U.S. Bankruptcy Judge Dennis Montali on Nov. 27 denied Pacific Gas & Electric's request to not apply California's inverse-condemnation liability doctrine to the utility's role in the 2015, 2017 and 2018 Northern California wildfires. But Montali left the door open for PG&E to appeal his ruling to another federal court and, potentially, the California Supreme Court as well.
In Montali's amended memorandum on the decision , the judge urged "prompt consideration of this issue" by the U.S. Court of Appeals for the 9th Circuit, which may or may not decide to send the issue to the California Supreme Court, according to the filing.
If the doctrine does not apply to the utility and with billions of dollars at stake, it could reduce PG&E's liability "drastically" and "only proceed to trial on issues of negligence or other theories," the judge said in the filing .
Montali said he decided to not grant PG&E's request for relief from inverse condemnation because the utility did not "cite [any] instance when the California Public Utilities Commission denied inverse condemnation cost reimbursement to a prudent operator."
Under inverse condemnation, a utility in California can be held responsible for damages caused by its equipment before it has been found negligent. However, a utility can then recover its costs if the CPUC finds the utility acted prudently prior to damage. If the utility is found to have acted prudently, it would be allowed to ask the CPUC to increase customer rates, thereby reimbursing itself for losses incurred through inverse condemnation.
PG&E has admitted that its equipment caused all of the wildfires under review in its bankruptcy proceeding, except the 2017 Tubbs Fire. However, PG&E has not admitted liability for any of these fires. Causation and liability are two separate questions—a utility can be found to have caused a fire, but it might or might not be liable for that fire, depending on whether or not it followed code requirements related to its equipment.
PG&E is concerned that it is not guaranteed the ability to pass on its inverse condemnation losses for recovery from ratepayers, according to Montali's decision. In the utility's filing to Montali, PG&E cited a 2017 CPUC ruling that denied San Diego Gas & Electric recovery of inverse-condemnation costs from three wildfires in 2007.
But in that decision, the commission found that SDG&E did not satisfy the CPUC's prudent-manager standard. Even so, PG&E has asserted that the decision means the "regulatory process now severely prejudices [PG&E]," according to Montali's filing.
Montali, however, added that it is the role of the legislative branch, not the judicial branch, to decide whether to relax or eliminate the CPUC's prudent-manager standard under the inverse condemnation doctrine.
"The California legislature has not taken up PG&E's cause to [PG&E's] satisfaction, and this court will not attempt to take [the Legislature's] place," Montali said in his decision.
PG&E also argued that it should not be treated as a public entity for purposes of inverse condemnation. However, Montali said that since at least 1894, Californian courts have not limited the application of inverse condemnation to public entities, adding that he is "not tasked to determine what the law should be" and is "merely tasked with interpreting what the law is and has been for one hundred twenty-five years."
Numerous other recent decisions have applied inverse condemnation to PG&E. The Sacramento Superior Court and the San Francisco Superior Court ruled that inverse condemnation should be applied to PG&E for the 2015 Butte Fire and the 2017 North Bay wildfires (see CEM No. 1566).
Montali predicted that if the case reaches the California Supreme Court, it will reject PG&E's pleas and reach the same conclusion as he did.