Is a Catastrophe Fund the Answer to California Utilities’ Wildfire Liability?
Is a catastrophe fund the answer to California utilities’ fire exposure problem? Maybe it is, maybe it isn’t, but it’s the most promising solution I’ve heard so far.
The Catastrophe Fund Debate
The recent PG&E bankruptcy filing shines a light on the fact that significant steps need to be taken to prevent future insolvency amongst the state’s other electric utilities.
At the center of this issue is that the state has a unique inverse condemnation provision that holds the state’s utilities liable for damages caused by their equipment and infrastructure, irrespective of who is at fault. Unfortunately, efforts to revamp this provision have failed in the past and, according to Moody’s, are unlikely to be successful in the future. Therefore, in order to pay for these claims – which are expected to increase on the heels of increased global warming-induced wildfire activity – some kind of emergency insurance or catastrophe fund is likely needed.
Such a fund would be managed independently of the state’s electric utilities, and provide an immediate source of cash to pay for claims and promote financial stability within the industry. At the moment the most promising option for a catastrophe fund is AB-235, which was introduced by Assemblyman Chad Mayes. In this solution, the catastrophe fund would be funded by the state’s electric utilities as well their customers, and it would provide the necessary cash, in conjunction with secured bonds, to pay for liability and claims costs associated with forest fires.
The downside of this or any type of catastrophe fund is that it might not be enough to cover all the costs, which means that customers might need to pick up the slack. For this reason, the topic is a bit of a political hotbed – apparently state regulators want the electric utilities to be on the hook for 100% of the liability costs, which seems foolish since the companies cannot afford to foot the entire bill and forcing them to do so would no doubt lead to additional utility bankruptcies.
The bottom line is that the state’s utility companies simply cannot be expected to foot the entire bill. For this reason, it seems to me that some form of a catastrophe fund is really the only viable solution.
