No.

______
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT

SAN DIEGO GAS & ELECTRIC COMPANY,

Petitioner,
v.
PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA,
Respondent.

From a Decision of the Public Utilities Commission,

No. 17-11-033

PETITION FOR WRIT OF REVIEW;

MEMORANDUM OF POINTS AND AUTHORITIES
[APPENDIX OF EXHIBITS FILED CONCURRENTLY]

Jeffrey N. Boozell (SBN 199507) *Kathleen M. Sullivan (SBN 242261)

QUINN EMANUEL URQUHART Daniel H. Bromberg (SBN 242659)
& SULLIVAN LLP QUINN EMANUEL URQUHART
865 S. Figueroa Street, 10th Floor & SULLIVAN LLP
Los Angeles, California 90017 555 Twin Dolphin Drive, 5th Floor
Telephone: (213) 443-3000 Redwood Shores, CA 94065
Facsimile: (213) 443-3100 Telephone: (650) 801-5000
Facsimile: (650) 801-5100

Counsel for Petitioner San Diego Gas & Electric Company

 CERTIFICATE OF INTERESTED ENTITIES OR PERSONS
(Cal. Rules of Court, rule 8.208)

Pursuant to California Rules of Court, rule 8.496(c) and rule 8.208, petitioner

San Diego Gas & Electric Company (“SDG&E”) hereby submits the following

certificate of interested entities or persons:

1. The only entity or person that has a direct ownership interest of 10%

or more in San Diego Gas & Electric Company is Enova Corporation, which owns

100% of SDG&E. Sempra Energy in turn owns 100% of Enova Corporation. No

entity or person has a direct ownership interest of 10% or more in Sempra Energy.

2. SDG&E knows of no other entity or person that has a financial or

other interest in the outcome of the proceeding that it reasonably believes the

Justices should consider in determining whether to disqualify themselves under

California Rule of Court, rule 8.208(e)(2).

Dated: August 3, 2018

By:
Kathleen M. Sullivan
Counsel for Petitioner San Diego Gas
& Electric Company

2
 TABLE OF CONTENTS
Page

CERTIFICATE OF INTERESTED ENTITIES OR PERSONS ...................................... 2

INTRODUCTION ........................................................................................................... 12
PETITION ........................................................................................................................ 15
A. Jurisdiction ................................................................................................ 15
B. Parties ......................................................................................................... 16
C. Venue.......................................................................................................... 16
D. Authenticity of Exhibits ........................................................................... 16
E. Statement of the Case ............................................................................... 17
1. Background .................................................................................... 17
2. SDG&E’s Fire Mitigation Programs ........................................... 17
3. The October 2007 Fires ................................................................. 21
4. The Witch Fire ................................................................................ 22
5. The Guejito Fire ............................................................................. 26
6. The Rice Fire ................................................................................... 27
7. The Penalties Previously Imposed By The CPUC .................... 28
F. The Superior Court Proceedings ............................................................ 28
G. The FERC Proceedings ............................................................................ 30
H. The CPUC Proceedings At Issue ............................................................ 31
PRAYER FOR RELIEF.................................................................................................... 39
VERIFICATION .............................................................................................................. 40
MEMORANDUM OF POINTS AND AUTHORITIES.............................................. 41
I. SDG&E IS ENTITLED TO REVIEW OF THE CPUC DECISION ................. 41
II. STANDARD OF REVIEW .................................................................................. 41
III. THE CPUC COMMITTED LEGAL ERROR IN APPLYING THE
“PRUDENT MANAGER” STANDARD TO BAR RECOVERY OF
ANY INVERSE CONDEMNATION COSTS HERE ....................................... 42
3
 TABLE OF CONTENTS
(continued)
Page

A. Judicial Precedent Imposes Strict Inverse Condemnation

Liability On Privately Owned Utilities Based On The Premise
They Can Spread Costs Of That Liability Among Ratepayers .......... 42
B. Section 451 Must Be Harmonized With Inverse Condemnation
Precedent By Allowing Inverse Condemnation Cost Recovery
Without Regard To A “Prudent Manager” Standard ......................... 49
1. Imposition Of A “Prudent Manager” Standard Here Is
Not “Just And Reasonable” Under Section 451 ........................ 50
2. Imposition Of A “Prudent Manager” Standard Here Has
Untenable Practical Consequences For Privately Owned
Utilities And The State’s Economy ............................................. 52
3. Interpreting Section 451 To Impose A “Prudent
Manager” Standard Here Would Create Serious
Constitutional Questions Under The Takings Clause ............. 57
IV. THE CPUC’S APPLICATION OF THE “PRUDENT MANAGER”
STANDARD HERE IN ANY EVENT IS UNSUPPORTED BY
SUBSTANTIAL EVIDENCE AND LEGALLY ERRONEOUS ...................... 61
A. The Record Fails To Show That Any Imprudence Caused The
Witch Fire................................................................................................... 61
1. No Substantial Evidence Supports The CPUC’s Findings
Of Imprudence ............................................................................... 62
2. The Record Lacks Any Substantial Evidence Of Causal
Nexus............................................................................................... 69
B. The Record Fails To Show That Any Imprudence Caused The
Guejito Fire ................................................................................................ 74
C. The Record Fails To Show That Any Imprudence Caused The
Rice Fire ...................................................................................................... 77
CONCLUSION ................................................................................................................ 80

4
 TABLE OF CONTENTS
(continued)
Page

CERTIFICATE OF WORD COUNT ............................................................................. 81

ATTACHMENT—RELEVANT STATUTORY PROVISIONS ................................. 82

5
 TABLE OF AUTHORITIES

Page
Cases

Albers v. Los Angeles Cnty.

(1965) 62 Cal.2d 250 ............................................................................................. 43, 47

Barham v. S. Cal. Edison Co.

(1999) 74 Cal.App.4th 744 ................................................................ 13, 29, 43, 45, 59

Belair v. Riverside Cnty. Flood Control Dist.

(1988) 47 Cal.3d 550 .............................................................................................. 43, 44

Brown v. Legal Found. of Wash.

(2003) 538 U.S. 216 ..................................................................................................... 58

Bunch v. Coachella Valley Water Dist.

(1997) 15 Cal. 4th 432 ................................................................................................. 47

Cooper Indus., Inc. v. Leatherman Tool Grp., Inc.

(2001) 532 U.S. 424 ..................................................................................................... 73

E. Enters. v. Apfel
(1998) 524 U.S. 498 ..................................................................................................... 58

Holtz v. Super. Ct
(1970) 3 Cal.3d 296 ................................................................................... 44, 46, 58, 60

Huber, Hunt & Nichols, Inc. v. Moore

(1977) 67 Cal.App.3d 278 .......................................................................................... 76

In re Golden State Water Co.

(2009) CPUC Dec. No. 09-05-025 .............................................................................. 67

In re Rose (2000)
22 Cal.4th 430.............................................................................................................. 41

In re S. Cal. Edison Co.

(1998) 82 CPUC.2d 87 ................................................................................................ 67

6
 TABLE OF AUTHORITIES
(continued)
Page

In re S. Cal. Gas Co.

(1994) 54 CPUC.2d 391 ........................................................................................ 51, 52

In re S. Cal. Gas Co.

(1992) 46 CPUC.2d 242 .............................................................................................. 51

In re San Diego Gas &Elec. Co.

(2016) CPUC Dec. No. 16-12-063 ........................................................................ 63, 66

In re San Diego Gas & Elec. Co.

(2014) 146 FERC ¶ 63017 [2014 WL 713556]............................................... 30, 48, 49

In re San Diego Gas & Elec. Co.

(2014) CPUC Dec. No. 14-06-007 .................................................................. 62, 63, 71

In re San Diego Gas & Elec. Co.

(2010) CPUC Dec. No. 10-04-047 [2010 WL 1821064] ............................................ 28

In re San Diego Gas & Elec. Co.

(1998) 83 CPUC.2d 436 .............................................................................................. 52

In re Southern California Edison Company

(1987) 24 CPUC.2d 476 .............................................................................................. 72

Koontz v. St. Johns River Water Mgmt. Dist.

(2013) 570 U.S. 595 ..................................................................................................... 58

Lingle v. Chevron U.S.A. Inc.

(2005) 544 U.S. 528 ..................................................................................................... 59

Marshall v. Dept. of Water & Power

(1990) 219 Cal.App.3d 1124 ...................................................................................... 47

Mercury Cas. Co. v. City of Pasadena

(2017) 14 Cal.App.5th 917 ............................................................................. 44, 46, 60

7
 TABLE OF AUTHORITIES
(continued)
Page

Pac. Bell Tel. Co. v. S. Cal. Edison Co.

(2012) 208 Cal.App.4th 1400 ......................................................................... 13, 46, 59

Pac. Bell v. City of San Diego

(2000) 81 Cal.App.4th 596 ......................................................................................... 44

Pac. Bell Wireless, LLC v. Cal.P.U.C.

(2006) 140 Cal.App.4th 718 ................................................................................. 41, 42

Pacific Tel. & Tel. Co. v. P.U.C.

(1965) 62 Cal.2d 634 ................................................................................................... 46

Penn Central Transp. Co. v. New York City

(1978) 438 U.S. 104 ..................................................................................................... 59

People v. Gutierrez
(2014) 58 Cal.4th 1354 .......................................................................................... 57, 73

Ponderosa Tel. Co. v. P.U.C.

(2011) 197 Cal.App.4th 48 ......................................................................................... 58

Powers v. City of Richmond

(1995) 10 Cal.4th 85 .................................................................................................... 41

S. Cal. Edison Co. v. Peevey

(2003) 31 Cal.4th 781 .................................................................................................. 41

SFPP, L.P. v. P.U.C.

(2013) 217 Cal.4th 784 ................................................................................................ 41

Sinaloa Lake Owners Ass’n v. City of Simi Valley

(9th Cir. 1989) 864 F.2d 1475..................................................................................... 73

State Farm Mut. Auto. Ins. Co. v. Campbell

(2003) 538 U.S. 408 ..................................................................................................... 73

8
 TABLE OF AUTHORITIES
(continued)
Page

Util. Reform Network v. P.U.C.

(2014) 223 Cal.App.4th 945 ....................................................................................... 76

Webb’s Fabulous Pharmacies, Inc. v. Beckwith

(1980) 449 U.S. 155 ..................................................................................................... 58

Constitutional Provisions, Statutes, and Regulations

16 U.S.C. 824d(a) ............................................................................................................. 48

Cal. Code Regs., tit. 20, § 12.1, subd. (d)...................................................................... 52

Cal. Const., art. I, § 19............................................................................................... 43, 57

Cal. Const., art. XII, § 6................................................................................................... 16

Pub. Util. Code, § 216 ..................................................................................................... 16

Pub. Util. Code, § 218 ..................................................................................................... 16

Pub. Util. Code, § 451 ................ 12, 13, 37, 42, 46, 49, 50, 51, 52, 57, 60, 61, 69, 71, 73

Pub. Util. Code, § 1756) .................................................................................................. 16

Pub. Util. Code, § 1757 ................................................................................. 41, 74, 76, 80

Pub. Util. Code, § 1760 ................................................................................................... 42

U.S. Const., 5th Amend. ................................................................................................. 57

Other Authorities

Arnold, CPUC Denies SDG&E Wildfire Recovery; Notes “Incorrect Premise” of

IC Doctrine (Nov. 30, 2017) Deutsche Bank ............................................................. 54

9
 TABLE OF AUTHORITIES
(continued)
Page

Cal. Assembly Comm. on Utils. & Energy (Feb. 26, 2018) at

<http://assembly.ca.gov/media/assembly-utilities-energy-committee-
20180226/video> [as of July 31, 2018] ................................................................. 54, 56

Cal. Dep’t of Forestry & Fire Prot., Top 20 Most Destructive California
Wildfires (Jan. 12, 2017) CA.gov, at <http://www.fire.ca.gov/
communications/downloads/fact_sheets/Top20_Destruction.pdf> [as of
July 31, 2018] ................................................................................................................ 56

Cal. Dept. of Water Resources, California’s Most Significant Droughts:

Comparing Historical and Recent Conditions (2015) at
<https://water.ca.gov/LegacyFiles/waterconditions/docs/California_Sign
ficant_Droughts_2015_small.pdf> [as of July 31, 2018]......................................... 62

