The new weekend deal on California‘s wildfire liability system failed to quell market concerns about PG&E and Edison International. Pacific Gas and Electric Co.’s stock fell 20%, Edison International’s 23%, and Sempra’s 3% on Monday. Companies say they lost more than $20 billion in value since Thursday.
The utility stocks earlier took a big hit on Friday after lawmakers blocked Gov. Gavin Newsom from pursuing his plan to prevent insurance companies in California from recouping their losses from investor-owned utilities that cause a catastrophic wildfire. Newsom wanted to end subrogation, a process in which insurance companies recoup losses from utilities after the companies pay wildfire claims for damaged or destroyed property. The CEOs of major insurance companies warned this would cause premiums to skyrocket and risk destabilizing the state’s insurance market.
But the investor-owned utility companies were not giving up and pushed for last-second changes to SB 492, or a commitment to a special session, according to multiple sources close to the negotiations. In a letter to California legislative leaders on Monday, the CEOs of PG&E and Edison International warned of lost jobs, higher utility bills and less investment in California with the current plan.
“Customers currently pay hundreds of millions of dollars annually to attract the investment necessary to meet California’s climate goals,” PG&E’s Patti Poppe and Edison International’s Pedro Pizarro said. “The State’s investor-owned utilities have collectively lost more than $20 billion in value from market close on Thursday through Monday morning’s market opening. Further, increased costs of borrowing, driven by bondholder reactions or credit agency actions, will only exacerbate the affordability crisis for customers.”
On Saturday, Newsom and Democrats in the State Senate and Assembly found common ground in setting other limits and restrictions. The new legislation reflecting that agreement was filed Saturday morning in SB 492. The bill shows state leaders are prepared to prohibit the CEOs and executives of investor-owned utilities from getting bonuses in the short-term if their company starts a wildfire that destroys at least 500 structures. The compensation would be prohibited for the year the fire happened and the following year.
The proposal also sets new attorney fee limits for lawyers who litigate on behalf of insurance companies and attempts to prevent “billboard lawyers” from swooping in after a catastrophe. The measure would also ban hedge funds and private equity firms from investing in wildfire claims, an issue that arose after the Los Angeles area wildfires. For victims, the legislation creates a fast-pay program to speed up payments. The legislation also establishes a wildfire data sharing system and requires the state to establish a new statewide wildfire preparedness plan every five years.
Two key parts of this related to the state’s wildfire liability fund raise transparency and cost questions for ratepayers. Technically, California has two wildfire liability funds. The first was established in 2019 following the PG&E-caused Camp Fire in Butte County. That fund has a claim payout capacity of about $22 billion, and the Newsom administration expects claims from the Eaton Fire to exhaust that fund. The other fund, which is considered the “continuation account” was established last year and would have a claims-paying capacity of $18 billion. This account is available for utility-caused fires that occur after September of 2025. There is no cash available in this account and contributions aren’t supposed to start until 2029, according to the Newsom administration.
The legislation filed Saturday morning would give the California Earthquake Authority the power to borrow money and issue bonds to support the wildfire fund and cover costs if it runs out of money. Ratepayers of a private utility company that causes another fire would be on the hook to pay back those new bonds, if needed. The legislation also would allow some meetings and records related to the wildfire liability fund to be shielded from the public. SB 492 allows the California Catastrophe Response Council to be exempted from the state’s public meeting and public records laws when it comes to addressing either the administration or evaluation of individual claims submitted to the state’s wildfire liability fund accounts. The California Earthquake Authority would also be exempted from the state’s public records act for records related to the administration or evaluation of claims submitted for reimbursement from the wildfire funds.
Lawmakers are expected to vote on the proposal sometime around 9 a.m. on Tuesday morning. “While the proposed legislation would make some progress in helping wildfire survivors recover and strengthening wildfire preparedness, it would not provide the sustainable solution California needs,” PG&E said in an initial response. “Specifically, the bill does not adequately address the financing risks created by California’s current wildfire liability framework. As a result, it falls short of creating the long-term durability needed to attract affordable investment to support a safer, more reliable energy system and help keep costs down for customers.” Monday’s letter to Senate President pro Tempore Monique Limón and Assembly Speaker Robert Rivas warned that the bill “leaves California at risk of constrained investment, higher utility bills, less spending, and fewer jobs. California cannot afford to leave these fundamental problems unresolved.”
