PG&E Urges Bankruptcy Court To Change Inverse Condemnation Rule

California utility giant PG&E Corp. asked the bankruptcy court to declare invalid the state’s legal doctrine that holds it responsible for fires caused by its equipment regardless of negligence.

The Oct. 25 request, which was joined by its creditors and shareholders’ groups, said applying the doctrine, known as “inverse condemnation,” to utilities is unconstitutional because it amounts to “an unlawful taking without just compensation.”

The filing at the U.S. Bankruptcy Court for the Northern District of California comes as the massive Kincade wildfire has raged across thousands of acres north of San Francisco shortly after a PG&E transmission line failed near where the blaze started.

The utility, which filed for bankruptcy in January facing an estimated $30 billion worth of claims from previous Wine Country wildfires, said the bankruptcy court should step in where the California Supreme Court has not and find that inverse condemnation does not apply to investor-owned utilities.

A rule change would allow PG&E and other private-owned utilities in California to spread losses the same way that a public entity does—by raising taxes or usage rates. The company is currently hindered by the California Public Utilities Commission from directly passing the costs of wildfire damages to its customers in the form of rate increases.

“This risk that the utility will be precluded from spreading inverse losses amongst the benefited public led directly to these Chapter 11 cases,” the company said. “It is therefore no surprise that there is a broad consensus that inverse condemnation law in California is broken.”

PG&E has lobbied California lawmakers to change the rule, but to no avail. The state has instead passed legislation creating a wildfire insurance fund for non-bankrupt utilities to cover liabilities stemming from fires ignited this year and in the future.

The case is In re: PG&E Corp., Bankr. N.D. Cal., No. 3:19-bk-30088.