CPUC Webinar on Impacts of Climate Change and Resulting Resilience

(Cal.P.U.C. Feb. 7. 2018), at
<http://adminmonitor.com/ca/cpuc/other/20180207/> [as of July 31,
2018] .............................................................................................................................. 54

Gordon and Prior, PCG Has Suspended Dividends, Citing Uncertainty

Regarding Wildfire-Related Liabilities (Dec. 21, 2017) Evercore ISI ......................... 54

Rating Action: Moody’s Changes San Diego Gas & Electric’s Rating Outlook to
Negative From Stable (Apr. 11, 2018) Moody’s Investors Service.......................... 54

Rivas, PG&E: It’s like Sticking a Fork in a Socket (Jan 2, 2018) Barron’s, at
https://www.barrons.com/articles/pg-e-its-likesticking-a-fork-in-a-
socket-1514920990> [as of July 31, 2018] .................................................................. 55

Sempra Energy, Annual Report (Form 10-K), Feb. 27, 2018 at

<https://www.sec.gov/Archives/edgar/data/86521/000008652118000019/
sreform10k.htm> [as of July 31, 2018] ...................................................................... 54

10
 TABLE OF AUTHORITIES
(continued)
Page

Shipman and Grosberg, Research Update: PG&E Corp. and Subsidiary

Downgraded to “BBB+’ on Contingent Liabilities; Still CreditWatch Negative,
RatingsDirect (Feb. 22, 2018) S&P Global Ratings ................................................. 55

Smyth et al., Fitch Downgrades PG&E Corp v. and Sub. To ‘BBB+’; Places on
Ratings Watch Negative (Feb. 26, 2018) Fitch Ratings, at
<https://www.fitchratings.com/site/pr/10021816> [as of July 31, 2018] .............. 55

Van Alstyne, Statutory Modification of Inverse Condemnation: The Scope of

Legislative Power (1967) 19 Stan. L. Rev. 727 ............................................................ 44

Vives, Etehad and Cosgrove, Southern California's fire devastation is 'the new
normal,' Gov. Brown says, L.A. Times (Dec. 10, 2017) ............................................. 56

Yamamoto, Market Notes Tuesday, December 2, 2017 (Dec. 12, 2017)

Investitute, at <https://investitute.com/actrivity-news/market-notes-
Tuesday-december-12.2017> [as of July 31, 2018] .................................................. 56

11
 INTRODUCTION

This is a petition for review of a decision of the California Public Utilities

Commission (“CPUC”) that unlawfully changes the landscape for inverse

condemnation claims in California. After fires driven by high winds burned

portions of Southern California during the 2007 fire season, thousands of property

owners sued San Diego Gas & Electric Company (“SDG&E”) for inverse

condemnation and other claims in cases that were coordinated in San Diego

Superior Court. After settling the inverse condemnation claims, SDG&E sought

to recover the unreimbursed portion of those payments in rates regulated by the

Federal Energy Regulatory Commission (“FERC”) and by the CPUC. FERC

permitted recovery. The CPUC, however, did not, reasoning that inverse

condemnation principles are “not relevant” to CPUC review under its rate

recovery and allocation process. Instead, applying its “prudent manager”

standard without regard to the strict liability imposed by inverse condemnation

or the cost-spreading rationale underlying that doctrine, the CPUC denied SDG&E

recovery. That decision is erroneous and warrants reversal.

First, the CPUC decision erred in interpreting section 451 of the Public

Utilities Code in a way that conflicts with decisions by the Court of Appeal holding

that privately owned utilities are subject to inverse condemnation liability just the
12
same as government and public entities. (See Pac. Bell Tel. Co. v. S. Cal. Edison Co.

(2012) 208 Cal.App.4th 1400 (Pacific Bell); Barham v. S. Cal. Edison Co. (1999) 74

Cal.App.4th 744 (Barham).) The core rationale for those decisions is that privately

owned utilities can spread inverse condemnation costs among their ratepayers—

i.e., the members of the public who benefit from the public improvements those

utilities provide. (Pacific Bell, supra, 208 Cal.App.4th at pp. 1404–1408; Barham,

supra, 74 Cal.App.4th at pp. 751–754.)

The CPUC decision conflicts with Barham and Pacific Bell because it defies

the very cost-spreading premise on which those decisions imposed strict inverse

condemnation liability on privately owned utilities in the first place. In order to

harmonize its application of section 451 with those precedents, the CPUC should

have found rate recovery of the costs of strict inverse condemnation liability “just

and reasonable” under section 451 without regard to any “prudent manager”

standard. Indeed, the CPUC’s interpretation of section 451 as barring recovery

raises serious constitutional questions under the Takings Clause, because it forces

SDG&E alone to bear inverse condemnation costs that should be spread across the

benefitted ratepaying public.

13
 Moreover, unless overturned, the CPUC’s decision will have severe adverse

practical consequences for privately owned utilities and for the State’s economy.

The decision places SDG&E and other privately owned utilities in an untenable

whipsaw: They face strict liability in inverse condemnation as a result of the Court

of Appeal’s decisions, but as a result of the CPUC’s decision, they cannot recover

those costs in the ratemaking process unless they can prove to the CPUC that their

actions relating to the events in question were those of a “prudent manager,” and

without regard to whether their actions caused the liability. This whipsaw

threatens to impair privately owned utilities’ ability to raise funds in the capital

markets, obtain adequate insurance, and provide uninterrupted service to all

communities—consequences that will have ripple effects across the State’s

economy, and that will intensify as wildfires become more frequent and severe as

a result of climate change.

Second, even if the CPUC’s decision ignoring governing inverse

condemnation precedent were not legally erroneous (it is), the record lacks

substantial evidence to support the CPUC’s decision even under the CPUC’s own

“prudent manager” standard. The CPUC failed to show that any more aggressive

action would have prevented the Witch Fire, and erred as a matter of law in

14
holding that it could deny recovery of inverse condemnation costs based on

conduct without a causal nexus to those costs. The record also lacks any

substantial evidence that SDG&E’s alleged imprudence caused the Guejito Fire,

which was caused by a broken lashing wire owned by a telecommunications

company and involved no imprudence by SDG&E. Finally, the record lacks any

substantial evidence that SDG&E’s imprudence caused the Rice Fire. No evidence

supports the CPUC’s theory that SDG&E should have discovered a hidden

structural defect in the limb that broke and fell onto SDG&E’s powerlines, igniting

that fire.

This Court should thus vacate the CPUC’s decision and remand with

directions that the CPUC should award SDG&E recovery for payments made to

settle inverse condemnation claims from the 2007 fires, and should limit any

reasonableness review to the amount of those payments.

PETITION

A. Jurisdiction

1. The CPUC issued Decision No. 17-11-033 on December 6, 2017.

SDG&E timely applied for rehearing on January 2, 2018, which the CPUC denied

on July 13, 2018. Because this petition is being filed within 30 days of the denial,

15
the Court has jurisdiction over this petition under section 1756, sub. (a) of the

Public Utilities Code.1

B. Parties

2. SDG&E is a corporation formed and existing under the laws of the

State of California. SDG&E is an “electrical corporation” under section 218 and

therefore a “public utility” under section 216.

3. The CPUC is the administrative agency charged with regulating

public utilities like SDG&E under the Public Utilities Act and under Article XII,

Section 6 and related provisions of the California Constitution.

C. Venue

4. Venue is proper in this District under section 1756, subd.(d) because

SDG&E’s principal place of business is in San Diego, California, which is within

San Diego County.

D. Authenticity of Exhibits

5. All exhibits in the appendix accompanying this petition are true

copies of original documents on file with the CPUC. The exhibits are incorporated

1 Unless otherwise noted, all statutory references are to the Public Utilities Code.
For the Court’s convenience, relevant statues are reproduced in the Attachment to
this Petition.
16
by reference as though fully set forth in this petition. The appendix of exhibits

(“App”) is paginated consecutively.

E. Statement of the Case

1. Background

6. SDG&E is a private, investor-owned utility that supplies gas and

electricity to over 3.4 million customers in San Diego County and southern Orange

County. (1App497, 500.) SDG&E owns and operates nearly 19,000 miles of

distribution and transmission lines, including many in rural backcountry areas

where the risk of wildfires is significant. (1App500–501.)

2. SDG&E’s Fire Mitigation Programs

7. Wildfires are a substantial and, as a result of climate change, a

growing problem in SDG&E’s territory. (1App501.) In keeping with CPUC

regulations and utility industry best practices, SDG&E has several programs to

mitigate and reduce wildfire risk. (1App506–507, 509–512.)

8. In October 2007, when the San Diego wildfires at issue occurred,

SDG&E had comprehensive inspection and maintenance programs to ensure that

its powerlines were safe and in compliance with regulations. SDG&E had a

Transmission Line Maintenance Practice Program, under which aerial inspections,

infrared patrols, and detailed ground inspections are performed to ensure the

17
general safety of SDG&E transmission facilities. (1App584.) This program is

audited both internally and by California state agencies and has received

consistently favorable reviews. (1App585–586.)

9. SDG&E also had a Corrective Maintenance Program for its

distribution lines, under which it performed three types of inspections: patrol

inspections, conducted in rural areas every two years; detailed inspections,

conducted every five years; and intrusive inspections of wooden utility poles.

(1App575, 580.)

10. During walk-by, drive-by, and fly-by patrol inspections, trained

journeymen linemen inspected SDG&E powerlines and other facilities visually for

obvious structural problems and hazards. (1App575–576.)

11. During detailed overhead inspections, trained inspectors walked

along SDG&E powerlines and examined individual pieces of equipment and

structures such as guy wires, phase conductors (the powerlines), and third-party

facilities, both visually and through routine diagnostic tests. (1App575.)

12. Potential infractions or conditions identified during these inspections

are recorded for follow-up and generally repaired within 12 months. (1App576.)

18
If a particular infraction poses a public safety hazard, SDG&E completes the repair

as soon as possible, sometimes in the same day. (Ibid.)

13. SDG&E regularly conducts internal audits of its Corrective

Maintenance Program, and the CPUC conducts annual audits as well. (1App.576–

577.) These audits have confirmed the effectiveness of SDG&E’s inspection and

maintenance program. (1App577.)

14. SDG&E’s Corrective Maintenance Program is stricter than programs

employed by other utilities and continually incorporates best practices in the

utility industry. (1App577–578.) As a result, independent third-parties repeatedly

have recognized SDG&E’s program for outstanding reliability and named it “Best

in the West” every year since 2006. (1App579.)

15. Finally, SDG&E has an extensive Vegetation Management Program.

At the time of the fires at issue here, certified arborists retained by SDG&E

inspected an inventory of approximately 400,000 trees that were near its overhead

powerlines. (2App811, 814–815.) As a result, approximately 250,000 trees are

trimmed every year, and 8,000-10,000 removed. (2App811, 818.)

16. The strength of this program, which the CPUC described as “robust”

(31App11813), has been recognized repeatedly. (2App822–824.) For example, in

19
2006, the North American Electric Reliability Council described the program as

“very extensive, detailed, and complete” and designated it a “potential example

of excellence.” (2App822.) In addition, following an inspection in September 2007,

the California Department of Forestry and Fire Protection (“Cal Fire”) concluded

that SDG&E had done “an outstanding job” in its Vegetation Management

Program. (2App823.)

17. Like all electric utilities, SDG&E uses protective devices called

automatic reclosers on its transmission lines to ensure that the system detects and

responds to abnormal electric current, or faults. (31App11793, fn.57.) When a

transmission line experiences a fault, the recloser de-energizes the line and isolates

the fault. (Ibid.) Reclosers are important to maintaining reliable electric service.

(20App8333.)

18. Under SDG&E’s recloser policy at the time of the October 2007 fires,

which reflected the industry standard (31App11841), the reclosers test the line ten

seconds after de-energizing it to see if the fault has cleared. (31App11793, fn.57.)

If so, the reclosers re-energize the line. (Ibid.) If the fault has not cleared—and,

thus, there was more than a temporary fault—the reclosers “lock out,” leaving the

line de-energized and preventing further attempts to automatically re-energize the

20
line. (Ibid.) The reclosers also “lock out” if a second fault occurs within 120

seconds of the initial fault. (Ibid.)

19. SDG&E also utilized special procedures during “red flag warnings,”

which issue when weather conditions may create “extreme burning conditions.”

(31App11787, fn.30.) When a red flag warning issued, and a recloser “locked out,”

the affected powerline would not be re-energized until patrolled. (11App5519–

5525.)

