Regulatory Taking May Result From Improper CEQA Determination? Stay Tuned

A few months ago, we reported on a Court of Appeal decision, Bottini v. City of San Diego, where the Court held that delays resulting from a governmental agency’s improper denial of a permit application for a new development did not result in a regulatory taking.  The case involved a local agency’s improper application of CEQA to a proposed residential development, and the property owner successfully securing a decision by the court to overturn the City’s requirement to comply with CEQA where there was a clear exemption.  The owner also sought damages due to a lengthy delay in development, but the Court held there had been no regulatory taking.  The owner petitioned for review by the California Supreme Court, which is rarely successful.  However, interestingly, the Court decided to take up the case, so we will now await a decision on the issue.

The Court will be faced with determining whether a developer who succeeds in overturning a city’s improper application of CEQA (or development regulations generally) is entitled to secure just compensation from the public agency resulting from the development delay — i.e., a temporary “taking” of the property.  (For us regulatory takings geeks, the Court will likely focus on whether to apply the Penn Central “investment-backed expectations” test or the Landgate “substantially advances” test.)  Usually these decisions revolve around whether (i) the government’s improper action can be categorized as “normal delay” during the permit approval process, and (ii) the government’s actions were completely out of the realm of reasonableness.  Rarely is there a bright-line that can be drawn in these types of cases, so it will be interesting to see how the Supreme Court renders a decision.  We’ll continue to follow the case as it unfolds.

IRWA Chapter One 27th Annual Valuation Seminar

Join Brad Kuhn, Chair of Nossaman’s Eminent Domain & Valuation Practice Group, at the International Right of Way Association’s Chapter One Annual Valuation Seminar.  The event will be held on Tuesday, February 12, 2019, at the Quiet Cannon Conference Center in Monterey Park, CA.  Brad will be addressing “What To Do When the Cookie Isn’t From A Cutter:  Unusual Valuation Scenarios From Eminent Domain.”  For current information on the seminar, please consult the IRWA Chapter One website.

Covering Los Angeles, Chapter One is the founding Chapter of the International Right of Way Association.  The members of Chapter One come from all walks of life such as transportation authorities and departments, water and school districts, public works and redevelopment agencies, utilities companies, railroads, and private consultants such as appraisers, title specialists, acquisition agents, attorneys, relocation assistance agents, and right-of-way and civil engineers.  The Chapter regularly offers a wide range of education and professional development opportunities reflecting the diverse needs of stakeholders in the right of way profession.

We hope to see you there!

Resolve to Learn More About Eminent Domain in 2019!

Please join Nossaman Eminent Domain & Valuation Partner Rick Rayl at CLE International’s 21st Anniversary Southern California Eminent Domain Conference.  The event will be held from Thursday, January 31st through Friday, February 1st at the DoubleTree Downtown in Los Angeles.  Rick will participate in the presentation, “Case Law Update:  The Latest Developments,” on January 31st at 10:45 a.m.  Additional topics covered during the conference will include: Government Regulation of Short-Term Vacation Rentals, Insights into Severance Damages, and California’s Wildfires and Potential Inverse Condemnation Liability. Continue Reading

California Coastal Commission to Recommend Eminent Domain to Combat Sea-Level Rise?

With the recent widespread reports of sea-level rise triggered by global warming, the California Coastal Commission — a state agency which regulates coastal development — plans to release a proposal in early-2019 which provides guidelines to local jurisdictions on how to combat the potential impacts.  The stakes are enormous, as the Commission believes many homes along California’s 1,100 miles of coastline will inevitably be wiped out by a rising ocean.  According to an article by Anne Mulkern in E&E News, Calif. prepares policy for coastal ‘retreat’, the suggested approach in a draft version of the Coastal Commission’s proposal involves “managed retreat” — i.e., buying or condemning threatened homes and relocating them or tearing them down, which would thereafter free the coastline and preserve the beaches.  The Commission argues against relying on sea walls for fear that they would make sandy beaches disappear under rising ocean water.  Needless to say, the proposal is extremely controversial.

