CEA presents SB 254 pathways; lawmakers weigh liability reform, caps and state-backed insurance

Tom Welsh, chief executive of the California Earthquake Authority, told the Assembly Committee on Utilities and Energy that the SB 254 study was designed as an inventory of policy pathways rather than a single set of recommendations. The report groups options into three frameworks: invest more in mitigation; redesign how catastrophe losses are allocated; and consider larger, state-led protection-gap solutions including new funds and insurance layers.

Lloyd Dixon, director of RAND's Feinberg Center for Catastrophic Risk Management and Compensation, highlighted the report's accounting of costs and litigation friction: RAND estimated about $38 billion in utility-related compensation payments since 2017 and said litigation and related legal fees have materially reduced survivor recoveries while lengthening resolution times.

Panelists diverged on core legal and financial trade-offs. Tyson Smith, speaking for the three large investor-owned utilities, warned that inaction and financial distress would raise borrowing costs and ultimately hit ratepayers: “If we do nothing, we face rising energy bills, declining grid reliability, and a shrinking safety net when disasters strike,” he said. He endorsed the report's three-pathway framing and encouraged both mitigation and resilience investments.

Fernando Valero of the Los Angeles Department of Water and Power stressed that municipal utilities and their cities face distinct risks under strict-liability doctrines and argued reform should consider either targeted inverse-condemnation reform or a three-pillar solution: a state-administered utility liability insurance backstop (option 3.1.0.1 in the CEA framework), limits on certain damages and subrogation reform, and measures to expand residential insurance access.

Consumer Attorneys of California's John Fisk pushed back on proposals to reduce liability, arguing investor-owned utility negligence has driven most recent large fires and saying relieving IOUs of legal responsibility would reduce necessary deterrents. “Relieving IOUs of legal liability will only disincentivize IOUs from preventing wildfires to begin with,” Fisk said.

Nathaniel Skinner of the Public Advocate's Office highlighted the already-large share of wildfire costs shifted to ratepayers: utilities sought roughly $30 billion in ratepayer recovery for catastrophic wildfire costs since 2007, and ratepayers currently pay roughly $900 million per year for wildfire insurance mechanisms and continuation accounts, he said. Skinner recommended any reforms avoid increasing costs to ratepayers, tie recovery to measurable safety outcomes and increase transparency.

The committee pressed panelists on specifics: how to define and measure ‘‘measurable’’ risk reduction, whether fast-pay systems could be designed so payments are both rapid and full, the scope and effect of caps on non-economic damages, and constitutional/legal constraints around changing inverse condemnation. Panelists offered a range of technical and legal clarifications but left core trade-offs unresolved.

Ending note: The CEA report crystallized a menu of options and trade-offs; the Legislature will need to choose among mitigation investments, liability allocations, and potential state-sponsored financial backstops in upcoming bills and hearings.