3. The October 2007 Fires

20. Beginning on October 21, 2007, while a Red Flag Warning was in

effect, Southern California experienced a severe Santa Ana wind event. (1App172;

31App11777, 11787, fn.30.) The extraordinary nature of this event was recognized

in post-event reports issued by Cal Fire, which reported wind speeds of 40 to 60

mph, with gusts up to 100 mph, and fuel moisture levels dropping to single digits.

(1App382.) As these winds swept across Southern California, they caused

hundreds of fires, only some of which the thinly stretched firefighting resources

were able to contain, and which burned over 500,000 acres. (1App130, 149–150,

172–183; 31App11777.) This case arises out of an uncontained fire that ignited on

October 21 and two more the following day.

21
 4. The Witch Fire

21. The Witch Fire was the fifth uncontained fire on October 21, 2007.

(1App172–174.) It started in the early afternoon along Tie Line (“TL”) 637, a

transmission line approximately fourteen miles long in a remote backcountry

section of San Diego County. (18App7353; 31App11786.)

22. At 8:53 a.m., a fault occurred on TL 637. (31App11787.) The fault

cleared immediately, indicating that it was temporary, and the line successfully

reclosed ten seconds after the fault. (Ibid.)

23. Faults are not unusual on windy days and can be caused by

vegetation or debris blowing onto powerlines. (18App7359, 7365; 31App11792.)

24. SDG&E system operators received notice in real time of the fault on

TL 637 and the line’s reclosing, but had no information regarding the location of

the fault or its cause. (18App7357.)

25. The system operators promptly dispatched troubleshooters, highly

skilled electric workers trained to recognize safety hazards and make conditions

safe, to the substations at either end of TL 637 to investigate. (18App7357;

31App11787.)

26. About twenty minutes later, SDG&E system operators were

confronted with a more pressing problem: the Harris Fire. (31App11787.) This
22
fire was of great concern because it was near the Southwest Powerlink, a 500 kV

transmission line essential to electric grid stability across Southern California.

(18App7359–7360; 31App11787.) At 11:42 a.m., Cal Fire requested that SDG&E de-

energize this line, a major event given its significance. (31App11788, 11791.)

27. Around 10:00 a.m., the troubleshooters reported back to the system

operators from the TL 637 substations. (31App11787–11788.) They confirmed that

TL 637 had faulted but successfully reclosed and reported that the location of the

fault was somewhere within a zone of approximately 11 miles. (18App7357-7358.)

28. At 11:22 a.m., a second fault occurred on TL 637. (31App11788.) Once

again, the fault was temporary and cleared within ten seconds. (Ibid.) At 12:01

p.m., SDG&E’s system operator once again dispatched troubleshooters to TL 637

to investigate the fault. (Ibid.)

29. At 12:23 p.m., while the troubleshooters were at the TL 637

substations investigating the second fault, a third fault occurred. (Ibid.)

30. Under SDG&E’s procedures at the time, when a transmission line

faulted and reclosed, and the cause of the fault was unknown, the line would be

patrolled by vehicle or air, typically within one business day. (18App7360–7361.)

23
On October 21, 2007, SDG&E’s system operators dispatched a transmission patrol

at 12:33 p.m. (18App7360–7361; 31App11788.)

31. The Witch Fire is believed to have ignited immediately after the third

fault. (31App11841.) Because TL 637 was located in a remote area, there were no

eyewitnesses to the ignition of the Fire, which was first reported at 12:29 p.m. by

an air tanker pilot. (31App11786, 11788.) In its report on the Witch Fire, Cal Fire

concluded that the Fire ignited when powerlines on TL 637 came into contact with

each other, creating hot particles that landed in vegetation below the lines.

(12App5853; 31App11841.)

32. SDG&E’s system operators first learned of the Witch Fire at 1:10 p.m.

(31App11788.) Just after 2:00 p.m., SDG&E turned off the automatic reclosers on

TL 637. (Ibid.)

33. At 3:25 p.m., another fault occurred. (31App11789.)

34. SDG&E de-energized TL 637 at 3:27 p.m. (Ibid.)

35. De-energizing a transmission line is an extraordinary action, which

can cause power outages (18App7365) and raises significant public safety

concerns. (31App11852–11853.) Based on the information available in real time,

SDG&E system operators did not determine de-energization appropriate until 3:27

24
p.m. While TL 637 had faulted three times, faults are not unusual on windy days

and, as noted above, can be caused by vegetation or debris blowing into

powerlines. (18App7359, 7365; 31App11792.) In addition, conductor-to-

conductor contact is relatively rare, and SDG&E was not aware prior to the

ignition of the Witch Fire that conductors on TL 637 were contacting each other.

18App7359, 7365.) Moreover, SDG&E had not previously experienced a fire

caused by transmission line contact during high winds. (Ibid.)

36. The CPUC found that, based on available records, there were only

nine days with multiple faults on TL 637 prior to the day of the Witch Fire.

(31App11802.) None had ignited a fire. (18App7356.)

37. SDG&E learned the exact location of the faults, which was roughly 2.7

miles down the line, on October 22, 2007 when a protective engineer calculated it

from technical data downloaded from equipment at the substation. (31App11798,

11841.)

38. The Witch Fire spread and, in the dry, windy conditions, eluded

efforts to contain it, eventually destroying 1,141 homes, 509 outbuildings, and 239

vehicles. (31App11789.) Together with the Guejito Fire, it burned nearly 200,000

acres. (Ibid.)

25
 5. The Guejito Fire

39. The Guejito Fire started on October 22, 2007, near Escondido in San

Diego County. (31App11804.)

40. Where the Fire started, telecommunications facilities owned by Cox

Communications were located below SDG&E’s powerlines towards the tops of the

trees in the area. (23App9535.)

41. In the Cox facilities, a steel lashing wire attached a bundle of fiber

optic cables to a support cable. (19App7533–7534.)

42. The lashing wire broke, leaving long pieces hanging down 10 to 12

feet from the ground. (13App6005–6006)

43. As Cal Fire and the CPUC’s Consumer Protection and Safety Division

(“CPSD”) reported, the Guejito Fire ignited when the lashing wire from the

telecommunications facilities contacted SDG&E’s powerlines, arcing and creating

sparks that ignited the vegetation below. (9App4597; 13App6005–6006, 6010;

31App11804, 11835–11836.)

44. A survey of the facilities implicated in the Guejito Fire conducted on

November 2, 2007 showed that the Cox cable was only 3.3 feet below one of

SDG&E’s powerlines, rather than 6 feet as required by regulation. (23App9535;

31App11805.)
26
 45. Cox installed its cable in August 2001. (Ibid.) In its pole attachment

application, Cox represented to SDG&E that it would install its facilities six feet

below the powerlines. (2App726.)

46. Pursuant to its Corrective Maintenance Program, SDG&E performed

detailed overhead inspections of these powerlines in April 2005 and June 2007.

(1App580-581.) SDG&E also performed a patrol inspection in August 2007.

(1App.580.) No potential infractions were noted during those inspections other

than missing or damaged high voltage signs. (1App580–581; 31App11806.) Nor

was any clearance violation found by Cal Fire in its report on the Guejito Fire.

6. The Rice Fire

47. The Rice Fire also ignited on October 22, 2007 in San Diego County

near Fallbrook. (31App11843.)

48. Cal Fire and CPSD determined that the Rice Fire ignited when the

wind broke off the limb of a sycamore tree, which fell onto an SDG&E powerline,

causing the line to break and fall to the ground, where it ignited vegetation. (Ibid.)

49. Post-fire investigation revealed the limb that broke had “included

bark,” an internal structural stressing or cracking at a branch union, that weakened

the limb and contributed to its failure. (2App826–827; 31App11815.) This defect

was not identified during the numerous pre-fire inspections and trimming
27
activities performed pursuant to SDG&E’s Vegetation Management Program.

(2App825, 940–941.) The SDG&E expert who observed the limb shortly after it

failed confirmed the defect was not visible prior to its failure. (19App7576, 7580.)

50. The Rice Fire ultimately burned approximately 9,472 acres, damaging

206 homes, two commercial properties, and forty outbuildings. (13App6142.)

7. The Penalties Previously Imposed By The CPUC

51. Following the Witch, Guejito, and Rice Fires, the CPUC issued Orders

Instituting Investigation to determine whether SDG&E had violated any

regulations with respect to the SDG&E facilities linked to the Witch, Rice, or

Guejito Fires. (In re San Diego Gas & Elec. Co. (2010) CPUC Dec. No. 10-04-047 [2010

WL 1821064].) In 2010, after extensive testimony and discovery, the CPUC

approved a settlement in which SDG&E admitted no violations but agreed to pay

$14.75 million in penalties. (Ibid.; see 1App.523–524.)

F. The Superior Court Proceedings

52. Property owners, insurers, and governmental entities alleging

damage from the Witch, Guejito, and Rice Fires filed more than 2,500 lawsuits

against SDG&E (the “2007 Wildfire Litigation”).

53. Among other things, these plaintiffs sued SDG&E for inverse

condemnation. SDG&E demurred to these claims, arguing that privately owned

28
utilities are not subject to inverse condemnation as a matter of law. The Superior

Court disagreed. Relying on Barham, supra, 74 Cal.App.4th 744, it held that inverse

condemnation claims may be brought against privately owned utilities such as

SDG&E. (See Minute Order, In re 2007 Wildfire Insurer Litig. (Super. Ct. San Diego

Cty., Jan. 29, 2009) No. 37-2008-00093083-CU-NP-CTL, p. 2.)

54. SDG&E petitioned for a writ of mandate, but the petition was denied.

SDG&E then filed a petition for review in the California Supreme Court, but this

petition was also denied.

55. In light of the strict liability imposed by inverse condemnation,

SDG&E decided to minimize its exposure and avoid unnecessary litigation

expense by settling the claims against it. (1App60, 66-69.) As a result, although

plaintiffs claimed $5.6 billion in damages, SDG&E was able to resolve these claims

with payments totaling $2.4 billion, an approximately 60% reduction. (1App57.)

56. SDG&E recovered $1.1 billion from its liability insurers to partially

cover these expenses. (31App11778, fn.2.) SDG&E also recovered another $824

million from settlements with Cox and other third parties based on cross-claims

that it had filed. (Ibid.)

29
 57. Beyond these offsets, SDG&E incurred $476 million in unrecovered

settlement payments and legal expenses.

G. The FERC Proceedings

58. In 2012, SDG&E applied to FERC, which regulates interstate

transmission rates charged by SDG&E, to include a portion of its unrecovered

settlement payments, $23 million, in those rates.

59. On February 25, 2014, FERC granted SDG&E’s request, allowing

immediate recovery of $23 million. (See In re San Diego Gas & Elec. Co. (2014) 146

FERC ¶ 63017 [2014 WL 713556].) FERC also granted SDG&E recovery of

additional settlement payments, bringing the total recovered through rates

regulated by FERC to $80 million.

60. FERC found that the presumption of prudence afforded utilities had

not been rebutted and that “the record indicates that SDG&E behaved as a

reasonable, prudent utility in the maintenance of its lines prior to the wildfires.”

(Id., at p. 66112.) FERC also found that recovery was independently justified

because “under California law SDG&E would likely have been held responsible

for such costs irrespective of fault.” (Ibid.) SDG&E’s settlement of the inverse

condemnation claims against it, FERC reasoned, “was rational and prudent”

because SDG&E “would have been exposed to strict liability for third party claims
30
in any event.” (Id. at p. 66113.) “By settling, SDG&E avoided facing considerable

litigation risk and disposed of the claims for significantly less than the amount

demanded by the claimants.” (Ibid.)

H. The CPUC Proceedings At Issue

61. In 2015, SDG&E applied to the CPUC to include a portion of the

settlement payments ($379 million) in the rates under the CPUC’s jurisdiction,

with SDG&E assuming the remaining unreimbursed portion of the payments,

which had been tracked in a Wildfire Expense Memorandum Account (“WEMA”).

(31App11778–11779.)

62. SDG&E argued that it acted reasonably and prudently in settling the

2007 Wildfire Litigation because of the applicability of inverse condemnation.

(1App65–68.)

