PG&E Loses Fight Over Fire Policy That Led to Its Bankruptcy




 

(Bloomberg) -- PG&E Corp.'s latest attempt at escaping the California policy that saddled the power giant with billions of dollars in wildfire liabilities, pushed it into bankruptcy and led to the ousting of its chief executive officer has failed.

U.S. Bankruptcy Judge Dennis Montali on Wednesday sided with wildfire victims, who said PG&E is subject to a legal doctrine known as inverse condemnation that holds utilities strictly liable for covering the costs of blazes linked to their equipment -- regardless of whether they were negligent. PG&E had argued that it shouldn't be subject to the rule because it's owned by investors, not taxpayers.

PG&E blamed inverse condemnation for its downfall. California's largest utility filed for Chapter 11 while facing an estimated $30 billion in liabilities tied to wildfires that its power lines were blamed for igniting in 2017 and 2018. The state is one of the few places -- if not the only -- in the world that holds its power companies liable in this way.

The policy has been cited as one reason Warren Buffett's Berkshire Hathaway Energy and other potential PG&E buyers aren't making bids. PG&E's former CEO, Geisha Williams, spent months fighting the doctrine to no avail and was ultimately ousted, just weeks before the company filed for bankruptcy.

In deciding that PG&E is subject to inverse condemnation, Montali determined that the doctrine isn't limited to public agencies and said the California Supreme Court would "reach the same conclusion."

The company's shares fell 1.3% to $7.45 in after-markets trading on Wednesday.

At stake is the bill for the second-most destructive fire in California history, the 2017 Tubbs fire, which killed more than 20 people and destroyed at least 5,600 buildings. Claims could top $10 billion, "even though CalFire determined that PG&E equipment did not ignite the blaze," the company argued in court papers.

PG&E had said that inverse condemnation was originally developed with government-run agencies in mind -- a means for them to raise rates or taxes and spread around the costs of a disaster caused by the failure of a water line, for example. Since PG&E doesn't levy taxes and can't hike rates without regulatory approval, the company said, the doctrine shouldn't apply to its case.

Some Limits

"Since at least 1894, Californian courts have not limited the application of inverse condemnation to public entities," Montali said in his decision Wednesday. He also noted that California's legislature has refused PG&E's pleas to restrict the policy and said he has no reason to believe that the California Supreme Court would "step up and do it."

He did, however, say the doctrine doesn't extend beyond property damage and is subject to some limitations.

Montali's ruling comes as the company and a committee representing wildfire victims are getting ready for a trial that will decide how much PG&E must pay to compensate residents and businesses hurt by fires traced to company equipment. Even with a victory, PG&E would've still been on the hook for tens of billions of dollars in wildfire damages that critics claim were caused by negligence.

The victims' committee argued that PG&E must be subject to the inverse condemnation doctrine because California courts have consistently ruled that it applies even to investor-owned utilities.

State officials said in a report earlier this year that inverse condemnation increases the danger that other utilities will also go bankrupt. But when lawmakers had the chance to eliminate the doctrine, they refused to rewrite the California law.

The case is PG&E Corp. 19-bk-30088, U.S. Bankruptcy Court Northern District of California (San Francisco)

(Updates with judge's comment in ninth paragraph)

--With assistance from Rick Green and Dawn McCarty.

To contact the reporters on this story: Steven Church in Wilmington, Delaware at schurch3@bloomberg.net;Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, ;Rick Green at rgreen18@bloomberg.net, Catherine Traywick

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.

COMMENTS

More Related News

PG&E says reached $13.5 billion agreement with wildfire victims
PG&E says reached $13.5 billion agreement with wildfire victims
  • US
  • 2019-12-07 03:51:03Z

In a final major settlement, the company said it had reached settlements with all major groups of wildfire claimants, including the Official Committee of Tort Claimants (TCC) and with firms representing individual claimants. "With this important milestone now accomplished, we are focused on emerging from Chapter 11 as the utility of the future that our customers and communities expect and deserve," Chief Executive Officer Bill Johnson said in a statement. The agreed settlement is subject to a number of conditions and requires confirmation by the United States Bankruptcy Court, the company said.

California congressman Duncan Hunter announces resignation after corruption plea
California congressman Duncan Hunter announces resignation after corruption plea
  • US
  • 2019-12-06 22:39:48Z

Hunter's announcement that he would step down came days after the leading California lawmaker, a former U.S. Marine Corps combat veteran, entered his guilty plea in federal court in San Diego. "Shortly after the Holidays I will resign from Congress," Hunter, 42, said in a written statement released by his communications director.

Man who poured bleach on food in California also struck stores in Arizona, AG says
Man who poured bleach on food in California also struck stores in Arizona, AG says
  • US
  • 2019-12-06 03:05:00Z

A man facing charges for dumping bleach on food and drinks at retail stores across California is in even more legal trouble - in another state.

California asks Trump administration to release money to fight homelessness
California asks Trump administration to release money to fight homelessness
  • US
  • 2019-12-06 02:20:01Z

In the latest skirmish over California's homeless crisis, the state's governor, Gavin Newsom, asked President Donald Trump on Thursday to stop withholding federal housing vouchers that could benefit 50,000 homeless people. Newsom told Trump he could "immediately order" the Department of Housing and Urban Development (HUD) to issue federal housing vouchers, a program to assist low-income families, the elderly and the disabled find affordable homes in the private market.

California bars insurers from dropping customers in fire-prone zones
California bars insurers from dropping customers in fire-prone zones

California state regulators on Thursday banned insurance companies from dropping customers who live in fire-prone areas, a move aimed at helping some 800,000 people across the state. The decision calls for a mandatory one-year moratorium on insurance companies refusing to renew policies in areas at high risk for wildfire. "This wildfire insurance crisis has been years in the making, but it is an emergency we must deal with now if we are going to keep the California dream of home ownership from becoming the California nightmare," Insurance Commissioner Ricardo Lara said in a statement.

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

Top News: Economy