What are the Potential Impacts of Sea-Level Rise?

According to various studies prepared, sea-level rise impacts will be astronomical over the next 80 years.  While a rise in sea-level of 2.5-6.5 feet may not seem dramatic, in addition to impacts to many residences and businesses, dozens of wastewater treatment plants and power plants, 250 miles of highway, 1,500 miles of roads, and 110 miles of railways could be at risk.  A recent article by my colleague, John Erskine, appears in the latest issue of California Special Districts magazine, and addresses the potential widespread impacts to California’s coastline.

How Would “Retreat” Be Accomplished, and What are the Alternatives?

While the Coastal Commission itself would not be buying or condemning the homes (it tasks the local cities and counties with that directive), the proposal itself is hugely detrimental, as the Commission has oversight over municipalities as they write land-use rules and can in many cases control permitting related to construction or development in coastal zones.   The Commission is proposing to condition development permits in the coastal zone on ensuring modification or removal of structures where necessary to maintain minimum beach width, and including such language in recorded deeds so all future purchasers are on notice.   It is further suggesting that jurisdictions fund “retreat” by buying the homes and then renting them out until they’re damaged.  Nossaman has assisted many property owners and local agencies recently with Coastal Commission approvals of new developments or modifications, and based on that experience, it is clear that the Commission is attempting to condition coastal development permits on waiving shoreline protection devices (such as seawalls), and is otherwise attempting to require setback conditions that reduce the size of development.

Some cities have opposed the “retreat” approach, and have instead pursued a sea-wall approach or beach replenishment programs.  For now, push-back by beach homeowners has at least delayed hearings on the Commission’s proposal, but many complex questions remain, including impacts to property values, how to manage and fund “retreat”, the loss of substantial property taxes, and the use of eminent domain for such a controversial issue.

Other states have addressed somewhat similar problems, including the acquisition of flood-prone homes in New Jersey and Houston, but California appears to be the first state in the country to be considering retreat so broadly.  And while it may seem like sea-level rise impacts are many years away, we are already seeing the ramifications.  In Sonoma, 11 homes have been torn down or collapsed into the sea as oceanfront cliffs have fallen away, and similar erosion conditions in Pacifica have resulted in multiple homes or apartments being acquired by eminent domain and then demolished.  Even Caltrans is shifting Pacific Coast Highway in certain locations.

Is “Retreat” Legal, and What are the Potential Takings and Valuation Issues?

Property rights advocates argue the Coastal Commission does not have authority to condition development permits on retreat management, while the Commission contends it does under the Coastal Act, which mandates preservation of beach access.   The Commission further purports that its proposal is simply “guidance.”  But its real-world effect is much more significant, particularly as we have recently seen the Commission place significant restrictions on development involving the waiver of shoreline protection.  Impacted property owners are encouraged to consult with coastal law experts before agreeing to any special permit condition approvals.

Moreover, the guidance itself will potentially massively impact property values and could potentially effect a regulatory taking of various properties.  Traditionally, a regulatory taking involves the examination of three factors:  (1) the economic impact of the regulation on the claimant; (2) the extent to which the regulation has interfered with the claimant’s reasonable, distinct investment-backed expectations; and (3) the character of the government action.  If the Commission’s proposal moves forward, it is likely beachfront owners will at least attempt to challenge the proposal under this regulatory takings framework (i.e., a “facial challenge”), and we are certainly likely to see owners challenge strict standards or permit conditions placed on new development applications as unconstitutional (i.e., an “as-applied challenge”).

If local jurisdictions ultimately move forward with acquiring beachfront properties, either voluntarily or under threat of eminent domain, there will surely be large valuation disputes and legal issues on how, if at all, the Commission’s guidance and its impact on property values should be considered in determining just compensation.  Impacted owners may seek to recover precondemnation damages (i.e., diminution in value due to the unreasonable actions or delays of the government), and will claim that any decrease in value due to the Commission’s guidance or the jurisdiction’s proposed acquisition or retreat program must be ignored.  (See Code Civ. Proc., sec. 1263.330.)