63. A CPUC Commissioner split the proceedings into two phases: Phase

1 to determine “whether SDG&E’s operation and management in its facilities prior

to the 2007 Wildfires were reasonable,” and Phase 2 to determine whether

SDG&E’s settlement payments were reasonable. (4App1465–1467; 31App11780–

11781.) Under this procedure, the CPUC would consider whether SDG&E acted

reasonably in settling the claims against it in Phase 2 only if SDG&E prevailed in

Phase 1. (Ibid.)
31
 64. In adopting this procedure, the CPUC Commissioner rejected

SDG&E’s argument that the CPUC’s review should focus solely on the

reasonableness of SDG&E’s settlements in light of the judicial decisions applying

inverse condemnation to privately owned utilities. (4App1464–1466.) In doing so,

the Commissioner did not mention inverse condemnation. (Ibid.)

65. The CPUC received evidence and testimony concerning the prudence

of SDG&E’s operation and management of the facilities involved in the Witch,

Guejito and Rice Fires.

66. On August 22, 2017, the CPUC issued a proposed decision. On

November 30, 2017, after receiving comments on the proposed decision, the CPUC

adopted a final decision denying SDG&E’s application to include the inverse

condemnation settlement payments in its rates.

67. The CPUC found that SDG&E had failed to prove that its operation

and management of the facilities in question satisfied the CPUC’s “prudent

manager” standard. (31App11844–11847.) In addition, the CPUC found that the

winds in October 2007 were not unprecedented and that SDG&E should have

foreseen their impact. (31App11830–11835, 11847; see also 31App11847 [holding

other threshold challenges moot].)

32
 68. In connection with the Witch Fire, the CPUC concluded that SDG&E

should have acted “more aggressively” in response to the three faults on TL 637 in

3.5 hours and should not have allowed 6.5 hours to elapse after the first fault on

the line before de-energizing TL 637. (31App11836–11837.) The CPUC also stated

that it would have been “more reasonable” to send a protective engineer to

calculate fault mileage on the day of the Fire. (Ibid.)

69. The CPUC did not determine when a prudent manager would have

de-energized TL 637 or otherwise explain how any “more aggressive conduct

would have prevented the Witch Fire.

70. In connection with the Guejito Fire, the CPUC concluded that it was

imprudent not to discover that the clearance between the Cox telecommunications

facilities and SDG&E’s powerline violated CPUC regulations. (31App11843,

11846.)

71. Although both Cal Fire and the CPUC’s CPSD had found that the

broken lashing wire caused the Guejito Fire (31App11842), and the Office of

Ratepayer Advocates had argued that it was imprudent not to detect the broken

wire (31App11805), the CPUC found no imprudence concerning the lashing wire

that broke loose from the Cox facilities. (31App11842, 11846.) The CPUC also

33
found no causal nexus between the SDG&E’s failure to detect the clearance

violation and the ignition of the Guejito Fire.

72. The CPUC faulted SDG&E for not trimming the sycamore tree from

which a limb broke and started the Rice Fire and for not training its inspectors to

use its Vegetation Management System correctly. (31App11817–11822, 11846.)

The CPUC also found that the tree “appeared to have some physical characteristics

that would have warranted further attention” and that SDG&E had not proved

that it could not detect the defect in the limb that fell on the powerline.

(31App11823–11824, 11846.)

73. Although the CPUC did not directly address whether trimming of the

tree would have prevented the Rice Fire, it found that there was contradictory

evidence concerning whether the defective limb was growing towards the

powerlines, and it noted that trimming of the tree’s overhang would have required

“balanced trimming throughout the canopy.” (31App11821, 11913.)

74. The CPUC’s decision also discussed inverse condemnation for the

first time. SDG&E had challenged the proposed decision’s failure to address the

Superior Court’s ruling subjecting SDG&E to inverse condemnation claims, in

light of which SDG&E argued its settlement payments were reasonable.

34
(31App11839.) Two other privately owned utilities regulated by the CPUC, Pacific

Gas & Electric Company (“PG&E”) and Southern California Edison (“SCE”),

intervened to argue similarly that SDG&E’s settlement payments were reasonable

in light of the inverse condemnation claims. (Ibid.)

75. The CPUC deemed inverse condemnation “not relevant to a CPUC

reasonableness review under the prudent manager standard.” (31App11840.)

According to the CPUC, even if SDG&E were strictly liable in inverse

condemnation for damage caused by its facilities, “nothing … would supersede

this CPUC’s exclusive jurisdiction over cost recovery/cost allocation issues

involving CPUC regulated utilities,” which the CPUC claimed required it to assess

the prudence of SDG&E’s conduct on the days of the fires’ ignition. (Ibid.)

76. On December 26, 2017, the CPUC’s President and Commissioner

Michael Picker and CPUC Commissioner Martha Guzman Aceves issued a joint

concurrence. (31App11850–11856.)

77. The Concurrence observed that utilities are “understandably

reluctant” to de-energize powerlines “without a compelling rationale.”

(31App11853.) De-energizing powerlines, the concurrence explained, “implicates

public safety broadly” because street lights, telephones and other infrastructure

35
critical to responding to an emergency depend on electricity, and public utilities

must consider not only the immediate danger of a wildfire, but also the broader

public safety considerations. (Ibid.) Accordingly, the concurrence deemed it a

“close call” when TL 637 should have been de-energized. (Ibid.)

78. The Concurrence also expressed concern about the application of

inverse condemnation to private utilities, deeming “unsound” the premise that

utilities will be able to “socialize[]” the cost of such liability across ratepayers.

(31App11854.) In addition, the Concurrence noted, applying inverse

condemnation when a utility is not guaranteed to recover its costs puts financial

pressure on privately owned utilities that may increase their risk profile and thus

increase their capital and insurance expenses, leading to higher rates for

ratepayers. (31App11855.) The Concurrence expressly urged the Legislature and

California courts to reconsider applying inverse condemnation to privately owned

utilities. (31App11850.)

79. On January 2, 2018, SDG&E applied for rehearing. (31App11857.)

PG&E and SCE also applied. (31App11923.) On July 13, 2018, the CPUC denied

the applications. (31App12292–12324.) The CPUC rejected SDG&E’s challenges

to its application of the “prudent manager” standard (31App12298–12312) as well

36
as the arguments of SDG&E and the intervenors that the standard does not apply

to inverse condemnation costs (31App12317–12324).

80. The CPUC ruled that the “prudent manager” standard does not

require any causal nexus between an imprudent action and liability, and that here,

recovery may be denied based upon conduct found imprudent “even if the fire

would have started anyway.” (31App12301, 12303, 12306, 12311–12312.) The

CPUC also denied that SDG&E could show that the Guejito and Rice Fires would

have happened absent any imprudent conduct. (31App12306, 12311.)

81. The CPUC declined to harmonize section 451 with judicial precedent

that had subjected private utilities to inverse condemnation claims on the express

assumption that inverse condemnation costs would be spread across the public

through ratemaking. (31App12316–12319.) In the CPUC’s view, harmonizing

section 451 with this precedent would “forgo[] section 451.” (31App12317–12319.)

Deeming itself bound to apply its “prudent manager” standard, the CPUC also

declined to consider whether applying the standard to inverse condemnation costs

created an unjust and unreasonable whipsaw between contradictory legal

standards. (31App12319. But see 31App12320-12321 [SDG&E‘s objections were

properly raised].)

37
 82. Finally, the CPUC denied that applying the “prudent manager”

standard to inverse condemnation costs created an unconstitutional taking.

(31App12322–12324.) The CPUC found no “economic” taking because SDG&E is

not entitled to recover inverse condemnation costs. (31App12322–12323) In

addition, stressing that SDG&E had no guaranteed expectation that it would be

recover such costs, the CPUC found no regulatory taking. (31App12323–12324.)

38
 PRAYER FOR RELIEF

Petitioner San Diego Gas & Electric Company respectfully prays that this

Court:

1. Issue a writ of review to inquire and determine the lawfulness of

CPUC Decision 17-11-033;

2. Direct the CPUC to certify its record in the subject proceeding to this

Court;

3. After review, set aside this decision and remand with directions to

rule that San Diego Gas & Electric Company is entitled to include payments to

settle with plaintiffs permitted to bring inverse condemnation claims against the

Company and to determine the reasonableness of the amount of those payments;

and

4. Grant such other relief as the Court may be just and proper.

Dated: August 3, 2018

By:
Kathleen M. Sullivan
Counsel for Petitioner San Diego Gas
& Electric Company

39
 VERIFICATION

I, Dan Skopec, declare as follows:

I am the Vice President, Regulatory Affairs, for petitioner San Diego Gas &

Electric Company, and I make this verification on behalf of said corporation. I

have read the foregoing Petition for Writ of Review and know its contents thereof.

The facts alleged in the petition are within my own knowledge, and I know these

facts to be true.

I declare under penalty of perjury that the foregoing is true and correct and

that this verification was executed on August 3, 2018, at San Diego, California.

Dan Skopec

40
 MEMORANDUM OF POINTS AND AUTHORITIES

I. SDG&E IS ENTITLED TO REVIEW OF THE CPUC DECISION

A petition for writ of review is “[t]he sole means provided by law for judicial

review of a [PUC] decision.” (In re Rose (2000) 22 Cal.4th 430, 446, quotation

omitted.) A party petitioning for review of a CPUC decision is therefore entitled

to plenary review if its petition is “apparently meritorious” and “timely presented

in a formally and procedurally sufficient manner.” (SFPP, L.P. v. P.U.C. (2013) 217

Cal.4th 784, 793, quotation omitted; see also Powers v. City of Richmond (1995) 10

Cal.4th 85, 114.) This petition merits review because it has been timely presented,

is formally and procedurally sufficient, and, as demonstrated below, is

meritorious.

II. STANDARD OF REVIEW

CPUC decisions are reviewed to determine, among other things, whether

the CPUC acted as required by law, whether its findings are supported by

substantial evidence, and whether it violated any constitutional rights. (Pub. Util.

Code, § 1757, subd. (a)(2)–(4) & (6).) Although the CPUC’s interpretation of the

Public Utilities Code is given presumptive value (see, e.g., S. Cal. Edison Co. v.

Peevey (2003) 31 Cal.4th 781, 796), the meaning of the Code is ultimately a legal

question subject to de novo review (Pac. Bell Wireless, LLC v. .P.U.C. (2006) 140

41
Cal.App.4th 718, 729). In addition, a court reviewing a CPUC decision exercises

“independent judgment” on constitutional issues. (Pub. Util. Code, § 1760.)

III. THE CPUC COMMITTED LEGAL ERROR IN APPLYING THE

“PRUDENT MANAGER” STANDARD TO BAR RECOVERY OF ANY
INVERSE CONDEMNATION COSTS HERE

In deeming inverse condemnation “not relevant” and instead imposing its

“prudent manager” standard on SDG&E’s application for unreimbursed inverse

condemnation costs (31App11840, 12319–12321), the CPUC committed legal error.

Section 451 of the Public Utilities Code authorizes utilities to recover “just and

reasonable” costs. Because judicial precedent imposes inverse condemnation

liability upon privately owned utilities on the premise that they can spread the

costs across the benefitting ratepayers, it would be unjust and unreasonable to

deny SDG&E any such recovery. Section 451 should be harmonized with that

judicial precedent. Moreover, forcing SDG&E to bear those costs alone, without

compensation from the ratepaying public, would raise serious constitutional

questions under the Takings Clause.

A. Judicial Precedent Imposes Strict Inverse Condemnation Liability

On Privately Owned Utilities Based On The Premise They Can
Spread Costs Of That Liability Among Ratepayers

The CPUC first erred in holding that this Court’s precedent subjecting

privately owned utilities to inverse condemnation “not relevant” to rate recovery.

42
Inverse condemnation is a judicially developed doctrine rooted in the California

Constitution, which provides that “[p]rivate property may be taken or damaged

for a public use … only when just compensation, ascertained by a jury unless

waived, has first been paid to, or into court for, the owner.” (Cal. Const., art. I, §

19.) Unlike a formal exercise of eminent domain power by the government or its

delegates, an inverse condemnation action reverses the parties on either side of the

“v.” and allows private property owners to seek compensation from parties taking

or damaging that property for “public use.” Of course, it is typically only the

government that damages property for “public use” and thus typically the

government that is subject to inverse condemnation actions. (See, e.g., Albers v.

Los Angeles Cnty. (1965) 62 Cal.2d 250 (Albers).) Inverse condemnation has likewise

been applied to “public entities.” (See, e.g., Belair v. Riverside Cnty. Flood Control

Dist.(1988) 47 Cal.3d 550, 567 (Belair); Barham, supra, 74 Cal.App.4th at pp. 752–

753.)

