California Utilities, Climate Change and Wildfires: A Liability Quagmire

March 12, 2018

Climate Liability News
By Ucilia Wang

alifornia’s rampant wildfires have ignited legal questions as the state begins to deal with the question of who’s at fault and who pays for the escalating damages.

Caught squarely in the middle is the state’s electric companies, several of whom have been found liable for huge settlements when their equipment or negligence in maintaining it were blamed for costly fires. That has driven them to use a new tactic: blaming climate change.

The three biggest utilities are linking climate change to wildfires in a bid to persuade the Public Utilities Commission to let them pass on some of the ballooning firefighting and legal costs to their customers.

The utilities say a constitutional doctrine called inverse condemnation has compelled them to settle lawsuits from property owners, firefighting agencies and local governments. They believe the doctrine entitles them to recoup some of the expenses by raising rates. The commission disagrees.

The stakes of this debate are high. San Diego Gas & Electric faced more than 2,500 lawsuits and paid $2.4 billion in settlements for its role in three fires in 2007 that burned 1,738 homes, killed two people and scorched 368,316 acres in San Diego County.

Fourteen of the 20 largest wildfires in California since 1932 took place within the past two decades. The biggest one, the Thomas Fire, took place last December and lawsuits are piling up against Southern California Edison. Up north, Pacific Gas & Electric could potentially pay billions of dollars for its role in a series of wildfires in Northern California last October that killed 44 people and destroyed 8,900 buildings. Investigators haven’t pinpointed the causes of these recent firestorms.

Yet the stocks of both companies tumbled after the fires, leading to $20 billion in combined market value losses.

“What the California utilities are facing is that large wildfires can bankrupt them if they can’t pass on the cost, if the size of potential liabilities exceed the value of the companies,” said Lucas Davis, a professor of economic analysis and policy at UC Berkeley’s Haas School of Business.

The Legal Options

Science has concluded that climate change contributes to drier conditions, exacerbates drought and leads to a greater number and more intense wildfires. The three utilities say that warming trend is a problem shared by all Californians, who should then share the fire costs.

The problem may be shared by all, but the blame for causing it is where the utilities run into a legal tangle. If climate change is to blame for the wildfires, the utilities could turn and sue the fossil fuel industry whose products have been overwhelmingly linked to rising global temperatures. But that won’t necessarily play well in the courts,  said Sean Hecht, an environmental law professor at the UCLA School of Law.

“Utilities use gas for power plants, and that doesn’t make them the most sympathetic plaintiffs,” Hecht said.

The utilities’ other options, Hecht said, are raising rates or lobbying for legislation that limits their liability in homeowner lawsuits.

California officials and consumer advocates say the utilities’ attempt to blame climate change is distracting from their responsibility to secure and maintain their equipment to limit fire risk.  

“I’m finding that utilities are trying to confuse the issue,” said state Sen. Jerry Hill, who chairs the subcommittee on gas, electricity and transportation safety. “Climate change might have spread the fires more quickly, but it didn’t start the fires.”

Hill introduced legislation, SB 819, in January that would prohibit utilities from raising rates to recover costs if they were found negligent in a fire.