We will continue to track the Coastal Commission’s proposal and report on any updates.

When Can the Government Physically Occupy Property Without Facing Inverse Condemnation Liability?

When the government physically takes or occupies property without first going through the rigorous procedural requirements under California eminent domain law, usually it’s a clear-cut case of inverse condemnation liability.  But a recent California Court of Appeal case provides a unique exception involving property subject to dedication.

In Prout v. California Department of Transportation (Dec. 18, 2018, 2018 Cal. App. Unpub. LEXIS 8523),  Caltrans sought to use a 1.3-acre strip of land to make improvements to Highway 12 in Calveras County.  Caltrans started with the traditional eminent domain process by sending the impacted property owner a letter indicating that an appraisal would be prepared to determine compensation.  However, Caltrans later discovered that the strip of land was supposed to have been dedicated 20 years earlier as part of the property owner’s subdivision; Caltrans therefore asked the owner to sign a grant deed for the property.  The owner refused.

Despite the owner’s refusal to sign the grant deed and complete the dedication process, Caltrans began physically occupying and using the property for the highway improvement project.  The property owner filed an inverse condemnation action claiming Caltrans had taken the property without the payment of just compensation.  Caltrans defended its actions, claiming that the owner dedicated the property 20 years earlier, and that while Caltrans had not formally accepted the dedication, its physical occupation of the property amounted to acceptance.  The owner also claimed that the dedication was for a small access road, not the entire 1.3-acre strip, as such a large dedication would be unconstitutional.

At trial, the court sided with Caltrans, concluding that its physical occupation amounted to acceptance of the dedication, and upon Caltrans’ “acceptance,” the property owner no longer owned the strip and there was no taking of private property.  The court likewise ruled that the owner’s challenge to the illegal dedication was untimely.

On appeal, the Court confirmed the trial court’s rulings.

  • The Dedication was “Accepted” by Implication:  The Court explained that a dedication requires both an offer of dedication and acceptance of that offer by the public.  Both the offer and the acceptance may be made either expressly or by implication, and acceptance is implied where the public has made use of the property for a period of time demonstrating intent to accept dedication without any formal action by the governmental agency.  Here, the owner’s offer of dedication appeared in a subdivision map, and 20 years later, Caltrans validly accepted the dedication by implication by physically occupying the property for highway improvements.  Because the property was dedicated, there was no taking of private property.
  • The Challenge to the Dedication Requirement was Untimely:  With respect to the owner’s challenge to the dedication requirement, the Court explained that the “government cannot, as a condition for issuance of a development permit, impose a requirement that the landowner dedicate land for public use, unless there is an “essential nexus” between the condition and the projected impact of the proposed development.”  Here, the highway did not need to be widened because of the subdivision, thereby failing the nexus requirement (i.e., it was likely unconstitutional).  However, the Court explained that a property owner cannot accept the benefits of a permit (here, the subdivision of the property), and then later challenge the constitutionality of the permit conditions (here, the dedication).  As a result, despite the dedication likely being improper, the owner’s challenge to the dedication requirement was untimely.

The case serves as a lesson to public agencies and property owners.  For public agencies, it serves as a reminder to formally accept dedications before the property is utilized to avoid this type of fight.  For property owners, it serves as a reminder that if you believe a permit condition requiring a dedication or exaction is improper, you must timely challenge that condition — you cannot accept the benefits of a permit, such as approval of a subdivision map, and preserve the right to challenge the dedication down the road.

Redevelopment 2.0 on the Books for 2019?

Ever since the demise of redevelopment agencies in 2012, there have been a variety of legislative efforts to revive, incrementally or in whole, some form of redevelopment in California.  We have seen enhanced infrastructure financing districts, community revitalization and investment authorities, and more traditional affordable housing authorities and joint powers authorities.  But we have yet to truly see a funding source that would revive the use of redevelopment tools.  The political climate is much different now than in was in 2012:  California has a surplus budget, there is an affordable housing crisis, and thousands of homes have been lost over the last several years due to wildfires and other natural disasters.  Piggy-backing on overwhelming support of an affordable housing measure in 2018, Senators Beall and McGuire are now proposing SB 5, the “Local-State Sustainable Investment Incentive Program.”

