In 2007, several wildfires raged through San Diego County. Many acres were burned, and several victims were killed or injured. Many others were forced to evacuate their homes and communities. The net result of those wildfires were many claims of fire and smoke damage, and a number of North County residents filed lawsuits against San Diego Gas & Electric Company (SDG&E), which promptly counter-sued the victims who had lost homes to the wildfires. The Consumer Protection and Safety Division of the California Public Utilities Commission (CPUC CPSD) eventually held hearings in 2009 where SDG&E employees testified about the causes of those wildfires.

In the process of coping with the 2007 wildfire claims and lawsuits, SDG&E saw a dramatic decrease in the availability of annual wildfire insurance it was able to purchase. According to former SDG&E executive Debra Reed and executives at other Southern California investor owned utilities, some insurance carriers simply refused to insure the utilities for wildfires at any price, only a year after the 2007 wildfire season where the utilities (SDG&E, Southern California Edison Company, Southern California Gas Company, and Pacific Gas and Electric Company) had coverage ranging from $650 million to $1.2 billion. The insurance payments for that coverage were charged to utility consumers on their monthly bills.

It is important for utility customers to understand that insurance is not a savings account. No utility has ever paid the full amount of a wildfire insurance policy that was equal to the amount of coverage. The utility that had $1.2 billion in 2007 wildfire insurance paid a small fraction of $1.2 billion for that amount of coverage. This makes sense to anyone who buys insurance for any purpose. Nobody pays the amount of coverage as an insurance premium.

On August 31, 2009, SDG&E and the other named investor owned utilities (“IOUs”) filed their joint application for each to create a Wildfire Expense Balancing Account (WEBA). A number of reasons for WEBA approval were given in the application, where each deserves to be analyzed as they may cause consumers to endure unlimited rate increases for decisions made by utility executives putting stockholder interests ahead of safety concerns of consumers subject to the threat of future wildfires. This blog concentrates on the first of the IOU reasons for CPUC to approve utility WEBA authority.

“Rate recovery [through WEBA] of the uninsured costs resulting from wildfires is appropriate for multiple reasons. First, such recovery essentially preserves the status quo because it provides for the same ratemaking treatment for uninsured costs as the Commission traditionally has applied to the costs of insurance against those costs. The Commission has long recognized that insurance premiums and deductibles are ordinary costs of doing business and allowed recovery of those costs in rates. The Commission has also allowed utilities to recover the costs of self-insurance.”

The important point the utilities appear to be making here is that CPUC must treat uninsured costs in the same way as CPUC treats the cost of insurance.

The main reason this makes no sense is because of the insurance carrier's prior decision to deny or limit coverage. Insurance companies do not insure unreasonable risk. Insurance companies do not insure business activities where the calculated odds dictate that massive payouts will be required. Insurance companies have obviously figured out that utility companies do not run safe businesses.

Insurance companies run from wildfire-prone power utilities. We need to do the same.

If the insurance companies had a well-founded belief that public utilities in California ran their businesses without negligence, and the absence of negligence meant that business would be conducted safely, then utilities could get hundreds of millions or even billions of coverage. Until the 2007 wildfire, that is what the insurance companies believed. Afterward, that belief vanished. The main reasons for that new disbelief came in the form of testimony given to CPSD and was spelled out in the documents by the IOUs that were filed in response to official protests against the joint WEBA application.

According to Don Akau, SDG&E's director of its vegetation management program, a contracted “pre-inspector” reported to SDG&E's automated system that the tree where the Rice Fire started needed trimming in the next “0-3 months” but Akau testified that since he didn't get a written memo about the tree, the warning by the “pre-inspector” was ignored. Three months after the “pre-inspector” warning, the 2007 Rice Fire was ablaze.

In the formal IOU reply to multiple filed protests, utility executives and attorneys offered this logic: “Although the Utilities are strongly committed to actions that mitigate the risk of fires, the Utilities act through their employees, who are fallible. Accidents involving negligence are unavoidable, which is why the Utilities—and, indeed, nearly every commercial enterprise, individual, and even the Commission itself—purchase insurance against claims based on negligence or violation of 'rules.' The cost of claims arising from wildfires, including wildfires that allegedly result from the negligent actions of the Utilities’ employees, are an inherent cost of providing service, which is properly recovered in rates.” [Emphasis added]

The most significant problem with the language in this particular portion of the reply by the utilities is that it actually appears to be illegal.

The California Civil Code defines negligence, and the California Penal Code defines criminal negligence. Further, the California Military and Veterans Code specifically defines public utilities as defense preparedness activities that are protected under the Sabotage Prevention Act.

Keeping in mind the California definitions of negligence and sabotage of public utilities as defense preparedness activities, the California Public Utilities Code states the following: “2106. Any public utility which does, causes to be done, or permits any act, matter, or thing prohibited or declared unlawful, or which omits to do any act, matter, or thing required to be done, either by the Constitution, any law of this State, or any order or decision of the commission, shall be liable to the persons or corporations affected thereby for all loss, damages, or injury caused thereby or resulting therefrom. If the court finds that the act or omission was willful, it may, in addition to the actual damages, award exemplary damages. An action to recover for such loss, damage, or injury may be brought in any court of competent jurisdiction by any corporation or person. No recovery as provided in this section shall in any manner affect a recovery by the State of the penalties provided in this part or the exercise by the commission of its power to punish for contempt.”

The California Public Utilities Code further states the following: “2109. In construing and enforcing the provisions of this part relating to penalties, the act, omission, or failure of any officer, agent, or employee of any public utility, acting within the scope of his official duties or employment, shall in every case be the act, omission, or failure of such public utility.”

Clearly, acts of negligence by utility employees are acts by the utilities pursuant to Public Utilities Code section 2109. Even if this is a higher standard of conduct than that for other California businesses, it is still the law, and the conduct of SDG&E during and as a result of the 2007 Wildfires provides the perfect example of why it is the law. Despite excuses offered in reply to protests, the utility companies cannot assert an argument that advances illegal acts to seek approval of the WEBA application, and CPUC has a constitutional and statutory obligation to disregard any such argument in the public interest.

The utilities do not explain why consumers must insure what insurance companies run away from. The utilities do not provide any valid argument that the California Public Utilities Code does not apply to public utility negligence that the utilities admit will eventually happen. The utilities offer no explanation why all power lines have not yet been put underground despite the obvious wildfire risk that those overhead lines hold over all of us as San Diego County residents.

Overall, the first utility-offered reason for CPUC to grant the WEBA application fails.


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