As PG&E’s legal woes continue, PG&E has increasingly attempted to devise more and more outlandish ways to skirt full financial responsibility for its actions and inactions. Estimates suggest that it may be liable for nearly $10 billion of damages stemming from lost lives, injuries, lost property, businesses, fines, and more as a result of the northern California Wine country fires, and many other wildfires in southern California at the end of 2017.
Why should PG&E be held liable for the 2017 California wildfires?
As a threshold matter, PG&E is fairly unique among major utility companies in the United States in that it is operated as a private company, and is publicly traded. This means that, although it is the primary energy provider in many parts of California, its shares are owned by private individuals, and the company is publicly traded on major stock markets. Unlike many other utility companies, the company is motivated exactly as any other private, profit-making company: to make money for its shareholders. In fact, as in all other private companies, the directors of PG&E are under a legal duty (known as a fiduciary duty in this context) to ensure that they make every decision possible to preserve shareholder value and maximize profits. Should PG&E directors fail to do such actions, they may be subject to lawsuits, removal, and even personal liability of the company’s failures.
This situation alone creates the possibility for deeply perverse incentives, as many other utility companies are owned or operated under the auspices of governmental organization, whose primary goal is to fulfill the duties that are imposed on them by law. This is particularly troubling when recent reports have surfaced, as they have for many decades and in previous fires, regarding PG&E’s continued efforts to skirt maintenance throughout 2017, including ignoring, postponing, or inadequately performing safety checks, basic employee training, and failing to invest in equipment upgrades that are standard industry practice (and used by other utility companies who are not motivated solely by profit) in order to maximize shareholder returns, all at the expense of safety. For example, PG&E, on numerous occasions, has chosen to divert money from programs intended to identify and trim problematic vegetation growing near power lines towards the compensation of its executives, or towards dividends for shareholders. Doubtlessly these programs would have had a direct impact on PG&E’s ability to prevent fires that occurred as a result of vegetation coming into contact with power lines and igniting.
PG&E’s simple incentive is, quite obviously, to minimize the amount of money it must pay as a result of the 2017 wine country and southern California fires so as to preserve the value of its share prices for shareholders, and continue to maximize profits.
2007 Witch, Guejito, and Rice Fires
PG&E’s most recent argument as to why it should avoid full financial responsibility from its behavior stems from the 2007 San Diego fires, and specifically, from the so-called Witch, Guejito and Rice Fires. In late summer and early fall of 2007, massive fires broke out in southern California. The wildfires that raged burned almost 1,000,000 acres of land in and around San Diego over several weeks. Their intensity was such that they could be seen by orbiting astronauts in the International Space Station, and easily photographed by satellites. Over 1,000,000 people were focused to flee their homes, 17 people were killed, and several hundred were injured, including over one hundred fire fighters responding to the blaze. It is estimated that the fires caused over $1.5 billion in total property damages and, more than ten years later, some damaged homes, businesses, and farmland have still not been fully repaired.
Although news and media outlets suggested that southern California’s then-prolonged drought was a major contributing factor to the fires (and, officially, California investigators are still determining the exact cause of some of the fires), attention quickly turned to San Diego Gas & Electric (SDG&E), the local utility company which, in a comparable fashion to northern California, was responsible for maintaining power lines and providing power and gas service to the area, and operates as a publicly traded, quasi-public entity. Eyewitness reports from the night on which many of the fires began indicate that high winds may have pushed power lines into nearby vegetation, causing sparks that led to the wildfires.
In the Rice fire, specifically, California investigators found that SDG&E had failed to cut back vegetation that led to the fire, despite being specifically notified on numerous occasions by local residents and its own employees of the offending vegetation, and the likelihood that continued vegetation growth would only exacerbate the existing problem. The Rice fire was ultimately determined to be caused by a dead tree limb falling onto a power line, and itself led to the destruction of 10,000 acres of property and 206 homes. The Witch fire, when combined with the nearby Gujieto fire that burned almost 200,000 acres and killed two people, was found to have been caused by shorted residential power lines. According to SDG&E’s own reports and those of eyewitnesses, power lines leading to a house shorted three times in the course of three hours, throwing off enormous sparks that ignited nearby materials. Even after the shorts, sparks, and fire had begun, it took the power company almost six hours to shut off the power to the line that had resulted in the fire.
Could the fires have been prevented?
Further investigation into SDG&E at the time indicated that both SDG&E and, in similar contexts, PG&E had a history of lax maintenance, both before, and during, the 2007 fires. Both companies routinely redirected money away from programs intended to maintain power lines in favor of other purposes, such as paying executives or increasing shareholder dividends. Employees note that they were never adequately trained to monitor for problematic vegetation, and were unsure of what to do if and when such vegetation was found. Contractors who were assigned to do maintenance were given no specific procedures for contacting utility companies officials if they encountered dangerous conditions while on maintenance runs. Needed safety precautions, such as an automatic shutoff system which may have automatically disconnected power in the case of the short circuiting that led to the Witch fire, was never installed by SDG&E, who reasoned that it was too expensive to implement. Even ten years after this fire, neither utility has installed this equipment on its power equipment, despite it being the industry standard in many other locations. To learn more about the conditions that led to the 2017 California Wildfires, please read our blog post “A Perfect Firestorm – PG&E’s Saga of Negligence and the 2017 California Wildfires“.