An article by Tom Gogola in the Pacific Sun has deemed the bill “Redevelopment 2.0,” and according to the article, Beall’s office believes the bill aligns with Governor-elect Gavin Newsom’s campaign priorities given that he signaled support for re-upping RDAs in his campaign.  The bill would provide funding of up to $2 billion over the next ten years.  So what makes this different from traditional redevelopment in California?  Gogola reports:

Redevelopment 2.0 emphasizes the affordable-housing component over economic development, which lawmakers say will be a hedge against the sorts of corruptions of the RDA model that led to big-box build-outs under the old redevelopment regime. And the bill includes a threshold requirement that at least 50 percent of funds sent to localities are used for the development of affordable housing.

In addition to the shift away from economic development, the bill also supports transit-oriented development and builds resilience from sea-level rise, along with providing rigorous state oversight and, according to the release, “taxpayer protections to ensure that affordable housing construction occurs quickly and local governments are accountable for the expenditure of funds.”

The bill seems to be hitting on the hot-button topics (affordable housing, transit-oriented development, and sea-level rise), while hedging against some of the issues that doomed redevelopment in the past (dodging financing for big-box stores and stronger oversight to prevent running up debt and handing out massive subsidies).  We’ll continue to track the bill into the new year.

Court of Appeal Provides Timely Reminder Regarding a Contractor’s Use of Property for Staging and Proper Calculation of Damages for Demise of Redwood Tree

In a recent unpublished Court of Appeal decision, Downs v. City of Redding (October 30, 2018), the Court took up two distinct issues: (a) whether a contractor’s use of property for construction staging constitutes a taking when such use is not authorized by the agency, and (b) whether “just compensation” requires payment of damages for the taking of a tree.  Both of these issues are common occurrences in many of the projects we work on and while the Court’s holdings may not come as a surprise, they are a good reminder of the fairness and equity courts apply to such issues.

Let’s take them one at a time:

A.     Contractor’s Use of Property

When planning large scale projects, government agencies often acquire as part of their project, property for use as construction staging or laydown yard. However, it is not uncommon that the government’s contractor may independently lease property in the vicinity of the project for use as office space, parking, and other uses related to the project.

In the Downs case, the City’s contractor Kiewit Construction Co. (“Kiewit”) did just that.  Kiewit leased office space and the parking lot of a commercial property from its owner, Richard Downs, adjacent to the project site. However, Kiewit’s use of the owner’s property went beyond office and parking use to storage of material and equipment, construction staging, etc. Owner sued the City in inverse condemnation for unauthorized use and taking of its property arising out of a public works project.

Background

At the time of trial the Court had made the following findings: The City’s bridge project approved by the City did not include the deliberate acquisition or use of the owner’s property, nor did the City authorize Kiewit to occupy or use the owner’s property for any purpose. In fact, the City had acquired its own construction easement for a staging area not far from the owner’s property.

Kiewit independently entered into a lease with the owner to occupy the owner’s office building and parking area and the City was not a party to the lease. Furthermore, the lease contained no restrictions for any specific uses on the property.

The evidence also showed that although the owner was unhappy about its office property being used as a construction staging and material storage area, the owner did not notify the City that Kiewit was using the property in any particular manner or somehow in violation of the lease; nor did the owner notify Kiewit that use of the parking area for stockpiling of material and construction staging was in excess of or violation of the lease.

Court’s Ruling

With these facts at hand, the Appellate Court explained that:

In order for the owner to prevail on its inverse condemnation theory, “[owner] had the burden of proving the City planned, authorized, or directed Kiewit’s unauthorized use of the [owner’s] property for the benefit of the project”.

