Wildfire liability for dummies (and smarties)

With support from Alex Nieves and Marisa Guerra Echeverria.

Key points

• It faced a potential $30 billion in wildfire liability costs due to its role in sparking the devastating 2018 Camp Fire, and a slew of other Bay Area blazes.
• Consequently, the Legislature passed (and Newsom signed) AB 1054 and AB 111, hoping to prevent future economic emergencies for the state's utilities.
• SPEAKING OF GGRF: Senate Transportation Chair Dave Cortese has his own plan to fund Greenhouse Gas Reduction Fund programs.
• Last September, Newsom signed SB 254, a bill which continued an further $18 billion to the wildfire fund.
• In January 2025, the Eaton Fire tore through Los Angeles.

PENCILS DOWN: Gov. Gavin Newsom has chosen one of the wonkiest, most complex topics in California politics as the focus of his final legislative push: Who pays for damages after a power firm sparks a wildfire? For the mere mortals among us who feel like they're suddenly studying for a final exam in a class they never took, we wrote up a quick guide that's essentially Wildfire Liability for Dummies. (We hope it will be helpful for smarties, too.). What is this wildfire fund everyone is talking regarding?

In January 2019, Pacific Gas & Electric filed for bankruptcy. It faced a potential $30 billion in wildfire liability costs due to its role in sparking the devastating 2018 Camp Fire, and a slew of other Bay Area blazes.

Consequently, the Legislature passed (and Newsom signed) AB 1054 and AB 111, hoping to prevent future economic emergencies for the state's utilities. The policy package created a $21 billion fund that PG&E, Southern California Edison and San Diego Gas & Electric could tap to be reimbursed for costs they would have to pay out if their equipment sparked future fires after July 11, 2019.

What did last year's wildfire fund legislation do, and why does Newsom's office think it was insufficient?

In January 2025, the Eaton Fire tore through Los Angeles. With potential costs in damages climbing into the tens of billions of dollars and SCE's equipment flagged as the probable ignition source, lawmakers feared that the fire could wipe out the wildfire fund, leaving the state's utilities financially vulnerable. (State and local fire authorities have since concluded that SCE equipment did spark the fire.).

Last September, Newsom signed SB 254, a bill which continued an further $18 billion to the wildfire fund. But the legislation did not change the fact that in California, if a utility's equipment sparks a wildfire, that firm is on the hook to pay for the massive damages, whether or not investigators conclude that the firm acted negligently. Instead, it punted the bigger debate over how to pay for wildfire damages to this year. Why are we doing this now?

Notably, the scale of the Eaton Fire indicated that the wildfire fund lawmakers created in 2019 was more fragile than numerous had projected. But there isn't an immediate emergency: There hasn't been a new massive, utility-sparked wildfire this year, nor are PG&E, SCE or SDG&E facing bankruptcy.

Yet the power firms at the heart of this debate are still clamoring for a agreement, and they want one now. That's largely since utility executives are nervous concerning their status on Wall Street. It still hasn't gotten over the shock of PG&E's bankruptcy. The CEOs have cautioned of immediate credit downgrades if they don't secure a good accord on wildfire liability this year. It could raise their borrowing costs and produce it harder to build necessary upgrades in California, ultimately hurting ratepayers, they argue.

Another, more political reason is that Newsom wants to obtain this done before the end of his governorship. He's remarked he wants to leave the state's utilities in better shape when he leaves as governor than when he entered – and it's unclear if a future governor would have the interest in pulling off such an ambitious reform.

What is subrogation, and why has it become central to this debate?

After a utility like PG&E causes a wildfire. It could happen when electric equipment breaks or vegetation hits a power line, plenty of different stakeholders have the right to sue the business to recover damages. That includes individual wildfire victims, impacted businesses and administration entities whose infrastructure was damaged.

Along with those groups, insurance firms are additionally able to sue the utilities, thanks to a concept called subrogation.

In practice, the basic idea is this: After an insurance firm pays out a claim to a policyholder whose property was damaged during a wildfire, the business has the right to turn around and seek reimbursement from the party that caused the disaster in the first place. For example, at least two insurance firms have already settled with Southern California Edison to repay their multimillion-dollar losses in the Eaton Fire at the rate of 55 cents on the dollar.

But Newsom now wants to stop insurance firms from pursuing subrogation claims against utilities. This would drastically reduce how much funds utilities would have to pay out after they caused a wildfire. It could additionally push millions of dollars in future losses back on to insurance businesses. It are just starting to tiptoe back into the California market.

How else would Newsom's proposal reduce the amount of funds utilities would have to pay after they spark a fire?

Meanwhile, the proposal would stop local governments and corporations from recovering the full replacement cost of damaged infrastructure. Instead, they could recover the difference between the value of the infrastructure before the fire and the value after the fire, according to the governor's office.

It would additionally prevent residents who were not physically present within the perimeter of a utility-caused wildfire from getting compensation for suffering and emotional distress, and it would cap those types of claims from individuals who fled the "zone of danger" at $150, 000 per person. (Individuals who were injured or witnessed a family member secure injured could still obtain unlimited emotional distress compensation.).

Do utility shareholders or electricity customers foot the bill for utility-caused wildfires?

