Xcel Texas Wildfire Legal Reckoning to Take Years to Play Out

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(Bloomberg) — Xcel Energy Inc. will likely be wrangling for years with the legal fallout from the wildfires burning through the Texas Panhandle.

The experience of utility companies in California and Oregon sued over massive blazes sparked by downed power lines shows that litigation takes at least three years to play out. 

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That would put Xcel — which was hit last week with the first suit over the worst wildfire in Texas history — on track to still be fighting claims in 2027. RBC Capital Markets has estimated liabilities of less than $3 billion for the Smokehouse Creek Fire, which has charred more than 1 million acres and resulted in at least two deaths.

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While Texas investigators have moved faster than their counterparts in other states to quickly determine that the Smokehouse fire was ignited by power lines attached to a broken wooden utility pole, that won’t necessarily resolve the litigation sooner as Xcel is still doing its own investigation.

Read More: Xcel Pole Linked to Smokehouse Fire Appeared ‘Decayed’

The first step in what could be a long showdown between Xcel and victims came Thursday when the company acknowledged that its equipment was likely involved in the Smokehouse fire — the largest of the Panhandle blazes — but insisted that it wasn’t negligent. 

The suit filed March 1 alleges negligence for failure to properly inspect and maintain utility poles and seeks unspecified monetary damages. 

The financial and legal risks will likely take months to years to materialize, Moody’s Ratings said Friday. Xcel has about $500 million in insurance, which should be sufficient to cover the economic claims from the wildfire, the credit rating company said. However, Texas doesn’t have a liability cap for non-economic losses, which could pose some financial risk to Xcel, Moody’s added. 

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Xcel is simultaneously trying to fend off more than 300 lawsuits that have piled up over a 2021 fire in the Denver suburb of Boulder County that was labeled Colorado’s most destructive fire.

It’s unclear whether Panhandle property owners will be able to seize on a legal shortcut — one that doesn’t require proving negligence — that was used by fire victims in California to secure compensation from PG&E Corp. following a series of catastrophic fires in the northern part of the state.

Read More: Huge Texas Blaze Shows Power-Line Fires Are a Widespread Threat

Xcel has launched its own claims process for people who lost property or livestock “to help people rebuild,” the company said in a statement.

“We will work with customers to verify and respond to their claims, with a goal to resolve as many claims as possible in the coming weeks or months,” according to the statement.

Meanwhile, lawyers have fanned out across the Panhandle seeking to sign up clients. Homeowners’ insurance companies have to send out their claim adjusters to figure out claims.

The litigation begins in earnest with the fact-finding and information-sharing process known as discovery, which can easily take two to three years in complicated, mass-plaintiff, multibillion-dollar-damage cases. Discovery is ongoing in Xcel’s Colorado cases and in Hawaii, where Hawaiian Electric Industries Inc. is fighting more than 100 suits blaming it for the blazes that destroyed the Maui town of Lahaina in August.

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“It takes time,” said Michael Wara, an attorney who is the director of the climate and energy policy program at Stanford University.

Xcel declined to comment on how long the litigation might take to wrap up.

In Oregon, a decision by Berkshire Hathaway Inc.’s PacifiCorp to take its chances with a jury last year marked the first time that a lawsuit over large-scale devastation blamed on utility equipment went to a trial. The company was found grossly negligent for failing to heed weather warnings and shut off electricity in its service areas ahead of a wind storm on Labor Day 2020 that toppled power lines.

But even three and a half years into the litigation, PacifiCorp’s ordeal isn’t over as damages payments for thousands of property owners are still being fought over in court — and appeals could add two more years to the timeline.

PG&E averted going to trial in California by filing for bankruptcy protection in 2019 while facing tens of billions of dollars in estimated liabilities over several fires dating back to 2017 and 2018. 

The Golden State’s largest utility faced extra pressure because it could have been held responsible under a legal principle known as inverse condemnation for damage caused by its equipment regardless of whether it operated responsibly. The company reached a $13.5 billion settlement with wildfire victims and exited bankruptcy in 2020.

In Texas, where the theory isn’t as well developed, Fitch Ratings said this week that Xcel’s local subsidiary wouldn’t be subject to inverse condemnation.

But Shelley Ross Saxer, a law professor at Pepperdine University, said the shortcut may be viable under the Texas state constitution. Inverse condemnation would save time for property owners because there’s less they need to prove to qualify for damages, Saxer said.

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