The traditional application of inverse condemnation to government and

public entities reflects the cost-spreading rationale underlying inverse

condemnation:

The fundamental policy “underlying the concept of inverse condemnation

is that the costs of a public improvement benefitting the community should

43
 be spread among those benefitted rather than allocated to a single member
of the community.”

(Mercury Cas. Co. v. City of Pasadena (2017) 14 Cal.App.5th 917, 925–926 (Mercury),

quoting Pac. Bell v. City of San Diego (2000) 81 Cal.App.4th 596, 602; see also Belair,

supra, 47 Cal.3d at p. 558 [“the underlying purpose of [the California]

constitutional provision in inverse … is to distribute throughout the community

the loss inflicted upon the individual.”]; Van Alstyne, Statutory Modification of

Inverse Condemnation: The Scope of Legislative Power (1967) 19 Stan. L. Rev. 727, 738

[the purpose of inverse condemnation is to ensure that losses are “distributed over

taxpayers at large rather than be borne by the injured individual”].)

The rationale of this uniform line of precedent is that the members of the

public benefitted by a public improvement should bear the burden of damage

caused by that improvement:

[T]he underlying purpose of our constitutional provision in inverse—as

well as ordinary—condemnation is to distribute throughout the community
the loss inflicted upon the individual by the making of public
improvements; to socialize the burden to afford relief to the landowner in
cases in which it is unfair to ask him to bear a burden that should be
assumed by society.

(Holtz v. Super. Ct (1970) 3 Cal.3d 296, 303 (Holtz), quotations and ellipses omitted.)

Such cost-spreading is available automatically to government and public entities,

44
for they may unilaterally pass on the costs of any liability through their coercive

powers of taxation or ratemaking.

The extension of inverse condemnation to privately owned utilities is a recent

judicial development, but again it has been expressly premised on the cost-

spreading rationale applicable to government and public entities. This Court

explicitly assumed that privately owned utilities would be able spread the cost of

inverse condemnation liability to the ratepaying public. (Barham, supra, 74

Cal.App.4th at p. 752 [noting inverse condemnation’s “fundamental policy” of

“spread[ing] among the benefitting community any burden disproportionately

borne by a member of that community”].) This Court also found that “the

transmission of electric power through the facilities that caused damage to the

[plaintiffs’] property was for the benefit of the public,” and that there were not

“any significant differences … regarding the operation of public versus privately

owned electrical utilities as applied to the facts in this case.” (Id. at pp. 753–754.)

And the Second District similarly recognized this “loss-spreading rationale” as the

basis for applying inverse condemnation liability to privately owned utilities, and

expressly assumed that the CPUC would allow privately owned utilities “to pass

45
on [inverse condemnation] damages liability” through ratemaking. (Pacific Bell

Tel., supra, 208 Cal.App.4th at p. 1407.)

In light of these precedents establishing inverse condemnation’s cost-

spreading rationale, SDG&E was entitled to recover reasonable inverse

condemnation costs. Under section 451, a utility like SDG&E is permitted to

recover the costs of its operations if those costs are “just and reasonable.” (Pub.

Util. Code, § 451; see also Pacific Tel. & Tel. Co. v. P.U.C. (1965) 62 Cal.2d 634, 647

[CPUC has power to “disallow[] expenditures that the CPUC finds

unreasonable”].) It is “just and reasonable” for ratepayers to bear the costs of a

privately owned utility’s inverse condemnation liability, without any threshold

inquiry into reasonableness, prudence, or fault. In paying inverse condemnation

damages, SDG&E was shouldering “a burden that should be assumed by society”

(Holtz, supra, 3 Cal.3d at p. 303, quotation omitted), and “should be spread among

those benefitted” by SDG&E’s electrical transmission and distribution facilities

(Mercury, supra, 14 Cal.App.5th at p. 925, quotation omitted), the public

improvement triggering inverse condemnation. As ratepayers are the public

benefitting from those improvements, it is “just and reasonable” under section 451

for them to reimburse SDG&E for satisfying their burden. Requiring SDG&E alone

46
to bear the burden of public improvements, in contrast, turns inverse

condemnation on its head: Rather than spreading the costs incurred by a small

group to a large group benefitting from a public improvement, as inverse

condemnation normally does, the CPUC’s decision concentrates costs onto a single

company.

This is especially so because inverse condemnation has been imposed as a

“strict liability rule” without regard to fault. (Bunch v. Coachella Valley Water Dist.

(1997) 15 Cal. 4th 432, 440.) Moreover, this liability covers any property damage

proximately caused by public improvements whether “foreseeable or not.”

(Albers, supra, 62 Cal.2d at pp. 263–264.) Thus, under inverse condemnation, a

defendant may be held liable “for any physical injury to real property proximately

caused by a public improvement as deliberately designed and constructed, whether

or not that injury was foreseeable, and in the absence of fault.” (Marshall v. Dept. of

Water & Power (1990) 219 Cal.App.3d 1124, 1139, quotation omitted and italics

added.) Government and public entities found strictly liable in inverse

condemnation need not satisfy any reasonableness or prudence requirement

before they pass on their costs to the benefitted public; the same must be true

47
under Barham and Pacific Bell for privately owned utilities. In this context, strict

liability entails strict recovery.

FERC recognized these basic principles in allowing SDG&E to recover a

portion of its inverse condemnation settlement payments in rates it regulated by

FERC under a ratemaking standard similar to the CPUC’s. (See In re San Diego Gas

& Elec. Co., supra, 146 FERC ¶ 63017, pp. 66106–66107.) Like the CPUC, FERC is

statutorily required to permit only charges that are “just and reasonable.” (16

U.S.C. § 824d(a).) FERC had no difficulty granting SDG&E recovery under that

standard. FERC ruled that the settlement payments were “rational and prudent”

because “SDG&E would likely have been held responsible for such costs

irrespective of fault” under inverse condemnation. (In re San Diego Gas & Elec. Co.,

supra, 146 FERC ¶ 63017, p. 66112.) “By settling,” FERC reasoned, “SDG&E

avoided facing considerable litigation risk and disposed of the claims for

significantly less than the amount demanded by the claimants.” (Id. at p. 66113.)

The CPUC attempted to distinguish this ruling because FERC did not

conduct a “prudent manager review” and applied a different standard presuming

a utility’s conduct reasonable. (31App12321.) But while FERC ruled that this

presumption had not been overcome (In re San Diego Gas & Elec. Co., supra, 146

48
FERC ¶ 63017, pp. 66111–66112), it also held that, even if the presumption had

been overcome, SDG&E still should recover its inverse condemnation settlement

payments:

While the presumption of prudence and lack of challenge are dispositive, as

demonstrated above, even if they were not, under California law SDG&E
would likely have been held responsible for such costs irrespective of fault.
Therefore, inclusion of those costs in its TO3 Cycle 6 Filing was valid.

(Id. at p. 66112, italics added.)

The CPUC should have held the same under section 451. It is “just and

reasonable” for SDG&E to include in its rates and recover payments made to settle

inverse condemnation claims—subject to review of the reasonableness of the

amounts paid. The CPUC erred in ignoring that SDG&E was subjected to inverse

condemnation claims and construing section 451 to require a threshold “prudent

manager” inquiry into SDG&E’s management and operations of the facilities

linked to the 2007 fires.

B. Section 451 Must Be Harmonized With Inverse Condemnation

Precedent By Allowing Inverse Condemnation Cost Recovery
Without Regard To A “Prudent Manager” Standard

The CPUC declined to take judicial precedent imposing inverse

condemnation liability on privately owned utilities into account, asserting that it

could do so only by “forego[ing] Section 451 and the associated Prudent Manager

49
review.” (31App12318.) That was error. Section 451 does not require application

of the “prudent manager” standard and certainly does not require its application

in all circumstances. And applying the standard to inverse condemnation liability

would create a potentially ruinous legal whipsaw, with grave practical

consequences for privately owned utilities and the State’s economy, and create

serious constitutional takings problems that section 451 should be interpreted to

avoid.

1. Imposition Of A “Prudent Manager” Standard Here Is Not

“Just And Reasonable” Under Section 451

Nothing in section 451 compels application of the CPUC’s “prudent

manager” standard to inverse condemnation rate recovery claims. Under that

standard, a utility must prove that its costs were “prudently incurred by

competent management exercising the best practices of the era, and using well-

trained, well-informed, and conscientious employees who are performing their

jobs properly.” (31App11781, quotation omitted.) Section 451, by contrast,

requires only that charges be “just and reasonable.” (Pub. Util. Code, § 451 [“All

charges demanded or received by any public utility … shall be just and

reasonable.”].) Even if the “prudent manager” standard provides a useful test

whether a charge is just and reasonable in some circumstances, section 451’s broad

50
language does not require its application in all circumstances, and certainly not

where applying it would be unjust or unreasonable.

Indeed, the CPUC itself has recognized that section 451 does not always

require application of the “prudent manager” standard. In considering hazardous

waste cleanup expenses, the CPUC found that a utility had not shown the

reasonableness of its expenses under the “prudent manager” standard. (See In re

S. Cal. Gas Co. (1992) 46 CPUC.2d 242, 244.) But, rather than denying all recovery,

the CPUC requested comments on “alternative methods” of review, noting that

“the reasonableness review procedure may not be the best vehicle for determining

rate recovery of Hazwaste cleanup expenses” because it is difficult to prove the

reasonableness of hazardous waste expenses. (Id. at p. 247.) Moreover, when

utilities and the Division of Ratepayer Advocates proposed a method deeming a

fixed percentage (90%-95%) of hazardous waste expenses reasonable and

recoverable without any review, the CPUC adopted it. (In re S. Cal. Gas Co. (1994)

54 CPUC.2d 391, 397 [ruling the procedure “fair to both shareholders as well as

ratepayers”].)

The CPUC errs in asserting that this decision is inapposite because it

involved a settlement. (31App12319.) In fact, while the method adopted was

51
embodied in what was termed a “Settlement Agreement” (In re S. Cal. Gas Co.,

supra, 54 CPUC.2d at p. 397), it was applied in other proceedings not subject to any

settlement. (See, e.g., In re San Diego Gas & Elec. Co. (1998) 83 CPUC.2d 436, 440.)

Even more important, because the CPUC may approve only settlements that are

“consistent with law” (Cal. Code Regs., tit. 20, § 12.1, subd. (d)), it could not

approve a method expressly forgoing reasonableness review if, as now asserted,

section 451 always requires that the “prudent manager” standard be applied.

Plainly, section 451 permits the CPUC to determine whether a charge is “just and

reasonable” without applying the “prudent manager” standard.

2. Imposition Of A “Prudent Manager” Standard Here Has

Untenable Practical Consequences For Privately Owned
Utilities And The State’s Economy

By ignoring the inverse condemnation liability imposed by judicial

decisions and applying its “prudent manager” standard, the CPUC subjects

private utilities to a legal whipsaw. Such utilities are strictly liable in under inverse

condemnation, but can recover costs only if they can demonstrate they satisfy a

restrictive “prudent manager” standard. And the whipsaw is made worse because

the CPUC may deny recovery even if the supposed imprudence had no causal

nexus to the damage that was the basis for liability. This whipsaw will have grave

practical consequences, impairing the ability of privately owned utilities to

52
operate in California and threatening ripple effects throughout the State’s

economy.

As the CPUC’s President and another CPUC Commissioner noted in their

concurrence, this whipsaw will increase the costs facing utilities and, by extension,

raise the rates paid by consumers. (31App11855.) Moreover, the San Diego

wildfire cases are not isolated: Privately owned utilities face thousands of inverse

condemnation claims in proceedings involving more recent fires. (See Cal. N. Bay

Fire Cases (Super. Ct., San Francisco Cnty., No. JCCP 4995); S. Cal. Fire Cases,

(Super. Ct., Ventura Cnty., No. JCCP 4965); Butte Fire Cases (Super. Ct., Sacramento

Cnty., No. JCCP No. 4853).)