Who ultimately pays when a utility company is found negligent?
Among many other lawsuits, SDG&E was ultimately forced to pay $379 million dollars, after investigators determined that its behaviors were the causes of the fires. Amazingly, SDG&E’s response to this assessment was not to pass this cost onto its shareholders, as most companies might, but to attempt to raise the rates of its customers in order to pay back the hundreds of millions it now owed. Essentially, SDG&E was hoping that its own customers would pay back the fines it was assessed as a result of destroying these same customers’ properties, livelihoods, and lives. SDG&E’s primary argument here —which PG&E now appears to be attempting to resuscitate for the 2017 wine country fires— was that the fines and fees SDG&E must pay as a result of these fires is simply an aspect of the normal course of business for a company like SDG&E. SDG&E argued that they are simply powerless to control their equipment and maintain reasonably safe operating procedures that might prevent fires from occurring. As a result, fines and other damages resulting from fires is to be expected and ordinary.
This concept is known as “inverse condemnation” in this context, and means, as SDG&E’s argument goes, that PG&E can be found liable and legally responsible even if it was not negligent. That is, even if SDG&E was operating exactly as a reasonably prudent public utility company should operate, not only might fires still start, but SDG&E would be found financially responsible for these fires, and therefore be forced to pay the fines and fees assessed. Because SDG&E and, analogously, PG&E cannot act any better than it already has acted, it simply is the case that utility companies will be fined from time and time, and these fines should be passed onto its customers.
Thankfully for California residents and, hopefully, for future incidents in which PG&E is at fault, commissioners in San Diego voted, in late 2017, to deny SDG&E’s request to foist the costs of its ineptitude onto its customers. The commissioners voted that SDG&E had not operated its power systems in a “reasonable and prudent manner” prior to the 2007 San Diego fires, meaning that SDG&E was likely negligent, or, at least, not acting reasonably well, prior to these fires. The commissioners, in reaching their decision, considered the totality of the circumstances of SDG&E’s operations, ranging from their extremely sordid operating history, their unique operating structure in which they are essentially legally obligated to seek profits above customer safety, and the general inequity of charging their own customers for their behavior.
PG&E’s Liability for the 2017 Fires
The commissioners’ decision may set a positive precedent for PG&E’s actions and inactions during the 2017 fires. Increasingly, evidence has shown that PG&E power lines were at fault for these deadly blazes. For example, an independent analysis of emergency radio traffic from the night of October 8, 2017, when many of the deadliest fires began, shows emergency responders reporting to at least 10 different incidents across the northern California area related to power equipment, ranging from downed wires, exploding transformers, or wires being blown into contact with nearby bushes and trees. Already, at least 30 lawsuits have been filed against PG&E by impacting home and business owners, and doubtlessly tens, if not hundreds, more lawsuits are ready to be filed as the scope of the destruction from what appears to be PG&E’s actions and inactions comes sharply into focus.
It is doubly important to realize that PG&E is both mandated (and actually does have) substantial insurance coverage intended to pay out for incidents such as deadly and costly fires caused by its actions. The PG&E premiums paid on these policies are doubtlessly provided for by rates charged to its customers, meaning that, even despite the fact that PG&E is unable to directly pass the costs of its actions and inactions onto its customers, these customers do ultimately feel the financial burden of PG&E’s actions as more and more money must be diverted to more and more expensive insurance policies intended to cover PG&E’s deplorable behavior and business practices.
Will PG&E Improve Its Policies As A Result of these Lawsuits?
PG&E has continued to lobby state officials and local commissioners to advocate its positions. As a multi-billion-dollar corporate conglomerate, it has attempted, and doubtlessly will attempt in the future, to use its finances to sway commissioners and legislators to its side. Its most recent ploy appears to be attempting to get a law passed in which local commissioners can apportion fault between certain fires to PG&E. For example, if it appears that one fire was directly caused by PG&E’s actions or inactions, and another’s cause cannot be conclusively determined, commissioners could permit PG&E to recoup the costs for the fire whose source is indeterminate from its customers, while forbidding it to recoup those costs for the fire it conclusively caused. This is a dangerous path to follow, as more and more time and effort must be spent on attempting to conclude the causes of fires that may have occurred decades in the past and may, from the swath of their destruction, be never conclusively proven to have been caused by a single incident. Should this approach fail, it is beyond certain that PG&E will attempt further legal and legislative maneuvering to squirm its way out of paying.
It is clear form PG&E’s continued legal maneuvering that their corporate structure, corporate culture, and operating standards are simply insufficient to operate in a world in which their actions and inactions can have enormously costly and deadly ramifications. In the context of other states and utility companies (many of which are not private entities), PG&E’s continued negligence and fault for deadly and costly incidents is extremely apparent, and appalling. Although victims of PG&E’s actions may be capable of achieving financial restitution from the company, should PG&E be permitted to simply reflect these payments back onto the consumers will be yet another injustice conducted at their hands.
Please consider contacting Thompson Law Office if you or someone you know has been a victim of the 2017 California Wine Country Wildfires. Our qualified and experienced wildfire liability attorneys will be happy to provide you with a free consultation to determine how we can help you receive the compensation you deserve.