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Gov. Newsom Announces Plan For $21 Billion California Wildfire Insurance Fund

Andrew Nixon/Capital Public Radio
Utility workers make repairs in Paradise Dec. 3, 2018.

Gov. Gavin Newsom is proposing a $21 billion insurance fund to cover future wildfire liabilities, with the costs shouldered evenly by utility companies and ratepayers.

Under Newsom’s plan, the fund would cover the cost of damages and claims if the California Public Utilities Commission determined a utility acted “prudently,” regardless of whether its equipment caused the fire. The commission is the state agency with regulatory oversight over electric and gas utilities.

If the commission determines the company did not act prudently, the utility would be liable for damages and claims up to a cap, which has yet to be determined. The remaining cost would be covered by the fund.

The proposal also includes additional safety requirements. The commission would create a new Wildfire Safety Division and a new safety advisory board, which would implement a new safety certification program. The three major utilities — PG&E, Southern California Edison, and San Diego Gas and Electric — would have to spend a combined $3 billion on safety improvements to be eligible for the insurance fund.

PG&E would have to meet additional requirements to participate in the fund. The troubled utility would need to put together an approved bankruptcy plan by June 30, 2020. According to the governor’s office, utility investors — not ratepayers — would also be on the hook for court-approved wildfire claims from 2017 and 2018, which are estimated to be in the tens of billions of dollars.

Newsom has said he wants the Legislature to address this issue before it adjourns for summer recess in mid-July.

“My Administration has welcomed support and guidance from the Legislature in crafting a framework around issues like power company accountability, wildfire safety investments and reform of the California Public Utilities Commission,” Newsom said in a press release. “In the coming days, I will continue working with the Legislature to turn this framework into a package of bills that make the changes we need.”

Steven Weissman, a lecturer at the University of California Berkeley and a former administrative law judge at the Public Utilities Commission, says the new safety standards are an important step forward.

“This would allow [the commission] to rely more directly on safety experts to determine what utilities should do to make their systems more fireproof,” he said.

He says the main challenge with establishing an insurance fund is figuring out how to make it sustainable “in a world where we will likely have repeated wildfires and repeated exposures” for utilities.

Under the governor’s plan, ratepayers would cover their portion of the insurance fund through a monthly $2.50 surcharge, which would remain in effect until 2035.

But Newsom’s proposal also includes an alternative to the insurance fund: a $10.5 billion liquidity fund, covered by the ratepayer surcharge, that would act as a line of credit for utilities. The companies would have to reimburse the fund for the full cost of damages and claims.

And notably, Newsom’s proposal gives utilities — not lawmakers or the Public Utilities Commission — the ability to choose which fund they prefer.

Copyright 2019 Capital Public Radio