In light of increased liability against privately owned utilities from inverse

condemnation claims, insurance companies are increasing premiums, reducing

coverage, or refusing to insure such utilities altogether—making insurance harder

53
to secure and more expensive. 2 As the CPUC’s President recently warned the

Legislature, insurance costs, and the rates charged consumers will rise as a result.3

Capital costs will increase as well. (31App11855.) When the CPUC denied

SDG&E recovery, market analysts commented that California private utilities

presented a “uniquely unpalatable proposition of socialized no-fault liability”

with “no assurance of presumed recoverability,” 4 and warned that they would

experience a “material increase in their cost of capital.”5 Indeed, Moody’s changed

SDG&E’s rating outlook from “stable” to “negative,” noting that the CPUC’s

decision denying SDG&E rate recovery would cause “higher regulatory risk for

2 Sempra Energy, Annual Report (Form 10-K), Feb. 27, 2018, at p. 51, at
<https://www.sec.gov/Archives/edgar/data/86521/000008652118000019/
sreform10k.htm> [as of July 31, 2018]; CPUC Webinar on Impacts of Climate
Change and Resulting Resilience (Cal.P.U.C. Feb. 7. 2018), at pp. 48:26-48:42, at
<http://adminmonitor.com/ca/cpuc/other/20180207/> [as of July 31, 2018] [noting
difficulty in obtaining insurance].)
3 Cal. Assembly Comm. on Utils. & Energy (Feb. 26, 2018), at 1:04:2-1:04:58
(testimony of CPUC President and Commissioner Michael Picker) at
<http://assembly.ca.gov/media/assembly-utilities-energy-committee-
20180226/video> [as of July 31, 2018].
4 Arnold, CPUC Denies SDG&E Wildfire Recovery; Notes “Incorrect Premise”
of IC Doctrine (Nov. 30, 2017) Deutsche Bank, at p. 3.
5 Gordon and Prior, PCG Has Suspended Dividends, Citing Uncertainty
Regarding Wildfire-Related Liabilities (Dec. 21, 2017) Evercore ISI, at p. 2.

54
investor-owned utilities in California due to inverse condemnation exposure and

the uncertainty that they will be able to recover related costs from ratepayers].”6

Credit rating agencies also downgraded privately owned utility PG&E and its

parent PG&E Corporation because the whipsaw created by the CPUC’s decision

“exposes a utility to a significant risk of not recovering wildfire costs.”7

These adverse economic consequences will only escalate as California

wildfires grow in frequency and intensity with climate change. Indeed, in the last

two years, the number of wildfires increased from 7,349 in 2016 to 9,560 in 2017,

and five of the twenty most destructive fires recorded in California occurred in

6 Rating Action: Moody’s Changes San Diego Gas & Electric’s Rating Outlook to
Negative From Stable (Apr. 11, 2018) Moody’s Investors Service, at p. 1.
7 Shipman and Grosberg, Research Update: PG&E Corp. and Subsidiary
Downgraded to “BBB+’ on Contingent Liabilities; Still CreditWatch Negative,
RatingsDirect (Feb. 22, 2018) S&P Global Ratings, at p. 3; see also Smyth et al., Fitch
Downgrades PG&E Corp v. and Sub. To ‘BBB+’; Places on Ratings Watch Negative (Feb.
26, 2018) Fitch Ratings, at <https://www.fitchratings.com/site/pr/10021816> [as of
July 31, 2018]; Rivas, PG&E: It’s like Sticking a Fork in a Socket (Jan 2, 2018) Barron’s,
at https://www.barrons.com/articles/pg-e-its-likesticking-a-fork-in-a-socket-
1514920990> [as of July 31, 2018].

55
2017,8 and the Governor has called much more frequent and devastating wildfires

“the new normal.”9

In the long term, the increase in insurance and capital costs caused by the

combination of the CPUC’s whipsaw and the rising number of wildfires may

threaten the ability of private utilities to operate in California. Private utilities

cannot operate absent insurance and capital, both of which will be less available

as the risk of uncompensated liability from wildfires increases. 10 Such effects

might even drive privately owned utilities into bankruptcy—as a prominent

member of the Legislature recently recognized.11

8 Cal. Dep’t of Forestry & Fire Prot., Top 20 Most Destructive California
Wildfires (Jan. 12, 2017) CA.gov, at <http://www.fire.ca.gov/
communications/downloads/fact_sheets/Top20_Destruction.pdf> [as of July 31,
2018].
9 Vives, Etehad and Cosgrove, Southern California's fire devastation is 'the new
normal,' Gov. Brown says, L.A. Times (Dec. 10, 2017).
10 See Yamamoto, Market Notes Tuesday, December 2, 2017 (Dec. 12, 2017)
Investitute, at <https://investitute.com/actrivity-news/market-notes-Tuesday-
december-12.2017> [as of July 31, 2018] [California private utilities “uninvestable
right now”].
11 Cal. Assembly Comm. on Utils. & Energy, supra, at 1:14:13-1:15:45
[Statement of Assemblyman and Vice Chair of Commission on Utilities and
Energy Jim Patterson].
56
 The CPUC thus misinterpreted section 451 by construing it so narrowly and

rigidly that it creates a potentially ruinous whipsaw between inverse

condemnation’s expansive strict liability and the “prudent manager” standard’s

restrictive review of the operation and management of facilities. Section 451

should instead be harmonized with judicial precedent on inverse condemnation

to allow rate recovery here.

3. Interpreting Section 451 To Impose A “Prudent Manager”

Standard Here Would Create Serious Constitutional
Questions Under The Takings Clause

The CPUC’s rigid construction of section 451 also should be rejected because

it would raise serious constitutional questions under the Takings Clauses of both

the California and the United States Constitutions. It is a “cardinal principle” of

statutory interpretation that, when faced with two reasonable constructions of a

statute, courts must choose the one rendering the statute and its application “free

from doubt as to its constitutionality.” (People v. Gutierrez (2014) 58 Cal.4th 1354,

1373 (Gutierrez), quotation omitted.) Here, section 451’s “just and reasonable”

requirement may easily be construed to avoid such questions.

Under the California Constitution, “[p]rivate property may be taken or

damaged for public use … only when just compensation” has been paid. (Cal.

Const., art. I, § 19; see also U.S. Const., 5th Amend. [“nor shall private property be
57
taken for public use, without just compensation”].) The whipsaw created by the

CPUC violates this guarantee. It would take money from one party (SDG&E) and

give it to others (inverse condemnation plaintiffs) to satisfy the public’s obligation

for injuries caused by public improvements. That would violate the Takings

Clause by forcing SDG&E “alone to bear the public burdens which, in all fairness

and justice, should be borne by the public as a whole.” (E. Enters. v. Apfel (1998)

524 U.S. 498, 522 (plur. opn.), quotations omitted).

First, contrary to the CPUC’s suggestion (31App12322–12323), imposition of

unrecoverable inverse condemnation costs imposes a per se taking by taking

monies “linked to a specific, identifiable property interest.” (Koontz v. St. Johns

River Water Mgmt. Dist. (2013) 570 U.S. 595, 614 [fee connected with permit for use

of specific property]; see also Brown v. Legal Found. of Wash. (2003) 538 U.S. 216, 232

[interest on specific fund]; Webb’s Fabulous Pharmacies, Inc. v. Beckwith (1980) 449

U.S. 155, 163–164 [same]; Ponderosa Tel. Co. v. P.U.C. (2011) 197 Cal.App.4th 48, 59

[forced allocation of proceeds from specific shares to ].) Imposing inverse

condemnation liability on SDG&E without compensation forces SDG&E alone to

“bear a burden that should be assumed by society.” (Holtz, supra, 3 Cal.3d at p.

303, quotation omitted.)

58
 Second, imposing inverse condemnation liability without compensation

would constitute a regulatory taking. In evaluating regulatory takings, courts

examine three factors:

(1) “[t]he economic impact of the regulation on the claimant”; (2) the extent
to which the regulation has interfered with distinct investment-backed
expectations; and (3) whether the government action balances the “benefits
and burdens of economic life to promote the common good.”

(Penn Central Transp. Co. v. New York City (1978) 438 U.S. 104, 124; Lingle v. Chevron

U.S.A. Inc. (2005) 544 U.S. 528, 539, internal quotation marks omitted.) The CPUC’s

economic impact of imposing $379 million in inverse condemnation liability

without compensation is substantial. Indeed, had SDG&E not obtained more than

$800 million from Cox Communications and others, it might have faced more than

$1 billion in uncompensated payments. (31App11778, fn. 2.) The CPUC’s

whipsaw also would upset reasonable expectations because inverse condemnation

liability was judicially imposed on privately owned utilities on the assumption

that the resulting costs would be recoverable through ratemaking. (Pacific Bell,

supra, 208 Cal.App.4th at p. 1407; Barham, supra, 74 Cal.App.4th at p. 752.) Finally,

far from balancing the benefits and burdens of economic life, the whipsaw would

force SDG&E and other privately owned utilities to bear the costs of inverse

condemnation liability alone.

59
 While the CPUC did not dispute the enormous economic impact of its denial

of any recovery, it argued that there was no regulatory taking because SDG&E had

no “guaranteed expectation of rate recovery under Section 451.” (31App12323.)

That argument, however, simply ignores the decisions of this Court and the

Second District imposing inverse condemnation liability on private utilities on the

assumption that such liability would be recovered through ratemaking and thus

spread among ratepayers. The CPUC also argues that its actions are in keeping

with the CPUC’s statutory obligations and established ratemaking practice and its

interest in protecting ratepayers from unjust and unreasonable rates. (Ibid.) The

Takings Clause, however, is a constitutional restriction that supersedes statutes

and agency practice. Moreover, as shown above, there is nothing unjust or

unreasonable about allowing a private utility to pass onto ratepayers the cost of

satisfying a burden that “should be assumed by society” (Holtz, supra, 3 Cal.3d at

p. 303, quotation omitted), and “spread among those benefitted.” (Mercury, supra,

14 Cal.App.5th at p. 925, quotation omitted.) Here again, the CPUC fails to dispel

the constitutional doubts created by applying the “prudent manager” standard to

inverse condemnation costs.

60
 For all these reasons, the CPUC’s denial of recovery under section 451 is

contrary to law and unconstitutional, and accordingly requires vacatur by this

Court. (Pub. Util. Code, § 1757, subd. (a)(2) & (a)(6).)

IV. THE CPUC’S APPLICATION OF THE “PRUDENT MANAGER”

STANDARD HERE IN ANY EVENT IS UNSUPPORTED BY
SUBSTANTIAL EVIDENCE AND LEGALLY ERRONEOUS

Even if application of the “prudent manager” standard here was not legal

error (it was), the decision below should be vacated for the independent reasons

that (a) the record lacks substantial evidence of any imprudence that caused the

2007 fire and (b)the CPUC erred as a matter of law in deeming irrelevant any

causal nexus between SDG&E’s supposed imprudence and the fires.

A. The Record Fails To Show That Any Imprudence Caused The

Witch Fire

The CPUC’s finding that SDG&E did not respond prudently to the faults on

the TL 637 powerline prior to the Witch Fire lacks substantial evidence and is

fatally infected with hindsight. Moreover, the CPUC legally erred in denying

recovery for inverse condemnation costs relating to the Witch Fire without any

evidence that SDG&E’s supposed imprudence had a causal nexus to the Fire.

61
 1. No Substantial Evidence Supports The CPUC’s Findings Of
Imprudence

The Witch Fire occurred in October 2007, well before other fires later found

to have been sparked by powerlines, and at a time the drought that fueled such

fires had only just begun.12 In light of the facts and circumstances known at the

time, SDG&E’s response to the faults on TL 637 was both prompt and reasonable.

The CPUC’s contrary finding that SDG&E “fail[ed] to monitor the faults” on the

TL 637 powerline and should have acted “more aggressively” (31App11845–

11846) is unsupported and fatally infected with hindsight.

Under its “prudent manager” standard, the CPUC examines whether costs

were “prudently incurred by competent management.” (31App11781, 11844–

11845.) To satisfy this requirement, a utility must show that its costs were

reasonably incurred “exercising the best practices of the era” and implemented by

“well-trained, well-informed, and conscientious employees who are performing

their jobs properly.” (31App.11781, quotation omitted.) This is “not a ‘perfection’

standard.” (In re San Diego Gas & Elec. Co. (2014) Cal. P.U.C. Dec. No. 14-06-007,

12 Cal. Dept. of Water Resources, California’s Most Significant Droughts:

Comparing Historical and Recent Conditions (2015), pp. 53, 58–59,
<https://water.ca.gov/LegacyFiles/waterconditions/docs/California_Signficant_D
roughts_2015_small.pdf> [as of July 31, 2018] .
62
p. 36.) Instead, the prudent manager standard recognizes a “spectrum of possible

acts” that may be reasonable in any given situation. (In re San Diego Gas &Elec. Co.

