California Proposal For $21 Billion Wildfire Liability Fund Passes First Hearing

Jul 9, 2019

California Lawmakers held the first hearing Monday on an ambitious proposal to overhaul the state’s system for handling wildfire liability.

The legislation would create a $21 billion insurance fund, with the cost split equally between utility companies and ratepayers. The fund would cover the cost of wildfire liabilities if the California Public Utilities Commission determined a utility took reasonable steps to prevent wildfires — even if the company’s equipment caused the fire. It would also impose new safety requirements on utilities.

The bill passed the Senate Energy, Utilities and Communications Committee, with a vote of 9-2. While many supporters acknowledged the proposal was not perfect, they say it is better than the alternative of inaction. 

Gov. Gavin Newsom previously set a deadline of July 12 — the last day before the Legilsature's summer recess — to pass the bill, though it’s unclear if lawmakers can move that quickly. Ratings agencies, like Moody’s, are closely watching the proposal and have signaled they may downgrade utilities’ bond ratings if the state fails to act.

One Democratic lawmaker, Scott Wiener of San Francisco, voted against the proposal, saying it doesn’t go far enough to reform the state’s reliance on investor-owned utilities. That may be a red flag for supporters, since the proposal needs two-thirds support to pass the Legislature.

“It is a broken model that is not working for the people of California,” Wiener said in committee. “The wildfires are only the most dramatic manifestation of that failure.” 

The state’s three largest utilities — PG&E, Southern California Edison and San Diego Gas & Electric — would be able to access the $21 billion insurance fund if first they invest a combined $5 billion in safety improvements. The utilities would also need to receive a new safety certification from the state, which tightens requirements for wildfire mitigation and prevention.

PG&E would have to meet additional requirements to access the fund, including the submission of a plan to emerge from bankruptcy within the next year. It would also be on the hook for paying its fire liability claims from 2017 and 2018.

The proposal does offer an alternative to the insurance fund — utilities could instead choose to set up a $10.5 billion liquidity fund that would act as a line of credit to cover wildfire liabilities, which utilities would have to pay back. However, utilities have signaled they will opt for the $21 billion insurance fund, according to the governor’s office. 

Many supporters say the proposal, while imperfect, would help stabilize California’s largest utilities and hold them accountable for future wildfire damages.

“It would help compensate past and present victims, prevent future disasters and protect utility ratepayers from substantial and unfair rate increases,” said Democratic Senator Bill Dodd.

Opponents like William Abrams, a survivor of the 2017 North Bay wildfires, say the bill reduces utilities’ responsibility for wildfires and does not do enough to protect fire victims.

“This lessens accountability for utilities and holds them to a lower standard,” Abrams said.

The proposal now heads to the Senate Appropriations Committee. A companion bill, which would establish a new government office to oversee the state’s wildfire safety and prevention efforts, is also being heard in the Senate. 

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