California Gov. Gavin Newsom is once again confronting a central challenge of his governorship: determining who should bear the financial responsibility for wildfire damage caused by utility equipment. As his final legislative session nears its end, Newsom is working with lawmakers to broker a deal that would limit the financial exposure of electric and gas companies when their infrastructure ignites blazes.
This effort comes as Southern California Edison faces claims for a recent destructive wildfire, which investigators determined was sparked by one of the company's transmission towers. This follows the 2018 Camp Fire, the most destructive wildfire in state history, which killed 85 people and was caused by Pacific Gas & Electric equipment. That blaze led to tens of billions in liability for PG&E, forcing the utility into bankruptcy shortly after Newsom's inauguration.
In response to the 2018 fires, Newsom signed a law establishing a $21 billion fund, financed by utility shareholders and customers, to help utilities cover wildfire damages under specific safety conditions. Now, the governor aims to further protect utilities, citing the need to stabilize California's high electricity rates, which have been increasing due to wildfire prevention and recovery costs. Climate change has exacerbated the intensity and frequency of these fires, with utility equipment implicated in six of the state's ten most destructive wildfires.
Newsom stated that the current wildfire fund is expected to be depleted soon, necessitating swift action. His proposed plan aims to expedite payments to wildfire survivors, who he says are often last in line for compensation. "Status quo is not going to work," Newsom told reporters, emphasizing the need for reform that benefits victims.
However, the proposal faces significant opposition. Fire survivors and their advocates argue that the plan prioritizes utility interests over the needs of those who have lost property and livelihoods. Insurers are also concerned that they would be compelled to cover a larger portion of property damage claims, potentially leading to increased insurance rates. Rex Frazier, president of the Personal Insurance Federation of California, stated that the responsibility should remain with the utilities.
"Being responsible for your actions is something that parents tell children," Frazier said in a statement. "Hopefully the Legislature will tell this to the utilities.”
Joy Chen, executive director of the Every Fire Survivor's Network, criticized the plan as a "massive transfer of liability" from utilities to communities. Under existing California law, utilities are liable for damages from fires caused by their equipment, regardless of negligence. Home insurers that pay policyholders can seek reimbursement from utilities.
Newsom's proposed legislation could shift more of this property damage cost to insurance companies. The plan also includes provisions for utility CEOs to forfeit bonuses if their company's equipment sparks a wildfire causing over $1 billion in damage. Utility shareholders could face fines of up to $10 million for violating wildfire prevention requirements, according to the governor's office.
The California Legislature has until August 31 to pass a resolution. If no agreement is reached, Newsom could convene a special legislative session. While Democratic legislative leaders acknowledge the need to address the issue, details of a potential deal remain unspecified. Last year, the Legislature approved Newsom's proposal for an additional $18 billion to supplement the wildfire fund.
Meredith Fowlie, an economist at the University of California, Berkeley, noted that California's requirement for utilities to cover wildfire damages, even without negligence, stems from their role as public service providers. However, she suggested that given the increasing severity of fires due to climate change, the state should re-evaluate how recovery costs are distributed.
"Utilities can start fires, but they don’t by themselves create catastrophe," Fowlie said, adding that factors like vegetation management and fire-resistant home construction also contribute to the scale of destruction. She characterized the question of responsibility and the extent of liability as a "critical, core issue that we have not dealt with and is not going away."
Newsom has indicated his commitment to resolving this issue before leaving office. "I'm not going to walk away and hand a real mess to the next governor," he stated.