(2016) CPUC Dec. No. 16-12-063, p. 10, quotation omitted.) Moreover, “the

reasonableness of a particular management action depends on what the utility

knew or should have known at the time the managerial decision was made.” (Ibid.,

quotation omitted.)

The evidence in the record shows that SDG&E demonstrated that it had

industry-leading inspection, maintenance, and vegetation management programs

to reduce the danger of wildfires posed by distribution and transmission lines,

including ground inspections by trained employees and contractors as well as

detailed diagnostic tests, aerial patrols and infrared imaging. (1App574–585, 592.)

SDG&E also showed that it used reclosers that automatically de-energized

powerlines experiencing faults and did not re-energize the lines until the fault had

cleared. This practice, the CPUC acknowledged in its proposed decision, was both

consistent with industry practice and prudent. (29App11370.) In addition,

SDG&E had special procedures for “Red Flag” high-wind periods that barred

manual or remote reenergizing of powerlines until they had been patrolled or a

fault’s cause had been identified and isolated, or repaired. (11App5524.)

63
 In addition, SDG&E demonstrated that it responded promptly and

reasonably to the faults on TL 637 on October 21, 2007. SDG&E responded to the

first fault in 12 minutes, dispatching electrical “troubleshooters,” highly skilled

workers trained to recognized and remedy safety hazard, to the substations at the

both ends of the line to investigate the fault. (18App7356–7357.) These

troubleshooters found that protection devices at both ends had opened circuit

breakers but then reclosed them because the faults cleared within 10 seconds.

(18App7357; 20App8333; 31App11793, fn. 57.) When a second fault occurred at

11:22 a.m., electrical troubleshooters were dispatched within forty minutes and

once again reported that the circuit breakers had opened and reclosed.

(18App7360–7361; 31App.11788.) The third fault occurred at 12:23 p.m. (and

started the fire) while the troubleshooters were at the substations, and one of them

requested that a patrolman investigate the line. (18App7360.) Less than ten

minutes later, a patrolman was dispatched. (18App7360; 20App8333;

31App11793, fn. 57.) Finally, when the fourth fault occurred at 3:25 p.m., SDG&E

de-energized TL 637 within two minutes. (31App11789.)

In light of the information it had at the time, SDG&E had no reason to

suspect that the TL 637 conductors were contacting each other and sparking in a

64
way that could start a fire. While faults are not uncommon on windy days,

conductor-to-conduct contact is relatively rare, and SDG&E had never

experienced a fire caused by conductors contacting each other because of high

winds. (18App7356–7357, 7364–7366.) Moreover, on the day of the Fire, SDG&E

did not know the precise location, nature or cause of the faults—whether they

were due to limbs blown onto the wires, squirrels scrambling across them, or, as

it turned out, the wind blowing conductors into contact. (Ibid.) Indeed, the fact

that the faults had cleared within ten seconds and the lines reclosed suggested that

the problem was not serious. (20App833.)

Uncontroverted evidence showed that SDG&E’s response to the faults on

TL 637 was consistent with industry practice and reasonable in light of the facts

and circumstances known. In a deposition in a suit against SDG&E, the plaintiff

asked the grid operations manager for Southern California Edison Company how

Edison would have responded to three faults on a transmission line in a high fire

danger area during red flag warning conditions. (27App10377–10379.) The

manager responded that Edison would have investigated the line just as SDG&E

had. (27App10378.) Edison, the manager explained, would not have de-energized

the line where, as here, the three faults were temporary and “[t]he lines tested

65
good.” (Ibid.) Instead, Edison would have had “the transmission patrolman [] go

out and patrol that”—just as SDG&E did. (27App10379.)

The record thus established that SDG&E acted reasonably in light of the

conditions known to it, and lacks substantial evidence to support the CPUC’s

finding that SDG&E should have acted “more proactively” or “more aggressively”

in response to three faults on TL 637 with a Red Flag Warning in place.

(31App11802.) To the contrary, the record shows that SDG&E had in place special

procedures for “Red Flag” wind conditions (11App5524), and sent out

troubleshooters and a patrolman within minutes of the faults and responded to

the conditions encountered on the ground. (18App7359–7361.) The Edison grid

operations manager testified that Edison would have reacted the same as SDG&E,

not under normal conditions but rather “during red flag warning conditions in a

high fire danger area.” (27App10377.)

Moreover, even if in hindsight it may appear that SDG&E failed to prevent

the Witch Fire, it is well-settled that the “prudent manager” standard does not

depend on “how [a] decision holds up in light of future developments.” (In re San

Diego Gas & Elec. Co., supra, Cal.PUC Dec. No. 16-12-063, at p. 9, quotation

omitted.) To the contrary, conduct may be prudent even though it “may not prove

66
the best possible … in hindsight.” (In re Golden State Water Co. (2009) Cal.PUC Dec.

No. 09-05-025, p. 8.) The “prudent manager” standard focuses on the facts that are

known or that should have been known at the time precisely in order “to avoid

the application of hindsight in reviewing the reasonableness of a utility decision.”

(In re S. Cal. Edison Co. (1998) 82 CPUC.2d 87, p. 95.) The CPUC’s generalized

finding that SDG&E should have acted more aggressively cannot be reconciled

with this principle.

The CPUC also engages in impermissible hindsight in finding that SDG&E

should have sent out a protective engineer after the second fault and before the

third one. (31App11803, 12301.) The CPUC asserts that “a prudent manager

would use all available resources to ensure that TL 637 did not ignite a fire.”

(31App12301.) While that might seem to be the right thing to do in retrospect, at

the time, SDG&E was facing multiple fires as well as non-fire damages from the

windstorm that day (18App7359), and therefore it would have been imprudent to

devote all available resources to incidents that did not appear to pose any great

threat.

Finally, the CPUC lacks substantial evidence to fault SDG&E for waiting to

de-energize TL 637 until more than six hours after the first fault and two hours

67
after the Witch Fire started. (31App11803, 12302–12303.) De-energizing a

transmission line without notice to customers is an extraordinary action that is not

undertaken lightly lest it disrupt the steady supply of power to businesses,

consumers, and critical services such as hospitals, emergency response, traffic

signals, and water supply. (1App505; 18App7365.) And supplying such power is

especially important during wildfires and other emergencies:

The decision of whether to de-energize powerlines in a region in

response to a catastrophic event such as a wildfire is significant,
because it implicates public safety broadly. Street lights, telephones,
and other infrastructure critical to a response to an emergency are
dependent on electricity. When a wildfire threatens the electricity
grid for a specific region, the utility must consider not only the
immediate danger of the wildfire, but also the public safety
considerations of de-energizing a particular circuit.

(31App11852–11853 (remarks of CPUC President.) Thus, “[u]tilities are

understandably reluctant to de-energize circuits without a compelling rationale.”

(31App11853.)

The record fails to furnish any compelling rationale for de-energizing TL

637 earlier on the day of the Witch Fire. The CPUC notes that several prior fires

were “wind and powerline related” (31App12302), but fails to explain why those

fires, which involved broken power lines and fallen tree branches (17App7073–

7074), would have led anyone to de-energize TL 637. The CPUC likewise noted

68
that SDG&E had “utilized de-energization strategies before” (31App12303) and

that SDG&E did not show that de-energizing TL 637 sooner would have “caused

significant adverse impacts” (ibid.) but fails to explain how those facts made de-

energization imperative. Here again, the CPUC’s finding lacks substantial

evidence and is instead impermissibly based on hindsight.

2. The Record Lacks Any Substantial Evidence Of Causal Nexus

Even if there were sufficient evidence supporting the CPUC’s findings of

imprudence concerning the Witch Fire (there is not), the CPUC erred as a matter

of law in denying recovery without requiring a causal nexus between the

supposed imprudence and the Fire. Because section 451 requires rates to be “just

and reasonable,” a utility must show that any costs sought to be recovered in rates

were justly and reasonably incurred. If imprudent actions caused the costs,

recovery of the costs may be unreasonable. But there is no legally justifiable basis

under section 451 to deny recovery based on imprudent actions that did not cause

the costs.

The CPUC did not—and could not—find that any of the conduct it found

imprudent caused the Witch Fire. For example, while the CPUC found that

SDG&E should have sent a protective engineer rather than electrical

troubleshooters after the second fault occurred (31App11803, 12301), it also found
69
that it would have taken a protective engineer 1.5 hours to calculate the exact

location of the fault. (31App11803, 11842.) The CPUC cannot explain, however,

how this information would have prevented the Fire. Indeed, because the third

fault occurred only one hour after the second fault, and the Witch Fire started

shortly thereafter (31App11788), SDG&E would not even have had any

information from the protective engineer before the Fire.

The CPUC’s conclusion that it was unreasonable for SDG&E to take 6.5

hours after the initial fault at 8:53 a.m. to de-energize TL 637 (31App11802–11803.

11836–11837, 11845) is similarly unavailing because the CPUC failed to identify

when the line should have been de-energized. And while the CPUC faults SDG&E

for not acting more “aggressively” (31App11845), it fails to identify what more

aggressive action other than sending a protective engineer or de-energizing the

line, SDG&E should have taken and thus fails to show that any such action would

have prevented the Witch Fire.

Implicitly acknowledging that it cannot establish a causal nexus with the

Witch Fire, the CPUC asserted in denying rehearing that no causal nexus is

required. (31App12301 [“Even if the fire would have started anyway, a

reasonableness review looks at whether [SDG&E] acted reasonable and prudently

70
given what it knew or should have known about the potential safety risk.”].) The

CPUC, however, does not offer any justification for asserting that it has authority

to deny recovery of costs based on imprudence that has no causal nexus to the

costs. Nor can it. Such authority would contradict the plain language of section

451, the principles underlying the “prudent manager” standard, prior

administrative practice, and the requirements of Due Process.

First, section 451 does not authorize the CPUC to deny recovery of costs

based on imprudence with no causal nexus to those costs. Section 451 requires

that utility charges be “just and reasonable” and makes “unjust or unreasonable”

charges unlawful. (Pub. Util. Code, § 451.) Imprudent conduct does not render

all costs unreasonable—only those it causes. It is unjust and unreasonable to deny

recovery of a cost because the utility was imprudent in some unrelated manner.

Second, the authority asserted by the CPUC is inconsistent with a

fundamental principle underlying the “prudent manager” standard. As the CPUC

has recognized, the prudent manager standard is “not a ‘perfection’ standard.” (In

re San Diego Gas & Elec. Co., supra, Cal.PUC Dec. No. 14-06-007, at p. 36.) If,

however, the standard gives CPUC authority to deny recovery of costs based on

conduct that it finds imprudent that has no causal relation to the cost, then the

71
CPUC may demand a kind of perfection and deny recovery for any imprudent

conduct that it finds.

Third, the authority asserted by the CPUC contradicts prior agency decisions

and practice. The CPUC previously recognized that imprudent conduct renders

costs unrecoverable only if the conduct “led to unreasonable costs.” (Id., at p. 31,

italics added.) Moreover, where the CPUC has found imprudence, it has denied

recovery only for costs caused by that imprudence.

In In re Southern California Edison Company (1987) 24 CPUC.2d 476, Edison

sought to recover nearly all of a $350 million payment it made to settle claims for

breach of a purchase agreement. (Id., at p. 478.) The CPUC found that Edison’s

decision to terminate the agreement was prudent, but faulted Edison for not

strictly complying with the agreement’s termination procedure. (Id., at pp. 488–

489.) The CPUC, however, found that, even if Edison had strictly complied with

the termination procedure, it still would have been liable for most of the costs

incurred in the settlement. (Id., at p. 492.) It therefore disallowed only what it

estimated “the amount by which Edison could have reduced the total settlement

costs had Edison strictly complied with the contract’s termination procedure,” that

is, the “the consequence of Edison’s imprudent actions.” (Ibid., italics added.)