The Court went through a detailed analysis and cited a number of cases related to inverse liability arising from work contractors perform. Placing the focus on the acts of the public entity, the Court relied on multiple cases including Marin Municipal Water Dist. v. Peninsula P. Co. (1939) 34 Cal.App. 2d 647, 652 and explained that if a contractor does work as planned by the City and causes damage, then the agency is responsible; however, if a contractor departs from the contract and the plans, or goes beyond them which results in injury or damage, then the contractor is responsible for the tort he has committed.

Relying on the evidence presented at the time of trial, the Court found that the project as designed and planned by the City did not include the owner’s property. The City had already acquired its own easement area and had instructed Kiewit to remain on the City’s side of the easement. Accordingly, the Court concluded that a taking did not occur because the City did not direct Kiewit to use the parking lot and such use was not within the contemplation of the plans and specifications for the project. In the Court’s view, owner’s claim amounted to a landlord-tenant dispute.

Conclusion

While the Downs case follows clear and simple logic and may appear to be restating the obvious, it’s important for agencies to keep in mind that agencies are not automatically immune from inverse liability for the acts of a contractor.  However, whether a taking occurs will hinge on the facts of the case as to whether the wrongful act is an authorized or deliberate part of the design, or construction of the public project.

B.     Damaged Redwood Tree

While much of the Downs case dealt with inverse liability for the actions of the contractor, next the Court considered a second ancillary issue related to damages for the taking of a redwood tree.

Background

City, with the consent of the owner, shut off the irrigation system on a portion of the owner’s property for a specified period. The parties stipulated that compensation for the taking and damaging of plaintiff’s landscaping as a result of loss of irrigation would be awarded in an amount not less than $10,510. The only issue for the court was whether the redwood tree that died on plaintiff’s property following the water shut off was separately compensable.

The owner’s expert testified that the replacement cost of the redwood tree was $42,700. The City’s appraiser testified that the demise of the tree did not diminish the overall value of the property, and in his opinion, the measure for damaging of the landscape was the “cost to cure” it, and because landscaping had been repaired and replaced, the appraiser concluded the property did not suffer any diminution in value from the lack of the redwood tree.

Court’s Ruling

The court agreed with City’s appraiser that “the proper measure of damages is the diminution, if any, of the fair market value of the property” compared to after the taking of the landscaping and irrigation system.  The tree had no contributory value to the overall value of the property. Because the loss of the redwood tree did not result in diminution in value of the property, owner was not entitled to separate compensation for the tree.

Conclusion

The Court was clear that the concept of just compensation is to put the owner in as good a pecuniary position as he would have been if his property had not been taken, while being fair to the public. The ruling was based on equity and fairness as the Court indicated that “to allow [owner] to recover $42,700 would put the owners in a better pecuniary position than they would have been in had the tree remained intact, which is contrary to public policy…”

Court Affirms Coastal Commission’s Consideration of Takings Issues

The California Coastal Act establishes another layer of regulation governing “development” in the Coastal Zone. Development under the Coastal Act is defined to encompass essentially everything and anything.  For example, under the Coastal Act development includes such things as a lot line adjustment, releasing fireworks on the 4th of July, or putting up a “No Trespassing” sign.  While there are certain limited exemptions, in most cases individuals undertaking any development in the Coastal Zone must obtain a Coastal Development Permit.  In certain instances, the local agency’s decision to approve or deny a Coastal Development Permit is reviewed by the California Coastal Commission.  On this review, the Coastal Commission may consider whether the decision to approve, deny, or impose mitigation measures would potentially run into takings issues.  This practice by the Coastal Commission was challenged by a Marin County resident, who filed a petition seeking to enjoin the Coastal Commission and any local jurisdiction implementing the Coastal Act from considering takings issues in permitting decisions.

The resident, Richard Kohn, asserted that by considering takings issues the Coastal Commission was violating the judicial powers and separation of powers clauses in the California Constitution, was violating the Coastal Act, and was instituting an unlawful underground regulation in violation of the Administrative Procedure Act. The Superior Court denied the petition, and Mr. Kohn appealed.  In an unpublished decision, the California Court of Appeal affirmed the Superior Court’s decision.