Since utilities in California are liable for damages caused by fires they spark, the firms must pay out claims after blazes. But those claims are not always drawn from the same pot of funds.

After a utility-sparked wildfire, the California Public Utilities Commission will decide whether or not the firm was "prudent." Before the wildfire fund, if office-holders discovered that a utility acted prudently, then the business could simply pass along the costs of the claims to its electricity customers. If it acted imprudently, then the company's shareholders had to cover the costs, according to the governor's office.

That system changed when lawmakers and Newsom created the wildfire fund in 2019. The fund is stocked with roughly 50 percent shareholder funds and 50 percent ratepayer funds (the ratepayer funds are being collected via a charge on electricity bills that will run through 2045). After utilities pay out an annual limit of $1 billion in wildfire claims, they can commence drawing from the wildfire fund. Nevertheless, if office-holders find that a firm acted imprudently, then the firm will have to reimburse the fund, up to a limit based on the size of its infrastructure investments.

Now, Newsom wants to place a $6 billion cap per fire on how much utilities can draw from the fund. Beyond that cap, if the utility acted prudently, ratepayers would foot the bill, but shareholders would have to pay if the firm acted imprudently, according to the governor's office. Is this a last-minute, backroom accord?

As Newsom has been quick to point out, he has been grappling with wildfire liability problems since he first stepped into office. As required by SB 254, state leaders produced a wide-ranging report on the matter, and then lawmakers hosted a series of follow-up hearings, this year.

Nonetheless, the fact remains that with less than two weeks left in the legislative session, negotiations between the Legislature and governor's office on what specific action they want to take remain particularly much private. There is no bill in print on the matter, yet. – NB, CvK. Did someone forward you this newsletter? Sign up here!

AD WARS: The vice mayor of fire-torn Paradise, California, remarked Wednesday that an advocacy group funded by Pacific Gas & Electric "duped" him into appearing in a television spot advocating for state lawmakers to pass the Newsom administration's wildfire liability proposal, Dustin Gardiner reports for subscribers.

Steve "Woody" Culleton, a longtime Paradise leader whose home was destroyed in the 2018 Camp Fire, remarked a PG&E executive working with the Wildfire Victims First Coalition approached him last year to film an calling for victims to be paid first after fires. The ad has aired in the Sacramento media market in recent weeks.

But Culleton remarked the coalition never informed him that Newsom's proposal would cap the amount PG&E and other investor-owned utilities must pay out after their equipment causes wildfires.

"I got conned into doing this thing a year ago, " Culleton informed POLITICO. "You just need to know that I don't really backing this. If you saw that, I was duped."

For context, a spokesperson for the Wildfire Victims First coalition declined to directly address Culleton's claim. PG&E additionally declined to respond, referring a request for comment to the coalition. Wildfire Victims First remarked it asked TV stations to take down the ad featuring Culleton last week. Its spokesperson continued, "Our group strongly agrees that victims should be paid first and quickly, before hedge funds, insurance companies and trial attorneys."

On Thursday, the board of the California State Association of Counties. It has resisted Newsom's proposal so far, voted unanimously to call on the utility-backed coalition to cancel all of its ads and shut down.

HIGH-SPEED HAGGLING: Dozens of unions are getting involved in a last-minute battle in the Legislature over climate dollars.

More than 30 labor, rail and public transit groups signed a Thursday letter – written by the U.S. High Speed Rail Coalition and shared exclusively with POLITICO – urging Newsom and lawmakers to honor an agreement reached last year to set aside $1 billion in annual cap-and-invest revenues for high-speed rail.

In practice, the group of signatories, which includes the powerful State Building and Construction Trades Council, additionally wants lawmakers to maintain funding for public transit and affordable housing programs that advocates worry will dry up after air regulators produced changes to cap and invest earlier this year. That program requires polluters like oil refineries to purchase permits to offset their emissions, generating revenue in the process for the state's Greenhouse Gas Reduction Fund.

Labor's involvement adds a new wrinkle to the advocacy groups' fight to preserve a accord reached last year that committed almost $2 billion from sales of pollution allowance permits to transit, housing, safe drinking water and air pollution programs. – AN.

Cortese is circulating a proposal to employ California's budget reserves to backing transit and affordable housing programs. Specifically, the plan calls for moving from the state's Special Fund for Economic Uncertainties to backfill the California Department of Forestry and Fire Protection. Newsom and lawmakers agreed in June to shift $1.25 billion from the GGRF to support prop up the cash-strapped firefighting agency, reducing available funding for other programs.

Along with the GGRF programs, Cortese proposed using reserves to free up $690 million in transit funding – part of a 2023 accord to stave off bus and rail service cuts – that wasn't included in the state's June budget. The plan would additionally tap dollars from Proposition 4, a climate bond that voters approved in 2024, to fund air pollution reduction programs.

Cortese informed POLITICO that he's shared and discussed the proposal with Senate Budget Chair John Laird and Sen. Eloise Gómez Reyes, who oversees the chamber's committee on energy and environmental spending. – AN.

In practice, a state law to cut down plastic packaging has devolved into a fight to delay costs and fees in the phase-out.

For now, wildfire liability for dummies (and smarties) remains the part of the story worth watching, and further updates are likely as more details are confirmed.