The hotly debated return of wildfire liability

Lawmakers are poised to make yet another major, late-session policy decision

By Melissa Sparks-Kranz, legislative advocate (environmental quality)  

Legislators this year are considering changes to who pays for wildfires — and how — in response to a report recently released by the California Earthquake Authority. The report outlines several policy options, including one that could reshape how much money victims and cities receive for utility-caused wildfires. 

In the wake of the January 2025 Southern California wildfires, all the report’s recommendations are on the table for this session. Cal Cities is urging lawmakers to reject any changes to the state’s strict wildfire liability framework — a constitutional standard unique to California that holds electrical corporations accountable for ensuring the safety of their infrastructure.

Lawmakers are aiming to host a public hearing on the issue in May, with more to follow later in the year.

Why is the earthquake authority in charge of a wildfire report?

Late last year, lawmakers passed a major clean energy package that included SB 254 (Becker). The bill, among other things, tasked the earthquake authority with developing this report for the Governor and Legislature on wildfire threats and liability.

The earthquake authority manages the California Wildfire Fund, which provides money for the state’s three largest private utilities in the event they need to pay wildfire victims and local governments for wildfire-related damages. The fund is paid for by ratepayers and shareholders.

Cal Cities, along with the California State Association of Counties and Rural County Representatives of California, last year submitted a joint letter outlining their opposition to changes to the state’s wildfire liability framework. This issue was last litigated by the Legislature in 2019, following the 2018 Camp Fire and the 2017 Tubbs Fires, two of the state’s most destructive fire events.

The report addresses insurance accessibility and affordability, wildfire mitigation, victims’ attorneys fees, wildfire liability, and other topics. Notably, it includes overhauling inverse condemnation as one key policy lever. That recommendation alone could be the most consequential — and the most politically fraught.

What is inverse condemnation, and why does it matter?

Courts have long ruled that electric utilities provide a public good by serving electricity to a vast majority of the state. Therefore, they have the power of eminent domain — to take private property. But property owners can also take legal action when said infrastructure damages private property. Coined inverse condemnation, this strict requirement holds electric utilities accountable, so their infrastructure does not cause catastrophic wildfires.

Currently, if investigators determine that a utility’s infrastructure is the cause of a wildfire, the utility is responsible for fully compensating property owners and local governments for damages to those properties.

The report notes that eliminating inverse condemnation could lower electric utilities’ cost risks and thus overall lower electricity bills. But ultimately, any such change would simply shift the cost to ratepayers via their insurance bills, to local governments, and the state, all trickling back down to ratepayers.

While Cal Cities is opposed to such changes, it is supportive of many other actions that reduce wildfire risk, such as streamlining vegetation management projects in high fire areas, increasing the frequency of fire hazard data (as detailed in a Cal Cities-sponsored bill), and ensuring insurance companies account for wildfire mitigation efforts when determining coverage.

Should lawmakers move changes to this framework forward, they would need to bring the measure to voters for approval. Legislators could try to lessen liability through other means — such as capping the amount owed to victims on an individual or on a per-event aggregate basis. Those changes would not need to go before voters. However, this could be severely detrimental and inequitable, as both fire victims and local governments would not be fully compensated for damages.   

Cities should stay alert for updates from Cal Cities on what will likely be late in the session legislative play.