Closed-door bailout for private utilities would leave cities and wildfire survivors footing the bill

Contact your lawmakers and tell them you oppose the bailout

By Brian Hendershot, Cal Cities Advocate managing editor, and Melissa Sparks-Kranz, legislative advocate

Gov. Gavin Newsom is putting his might behind a last-minute bailout for private utility giants that cause wildfires. The yet-unveiled proposal is expected to dramatically limit how much money cities, insurance companies, and even individuals can recover from utility companies.

Cal Cities’ response will be the same as it has been in the months leading up to this closed-door deal: Cal Cities opposes any attempt to undermine public infrastructure and emergency response or shift recovery costs to cities and taxpayers.

Last year, the state’s three largest utility companies posted billions of dollars in profits. The leaders of those companies have seen their pay surge to $16 million, $19 million, and $22 million — making them some of the nation’s wealthiest utility CEOs — as over half of Californians report trouble paying their utility bills.

Wildfire survivors, insurance companies, and other local government groups have blasted the deal. “In government, what we should be doing at the end of the day is protecting people who are the most vulnerable, not protecting the richest, not protecting corporate interests,” Joy Chen, executive director of the Every Fire Survivor’s Network, told Politico. “This proposal does the opposite of what public policy should be doing.”

What do we think the proposal would do to cities?

The proposal is still not yet in print. But cities, along with counties, special districts, and other local public agencies, could take a major hit in three key areas.

The Governor’s proposal would limit damage claims on public property and infrastructure to the depreciated value of the asset. For example: Cities could only recover what a 60-year-old water system costs, not what it costs to replace the infrastructure when the utility has damaged the system.

To fill the gap to get to replacement cost, the Governor’s proposal suggests that cities recover those costs through their own insurance, instead of the utility company. However, those costs would then be borne by local residents and wildfire survivors themselves, rather than the utility that caused the fire.

The proposal would also eliminate emergency response and mutual aid as recoverable costs. This would completely disincentivize local agencies, which are typically the first responders, from participating in mutual aid and emergency response.

In theory, the Federal Emergency Management Agency could reimburse cities for mutual aid costs, but there is significant uncertainty over when and how much they will be reimbursed. FEMA is far from a reliable source of funding and is squabbling with local fire agencies on costs associated with past utility-caused wildfires. Newsom himself is still calling on the federal government to provide promised aid for survivors of last year’s Los Angeles wildfires.

Finally, the package would eliminate property tax loss revenue as a recoverable cost. This is typically baked into any claims that a city brings forward and would impact cities’ bottom line until new homes are built, which could take years.

The total that the utilities have paid out in public agency damages from 2017 to 2024 is 4% of their total payout — arguably pennies on the dollar for the utilities but a substantial hit to local public agencies.  

How would this impact cities?

When a utility causes a wildfire, they must fully compensate for property damage. Public infrastructure, lost tax revenue, emergency response, and mutual aid are necessary and critical for local governments to function. If public agencies cannot recover costs from negligent utilities, the very survivors whose community burned will likely foot the bill instead. Limiting public agency recovery will only shift costs to taxpayers and financially strained local governments, increasing strain on municipal budgets or even bankruptcy.

Does the proposal do anything else?

The proposal is also expected to include changes to the state’s last-resort home insurance program, streamline and fund wildfire mitigation, and modify oversight of utility wildfire mitigation plans and require increased climate credits to electricity ratepayers.

What can cities do?

Cal Cities is urging all city officials and cities to call or text their assembly member and senator to express their opposition to the bailout. City officials and cities can also sign on to Cal Cities’ letter urging lawmakers to oppose any reforms that limit public agency recovery. To sign on to the letter or learn more, contact your regional public affairs manager.