(Bloomberg) -- California lawmakers are said to be considering a proposal to help utilities shoulder billions of dollars in potential liability costs while offering relief to wildfire victims by setting up a compensation fund that would be backed by the state and the power companies.
Details, including the size, are still being worked out and the proposal -- one of a number of options being considered -- may not come together, according to people familiar with the discussions who asked not to be identified because they aren’t public. The fund could issue bonds, with the payments potentially provided by utility shareholders, ratepayers and revenue from the state’s cap-and-trade program or general fund, the people said.
October fires destroyed large swaths of California wine country, including thousands of homes, and killed 44 people, while blazes in December hit areas near Los Angeles. Statewide insurance claims topped $12 billion as of March, according to the California Department of Insurance.
California law can hold utilities including PG&E Corp., Edison International and Sempra Energy liable for costs if their equipment is found to have caused a fire, even if they followed safety rules. The money in the proposed fund could be available for utilities in situations in which they weren’t found to be negligent or regulators determined they acted appropriately.
“We are aware of the proposal but are not prepared to speculate on what the outcome will look like,” Allison Torres, a spokeswoman for Sempra’s San Diego Gas & Electric utility, said in an email. “We will continue to stay engaged on the topic for the benefit of our customers.”
For fire victims, the advantage of a fund would be quicker payouts and compensation for those who lacked full or any insurance coverage, the people said. For investor-owned utilities operated by PG&E and Edison, the benefit would be not having to absorb all at once a large liability that could raise borrowing costs or cause financial distress. Both utilities and Sempra have been aggressively lobbying lawmakers in Sacramento to amend the law that would hold them liable if their equipment sparked a fire, even if they weren’t negligent.
PG&E could face $15 billion in claims from some of the worst wildfires in state history -- the ones that charred Northern California wine country -- and Edison faces more than $4 billion for blazes in the southern part of the state, according to credit rating agency Fitch Ratings.
“Although we have not seen legislative language, we think the concept of a catastrophic wildfire fund is worth exploring,” Steve Conroy, an Edison spokesman, said in an emailed statement. PG&E declined to comment.
Last week, California officials said PG&E’s equipment was the source of four of the smaller wildfires that broke out last year and the utility had violated state laws in three of them.
At the least, the fund would serve the victims of the 2017 fires, one of the people said. Ideally, the fund would also assist victims of future natural disasters that officials say are becoming more common due to climate change such as floods. Lawmakers would need to pass legislation to establish the fund.
Ali Bay, a spokeswoman for Governor Jerry Brown, said it was premature for the office to comment. Spokesmen for the state Senate and Assembly leadership said they couldn’t immediately comment.
The idea of setting up a fund to deal with the ramifications of a natural disaster isn’t a new one: California created an Earthquake Authority in 1996 after homeowners found it almost impossible to get insurance after the Northridge quake. Insurance companies helped finance the startup of the publicly managed entity, which covers more than 75 percent of the residential earthquake-insurance market.
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