Rejecting a standing argument apparently raised by the Coastal Commission, the Court of Appeal first found that Mr. Kohn had both “public interest standing” and “taxpayer standing.” However, the Court of Appeal then found that because Mr. Kohn was challenging the practice in the abstract, as opposed to challenging a decision on a specific permit, the challenge was not ripe.  The Court of Appeal explained: “Because Kohn’s petition would require this court to resolve a hypothetical inquiry, and because no party will suffer any demonstrated hardship if we decline to decide it, we conclude the petition is unripe.  The question Kohn present must await decision on an adequate record in an appropriate case.”  (Internal quotation marks omitted.)

After stating why the controversy was not ripe and why the Court of Appeal would not address it, the Court of Appeal than addressed the controversy head on, finding that “[e]ven if this appeal presented a ripe dispute, we would find no error.” The Court of Appeal, citing Public Resources Code section 30010, concluded that the California Legislature clearly defined the Commission’s role in evaluating permits and included takings issues within that sphere.  Section 30010 states:

“The Legislature hereby finds and declares that this division is not intended, and shall not be construed as authorizing the commission . . . or local government acting pursuant to this division to exercise their powers to grant or deny a permit in a manner which will take or damage private property for public use, without the payment of just compensation therefor.”

The Court of Appeal also concluded that the consideration of takings issues did not run afoul of the judicial powers clause or separation of powers clause because it is both “reasonably necessary and incidental to one of the Commission’s primary and legitimate purposes,” and after the Commission’s made a final decision the Commission’s takings considerations could ultimately be reviewed by the courts.

Finally, the Court of Appeal found that the Commission’s taking-avoidance policy is not an improper underground regulation because its application depends upon a case-specific exercise of discretion and therefore was not a rule or standard of general applicability subject to the Administrative Procedure Act.

The Court of Appeal’s ultimate resolution of the abstract takings issue was not surprising given prior precedent and the general deference with which courts have historically viewed the Coastal Act and the Coastal Commission’s jurisdiction under the Act. However, as demonstrated by the Supreme Court’s 1987 decision in Nollan v. California Coastal Commission, 483 U.S. 825, that does not mean the Coastal Commission’s decisions are immune from takings challenges.  Permit applicants should therefore be mindful of the takings overlay during the Coastal Development Permit process, as it provides another potential argument for moving a project forward.

Join Nossaman at the Southern California Appraisal Institute’s Annual Litigation Seminar

On November 1, Nossaman Eminent Domain Partner Bernadette Duran-Brown will be Co-Chairing the Southern California Appraisal Institute’s 51st Annual Litigation Seminar.  Additionally, Ms. Duran-Brown will be joined by Brad Kuhn, Chair of Nossaman’s Eminent Domain & Valuation Practice Group, who will be participating in a panel discussion concerning Easement Valuation.

The seminar will be held on Thursday, November 1st, at the Omni Hotel, 251 South Olive Street, Los Angeles.  The event will kick off with registration and breakfast at 7:30 a.m., and will also include luncheon Keynote Speaker Christopher Jackson, Sr., Senior Economic & Community Development Manager City of Inglewood, with an update on development in the city. Click HERE for more information and to register.

If you’re unfamiliar with the Appraisal Institute’s Annual Litigation Seminar, it provides litigation professionals with insight into the complex and ever-changing litigation valuation arena including the trends and issues shaping the appraisal and legal fields. Sessions will be presented by leaders in the real estate, legal, and appraisal fields, and cover many timely topics including:  Severance Damages: Fact or Fantasy; Tax Law Changes: Impacts on Attorneys/Appraisers; Luxury Residential Litigation: Keys to Success; Valuing Municipal Utilities, and Appraisal Arbitration & Mediation.  Credit will be available for the seminar, including 8 hours of BREA, MCLE, and CE (pending). The Appraisal Institute is a global professional association of real estate appraisers, with more than 18,000 professionals in nearly 50 countries throughout the world. Its mission is to advance professionalism and ethics, global standards, methodologies, and practices through the professional development of property economics worldwide.

We hope to see you there!

