Natural disaster report further fuels wildfire liability debate

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

The Legislature or the Governor will contemplate the wildfire liability issue this year. The California Earthquake Authority issued a report last month that includes 28 policy options for how to improve disaster preparedness and recovery from natural catastrophes and wildfires, including one that could reshape how much money victims and cities receive for utility-caused wildfires. 

The earthquake authority manages the California Wildfire Fund, which provides money for the state’s three largest private utilities to pay wildfire victims and local governments for wildfire-related damages. Ratepayers and shareholders pay into the fund. For ratepayers, the cost of wildfire liability is $10 per month — roughly 4 to 6% of the average utility bill.

What is in the report?

Cal Cities is supportive of some of the options included in the report, some of which are already percolating through the Legislature in various bills. Cal Cities believes the priority must remain on the need to reduce wildfire risk before catastrophes occur.

Such strategies could include streamlining vegetation management projects in high fire areas, formalizing Zone Zero regulations, and increasing the understanding of how urban conflagrations spread. Cal Cities also supports greater transparency regarding insurance coverage and ensuring insurance companies account for wildfire mitigation efforts to provide more affordable coverage.

However, the report also recommends eliminating the state’s strict liability framework, coined inverse condemnation. Courts have long ruled that electric utilities provide a public good by serving electricity to a vast majority of the state and, as a result, have the power of eminent domain — to take private property. But property owners can also take legal action when said infrastructure damages private property. 

This strict requirement holds electric utilities accountable and helps prevent catastrophic wildfires. Reducing or spreading that liability would expose cities to liability, hitting already tight budgets.  

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 taxpayers.

Policymakers could try other efforts to lessen liability, such as restructuring risk standards or capping the amount owed to victims on an individual or on a per-event aggregate basis. However, this could be severely detrimental and inequitable, as both fire victims and local governments would not be fully compensated for damages.    

What will happen next?

Cal Cities is preparing for the possibility of a late session legislative play. 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 in response to the earthquake authority seeking input for the report.

Cal Cities will continue to advance its AB 2517 (Calderon), which would increase the frequency of fire hazard data every five years through a public and transparent process. This would help cities and communities understand what environmental conditions fuel wildfires and the mitigations that are subsequently required in high fire areas through building code changes, home hardening, and vegetation removal.

The Senate and the Assembly will host informational hearings on May 11 and May 12 on the report, as the Legislature begins to tackle these issues in earnest. Cities should stay alert for updates from Cal Cities.