72
 Fourth, by disallowing costs based on imprudence without any causal

connection to those costs, the CPUC is in effect penalizing SDG&E for that

imprudence. Due process, however, “prohibits the imposition of grossly excessive

or arbitrary punishments.” (State Farm Mut. Auto. Ins. Co. v. Campbell (2003) 538

U.S. 408, 416; accord Sinaloa Lake Owners Ass’n v. City of Simi Valley (9th Cir. 1989)

864 F.2d 1475, 1484–1487.) The CPUC denies that disallowing $379 million in costs

is an arbitrary and excessive penalty for the imprudence it found because the 2007

Wildfires caused over $2.4 billion in actual harm. (31App12304.) But a

punishment must bear a reasonable relation to the harm caused by the conduct

being punished. (See State Farm, supra, 538 U.S. at p. 422; Cooper Indus., Inc. v.

Leatherman Tool Grp., Inc. (2001) 532 U.S. 424, 434.) And, by denying recovery for

costs based on conduct that is not causally related to that conduct, the CPUC

removed any relation between the conduct and the harm caused by the 2007

Wildfires, and thus imposed a $379 million penalty for conduct that caused no

harm. Thus, the CPUC’s construction of section 451 raises serious doubts about

the constitutionality of its actions, which provides another reason to reject that

construction. (See, e.g., Gutierrez, supra, 58 Cal.4th at p. 1373.)

73
 Thus, the CPUC’s denial of any costs relating to the Witch Fire should be

vacated for the additional reason that the agency committed legal error in denying

recovery based on conduct without any causal nexus with those costs. (See Pub.

Util. Code, § 1757, subd. (a)(2) & (a)(4).)

B. The Record Fails To Show That Any Imprudence Caused The

Guejito Fire

The CPUC committed a similar legal error in denying recovery of any costs

relating to the Guejito Fire. The CPUC denied recovery for costs relating to the

Guejito Fire because it found that SDG&E was imprudent in not discovering that

telecommunication facilities owned by Cox Communications were placed too

close to an SDG&E overhead conductor. (31App11804–11811.) It is undisputed,

however, that the Guejito Fire was caused by a broken lashing wire which was

much longer than the clearance violation and thus would have caused by the Fire

whether or not there was a clearance violation. Far from disputing this, or

suggesting that the lashing wire was broken as a result of any imprudence by

SDG&E, the CPUC held that it was “not material” whether the Guejito Fire was

caused by the broken lashing wire. (31App12304.) As just shown, that is wrong

as a matter of law: the CPUC may deny recovery of a cost due to imprudence only

if the cost was caused by imprudence.

74
 The CPUC also asserted that SDG&E “cannot prove” that the lashing wire

would have caused the Guejito Fire absent the clearance violation. (31App12306.)

The CPUC does not explain why SDG&E should bear the burden of proving the

absence of any causal nexus. It is not necessary to resolve this question, however,

because SDG&E did show the absence of a causal nexus. The Cox communications

facilities were 3.3 feet away from the overhead conductors rather than six feet as

required by CPUC regulations (31App11804–11805, 11842, 11846), and although

the communications facility and the wires were located in or above the tree tops,

twenty or more feet above the ground, the broken lashing wire was found hanging

far below, ten to twelve feet off the ground. (13App6005–6006; 23App9535.)

Moreover, SDG&E’s expert testified that the broken lashing wire would have

therefore caused the Fire even absent the clearance violation. The expert was told

to assume two identically configured facilities with broken lashing wires, one with

a three-foot clearance and the other with the required six-foot clearance, and asked

which facility the lashing wire would be more likely to contact. (23App9034–9035.)

He replied that, “regardless of what the clearance was, [the lashing wire is] going

to contact the southerly conductor.” (23App9305, italics and bold added.)

75
“Because of the length of the lashing wire hanging down from the Cox facilities,”

he explained, “[i]t would have contacted the 12 kV no matter what.” (23App9037.)

This evidence was uncontroverted. The Office of Ratepayer Advocate’s

expert did not dispute that the broken lashing wire caused the Guejito Fire

(26App.10233–10234), and the Office presented no evidence that the lashing wire

would not have contacted SDG&E’s powerline had the clearance been six rather

than three feet (28App10656–10672; 29App10894–10987). The intervenors

opposing SDG&E did not address this issue at all. (28App10739–10741, 10752–

10761, 10872–10874, 10887–10891.) Nor could the CPUC have inferred a causal

connection: Because CPUC findings must be supported by “substantial evidence

in light of the whole record” (Pub. Util. Code, § 1757, subd. (a)(4)), the CPUC may

not make findings contradicting the only evidence in the record, especially on an

issue requiring expert testimony. (See, e.g., Huber, Hunt & Nichols, Inc. v. Moore

(1977) 67 Cal.App.3d 278, 313 [uncontroverted expert testimony on a matter solely

within the knowledge of experts cannot be disregarded]; see also Util. Reform

Network v. P.U.C. (2014) 223 Cal.App.4th 945, 966 [CPUC findings cannot be

sustained when unsupported by admissible evidence].)

76
 Because the record shows no causal nexus between the imprudent conduct

the CPUC found and the Guejito Fire, the CPUC erred as a matter of law denying

any recovery based on that conduct. (Pub. Util. Code, § 1757, subd. (a)(2) & (a)(4).)

C. The Record Fails To Show That Any Imprudence Caused The Rice
Fire

Finally, the CUPC erred in disallowing any recovery relating to the Rice

Fire. That Fire started when the wind broke a limb off a sycamore tree, and the

limb fell onto a powerline. (31App11811.) The CPUC denied recovery for two

reasons: (1) SDG&E should have trimmed the tree prior to the Fire (31App11820–

11821) and (2) it should have identified the latent defect that caused the limb to

break (31App11824, 11846). Both rulings were erroneous.

First, while the CPUC found that SDG&E was imprudent in not trimming

the sycamore tree in question, it did not—and could not—establish any causal

nexus between that alleged imprudence and the Rice Fire. The CPUC noted a

dispute concerning the direction in which the broken limb had grown.

(31App11820–11821, fns. 174–176, citing 2App826; 23App9482–9483, 9486–9487.)

The sycamore tree, however, was well over 60-80 feet tall with dense, lush foliage

and numerous branches (2App940; 19App7614; 23App9480), and the CPUC was

77
unable to cite any evidence showing that the limb was overhanging the powerline

and would or should have been trimmed.

Indeed, the CPUC cited testimony that the limb in question “was not a limb

that would have been subject to trim” because it “would not have presented a

clearance issue during an inspection.” (2App826; 19App7579–7581; 31App11793.)

Testimony presented by the Office or Ratepayer Advocate similarly testified that

the broken branch “didn’t look like it was an overhang” (23App9482), and while

another witness said that the broken limb was overhanging the lines when he

arrived at the scene, he also testified that the broken limb was “straight up and

down along the main trunk” and “vertical” to the ground (23App9487.) Thus,

there was no evidence that the broken limb was subject to the trimming that the

CPUC found SDG&E should have conducted.

The CPUC also found that it would have been necessary to trim the limb

along with others “growing from the same union point.” (31App11910.) But it

was unable to point to any evidence that limbs growing from the same union point

were overhanging and subject to trimming.

Second, the CPUC lacked substantial evidence for its finding that SDG&E

should have recognized the latent defect in the limb that broke and removed it.

78
(31App11911–11912.) SDG&E presented expert testimony that the limb broke

because of “included bark” and that the “included bark” in this limb was hidden

and would have been very difficult to identify because the limb was near the top

of the tree, 70-80 feet above the ground (19App7580, 7601)—which is no doubt

why multiple contractors who inspected the sycamore tree before the Fire did not

identify the defect (2App.825; 19App7581, 7599, 7602). The CPUC found that the

included bark was caused by “co-dominant leader branches” and, thus, the

sycamore “appeared to have some physical characteristics that would have

warranted further attention.” (31App11823–11824.) It offered no reason, however,

why SDG&E should have been aware of such characteristics 70-80 feet above the

ground and thus lacked any basis for inferring that the failure to notice those

characteristics was imprudent.

For all these reasons, even if application of the prudent manager standard

here were legally permissible, the CPUC’s denial of any recovery relating to the

Witch, Guejito and Rice Fires should be vacated because its findings are not

supported by substantial evidence and because it legally erred in denying

recovery where there is no causal nexus between its findings of imprudence and

79
the costs for which the CPUC denied recovery. (Pub. Util. Code, § 1757, subd.

(a)(2) & (a)(4).)

CONCLUSION

Petitioners respectfully request that the Court grant the writ and direct the

CPUC to provide a certified administrative record, vacate the CPUC’s decision,

direct the CPUC to rule that SDG&E is entitled to recover payments made to settle

the claims in the 2007 San Diego Wildfire Cases, and remand this matter to the

CPUC to determine whether the payments were reasonable in amount.

Dated: August 3, 2018 Respectfully Submitted,

QUINN EMANUEL URQUHART &

SULLIVAN, LLP

By:
Kathleen M. Sullivan
Daniel H. Bromberg
Jeffrey N. Boozell
Counsel for Petitioners San Diego Gas &
Electric Company

80
 CERTIFICATE OF WORD COUNT

Pursuant to California Rules of Court, rule 8.204(c), I hereby certify that the

attached Petition for Review has a typeface of 13 points or more and contains

13,342 words, as determined by the word processing software used to generate the

document.

DATED: August 3, 2018

Daniel H. Bromberg

81
 ATTACHMENT—Relevant Statutory Provisions

California Public Utility Code

§ 216. Public utility

(a) “Public utility” includes every common carrier, toll bridge corporation,
pipeline corporation, gas corporation, electrical corporation, telephone
corporation, telegraph corporation, water corporation, sewer system
corporation, and heat corporation, where the service is performed for,
or the commodity is delivered to, the public or any portion thereof.

§ 218. Electrical corporation

(a) “Electrical corporation” includes every corporation or person owning,

controlling, operating, or managing any electric plant for compensation
within this state, except where electricity is generated on or distributed
by the producer through private property solely for its own use or the
use of its tenants and not for sale or transmission to others.

§ 451. Just and reasonable charges, service, and rules

All charges demanded or received by any public utility, or by any two or

more public utilities, for any product or commodity furnished or to be
furnished or any service rendered or to be rendered shall be just and
reasonable. Every unjust or unreasonable charge demanded or received for
such product or commodity or service is unlawful.

Every public utility shall furnish and maintain such adequate, efficient, just,
and reasonable service, instrumentalities, equipment, and facilities,
including telephone facilities, as defined in Section 54.1 of the Civil Code, as
are necessary to promote the safety, health, comfort, and convenience of its
patrons, employees, and the public.

All rules made by public utility affecting or pertaining to its charges or

service to the public shall be just and reasonable.

82
§ 1756. Writ of review

(a) Within 30 days after the commission issues its decision denying the
application for a rehearing, or, if the application was granted, then
within 30 days after the commission issues its decision on rehearing, or
at least 120 days after the application is granted if no decision on
rehearing has been issued, any aggrieved party may petition for a writ
of review in the court of appeal or the Supreme Court for the purpose
of having the lawfulness of the original order or decision or of the order
or decision on rehearing inquired into and determined. If the writ issues,
it shall be made returnable at a time and place specified by court order
and shall direct the commission to certify its record in the case to the
court within the time specified.

(d) The venue of a petition filed in the court of appeal pursuant to this
section shall be in the judicial district in which the petitioner resides. If
the petitioner is a business, venue shall be in the judicial district in which
the petitioner has its principal place of business in California.

§ 1757. Scope of Review

(a) No new or additional evidence shall be introduced upon review by the

court. In a complaint or enforcement proceeding, or in a ratemaking or
licensing decision of specific application that is addressed to particular
parties, the review by the court shall not extend further than to
determine, on the basis of the entire record which shall be certified by
the commission, whether any of the following occurred:

(1) The commission acted without, or in excess of, its powers or

jurisdiction.

(2) The commission has not proceeded in the manner required by law.

(3) The decision of the commission is not supported by the findings.

83
 (4) The findings in the decision of the commission are not supported by
substantial evidence in light of the whole record.

(5) The order or decision of the commission was procured by fraud or

was an abuse of discretion.

(6) The order or decision of the commission violates any right of the
petitioner under the Constitution of the United States or the
California Constitution.

§ 1760. Constitutional questions

Notwithstanding Sections 1757 and 1757.1, in any proceeding wherein the

validity of any order or decision is challenged on the ground that it violates
any right of petitioner under the United States Constitution or the California
Constitution, the Supreme Court or court of appeal shall exercise
independent judgment on the law and the facts, and the findings or
conclusions of the commission material to the determination of the
constitutional question shall not be final.

84