to contain the flames scorching the North Bay last October when residents first started lining up to sue Pacific Gas and Electric Co. State fire officials had already named PG&E’s power lines as possible ignition sources for the dozens of fires that erupted during a windstorm on Oct. 8, destroying more than 8,800 buildings across Northern California and killing 45 people. But they cautioned that their investigation was just getting under way.
Many survivors, however, were convinced that the culprit was PG&E. Eight days after the fires began, at least 175 people gathered at the Santa Rosa Hyatt to hear from three law firms preparing to take on the utility. In the months that followed, more than 150 individual suits would be filed against PG&E. Investigators with the California Department of Forestry and Fire Protection, or Cal Fire, are now finally releasing their reports on the causes of the fires. In every case so far, Cal Fire has traced the flames back to PG&E’s equipment.
Even more damning, in 11 of the 16 fires for which Cal Fire has issued reports, investigators found reason to believe that PG&E had broken state safety rules. They sent their findings to the district attorneys in the counties involved to explore possible prosecution. Cal Fire still has not named a cause for the biggest blaze that night — the Tubbs Fire, which raced from Calistoga to Santa Rosa, leveled whole neighborhoods and killed 24 people. The Cal Fire reports issued to date, however, could lead to criminal charges against PG&E, which was convicted on six felony charges following the fatal 2010 San Bruno gas pipeline explosion.
Even some of the lawyers now suing the company, however, consider criminal charges unlikely. Instead, the agency’s findings could give the survivors suing PG&E a way to hold the utility liable for economic damages caused by the fires, even in the instances in which Cal Fire did not accuse the utility of doing anything wrong. Under a legal concept called inverse condemnation, California utilities can be made to pay economic damages for fires tied to their equipment, regardless of whether they followed the state’s safety regulations.
Furthermore, by raising the possibility of wrongdoing, the reports could end up blocking PG&E’s ability to pass along any of those costs to its more than 5 million customers. California regulators have refused to let utilities incorporate wildfire lawsuit costs into their rates when negligence is involved. PG&E and the state’s other big utilities have been waging a lobbying campaign in Sacramento to change the state’s liability laws and shield them from wildfire lawsuits, or at least let them make their customers pay the costs. That effort may now be moot.
“I think that is now off the table,” said Patrick McCallum, a Sacramento lobbyist who lost his own home in the fires and has been trying to thwart PG&E’s push on liability laws. He leads a campaign called Up from the Ashes funded by some of the lawyers suing PG&E. “In my opinion, there are not the votes in the Legislature today to change inverse condemnation or strict liability,” McCallum said. “These reports show the Legislature and their staff what others have known, that there’s a history of mismanagement at PG&E.”
PG&E said it will continue pushing for liability changes, as well as work with state officials on fire prevention measures. “Liability regardless of negligence undermines the financial health of the state’s utilities, discourages investment in California and has the potential to materially impact the ability of utilities to access the capital markets to fund utility operations and California’s bold clean energy vision,” the company said.
The stakes for PG&E are high. Damage estimates from all of the Northern California wildfires, viewed together, stand at nearly $10 billion, according to the California Department of Insurance. Wall Street analysts don’t believe liability for the fires would bankrupt PG&E, but it would at the very least raise insurance prices for the company, and its customers would bear that extra cost. PG&E Corp., the utility’s parent company, made a $1.7 billion profit last year, on $17.1 billion in revenue. PG&E in December suspended its dividend to stockpile money, should it be held responsible for the fires.
Much still hinges on whether Cal Fire blames the Tubbs Fire on PG&E’s equipment. The company has claimed that a power line installed and owned by a private property owner started the blaze. Gerald Singleton, one of the attorneys suing PG&E, estimates that the Tubbs Fire alone accounts for close to half of the liability PG&E could face. “If the Tubbs report comes back, and they say, ‘No, remarkably, PG&E’s equipment wasn’t involved,’ then PG&E no longer has an immediate financial problem,” said Singleton, with the Singleton law firm.
PG&E said in its first-quarter financial report that it could need to raise money to deal with the fallout. Already, it has spent $259 million on repairs and service restoration. It has approximately $840 million in liability insurance — far short of what it might be required to pay.
The findings issued to date should make it easier for insurance companies, fire departments, cities and others to sue PG&E for losses caused by the fires, a process known as subrogation. Insurance companies will seek to recoup at least some of the claims they paid out to policyholders, the same way auto insurers after an accident will pay their customers first, then seek reimbursement from the at-fault party or his insurer. “It’s part of the normal process on how issues like this are resolved, making sure that the responsible party pays for the damage they cause,” said Mark Sektan, vice president with the Property Casualty Insurers Association of America. Sektan said any result from industry lawsuits against PG&E “will be a couple years away. Where it will help homeowners who have insurance is that when the insurers receive a settlement, they will refund whatever deductible the homeowner has paid.”
A glass sculptor who lost his life’s work in Napa’s Atlas Fire, Clifford Rainey is among many victims who are suing PG&E. Rainey also lost the Napa home he shared with his partner, Rachel Raiser, a floral designer, who also lost her studio. “We’re in a pickle financially,” Rainey said, noting that he had no insurance on his art studio. “The only way I can see to get any compensation is through one of these lawsuits.” So Friday’s news that Cal Fire investigators have determined that the Atlas Fire started with a PG&E power line gives him hope that he and Raiser will one day be able to rebuild. But he fears that PG&E power lines will remain unsafe, despite the finding. “It’s amazing that in California we still have these power cables above ground,” he said. “I’m from the U.K., and across most of Europe, electrical wires are always underground. In Napa, where I live, the power cables actually weave through trees. I cringe.”
Chronicle staff writers Kathleen Pender and Nanette Asimov contributed to this report.