The California Rule That Doomed PG&E: Inverse Condemnation

(Bloomberg) -- As PG&E Corp. hurtles toward bankruptcy, a once-obscure legal doctrine with an awkward name certainly bears a portion of the blame.

Known as inverse condemnation, it holds California utilities responsible for wildfire damage caused by their equipment -- whether the companies acted negligently or not. The utilities spent most of last year pushing state legislators to change it, to no avail.

The concept isn’t unique to California, but the way the state applies it is. Inverse condemnation usually applies to government agencies that damage private property while providing a public service. But courts in the Golden State have ruled that the doctrine also can be used against utilities, since they’re authorized by the state to provide a vital public service.

That’s why California utilities can be held liable for damages from fires sparked by their equipment, even if they followed all of the state’s stringent safety rules. They can try to pass on those costs to ratepayers, but there’s no guarantee such efforts will get approved by the state’s California Public Utilities Commission.

In a closely watched 2017 case, the commission rejected a bid by Sempra Energy’s San Diego Gas & Electric utility to have customers pay $379 million in wildfire liabilities. Commissioners who voted against the request said the utility hadn’t acted prudently in managing power lines that sparked the fires.

State fire investigators have blamed PG&E’s equipment for starting 17 of the wildfires that tore through Northern California in 2017. The company’s electric lines are also suspected of sparking last year’s Camp Fire, the deadliest in California history, which killed 86 people and destroyed the Butte County town of Paradise. In its regulatory filing Monday, warning of a possible bankruptcy, PG&E estimated it could face $30 billion in liabilities from the 2017 and 2018 fires.

To contact the reporter on this story: David R. Baker in San Francisco at dbaker116@bloomberg.net

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

©2019 Bloomberg L.P.