Governor Brown Signs SB 901, Addressing Wildfire Cost Recovery, But Ignoring Inverse Condemnation Liability

On August 31, 2018, the California Legislature passed Senate Bill (“SB”) 901, which addresses a number of wildfire-related items relating to public utilities.  Governor Brown signed the Bill into law on September 21, 2018.

While the bill introduces a series of new changes, it is particularly noteworthy for what it does not include from Governor Brown’s initial June 2018 proposal for wildfire liability reform.  At least for the time being, lawmakers abandoned the most controversial aspect of Governor Brown’s proposal for the bill: modifying California’s strict liability standard applied to utility companies for wildfires.  SB 901 as passed by the Legislature does not make any changes to the state’s legal doctrine of inverse condemnation.  However, SB 901 does makes several changes relevant to public and investor-owned utilities that are within jurisdiction of the California Public Utilities Commission (“CPUC”).

Addresses cost recovery before the CPUC

  • New Reasonableness Standard for Recovery of Wildfire Costs – Authorizes the CPUC to use a more detailed reasonableness standard in determining whether an electrical utility will be allowed to recover through rates charged to consumers expenses related to damages stemming from a wildfire caused by the utility’s equipment.  Specifically, SB 901 authorizes the CPUC to permit utilities to recover costs associated with wildfires occurring after December 31, 2018 and to consider 12 specified factors to determine whether the expenses are allowed or disallowed.  The new reasonableness standard refines and puts a wildfire-specific nuance into the existing generalized CPUC-wide “prudent manager” standard, but only in the context of wildfire costs by electric corporations.
  • Rules for 2017 Wildfires – Specifies that for applications by an electrical corporation to recover costs and expenses arising from catastrophic wildfires ignited in 2017, the CPUC is required to continue to determine just and reasonableness without specifying the 12 enumerated factors identified for the fires in 2019 and beyond.  In the case of the 2017 wildfires, the bill requires the CPUC to consider the electric utility’s financial status and determine the maximum amount the corporation can pay without harming ratepayers, also known as a “financial stress test,” and requires the CPUC to limit the disallowance from the 2017 wildfires to the threshold determined by the stress test.
  • Financing Via Rate Recovery Bonds – Allows (but does not require) the CPUC to authorize, under specified circumstances, the use of financing to reduce the bill shock associated with damages paid by utilities for wildfires for the amounts borne by ratepayers of the 2017 wildfires or of future fires.  Upon a finding that certain wildfire damage costs are just and reasonable, the CPUC may authorize an electrical corporation to issue rate recovery bonds in order to finance such costs over a specified period of time.  This financing provision is applicable only to electric corporations and does not cover the cost of fines and penalties.
  • Increased Penalties – Increases the amount of a penalty that the CPUC can assess for violations of CPUC orders, laws, and decisions from up to $50,000 to up to $100,000 per violation per day.  Unlike the above provisions applicable only to electrical corporations, the increased penalties would be applicable to all types of utilities before the CPUC.

Expands the requirements of the existing wildfire mitigation efforts of electric utilities

  • Wildfire Mitigation Plans – Requires wildfire mitigation plans of electric utilities to be approved within three months of its submission, unless the CPUC makes a written determination justifying the need to extend the deadline.
  • Collaboration with CalFire – Requires the CPUC to enter into a memorandum of understanding with CalFire to address several wildfire-related issues, such as: the development of consistent approaches and data sharing related to fire prevention, safety, vegetation management, and energy distribution systems.
  • Independent Evaluators – Requires the development of a list of approved independent evaluators with experience in assessing the safe operation of electrical infrastructure.

SB 901 also makes comprehensive changes to forestry management and fuel reduction under the Forest Practice Act in order to mitigate the risk of wildfires across the state. These widespread changes were negotiated in weeks of conversation by Assembly and Senate staff, CalFire, the Governor’s Office, the Board, and many stakeholders.  Lastly, SB 901 allocates $200 million per year for five years from the state’s Greenhouse Gas Reduction Fund in order to provide funding to CalFire for forest health and fire prevention and prescribed burns and other fuel reduction activities.

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