Highlights of the 2019 Assembly Bill 1054:
- Established the Wildfire Safety Advisory Board to develop best practices for wildfire reduction
- Required electrical corporations to invest in system hardening and vegetation management, and disallowed companies from passing on the costs of the initial $5 billion spent to customers
- Set up the California Wildfire Fund
Though the California Wildfire Fund has yet to be tapped into, it was designed to encourage California’s investor-owned utility companies to prioritize safety in exchange for financial protection.
Creation of Assembly Bill 1054
Assembly Bill 1054 was signed into law by California Governor Gavin Newsom in July 2019. AB 1054 was primarily created to provide financial insurance to utility companies in California while also ensuring adequate compensation for wildfire victims.
Per California’s law of inverse condemnation, utility companies are liable for wildfire damages caused by their equipment, despite whether they acted negligently or violated safety regulations. This leaves utility companies on the hook for millions and often billions of dollars in payouts and claims that they don’t necessarily have the funds to resolve in a timely manner, which is where the California Wildfire Fund comes in.
Also known as the Wildfire Insurance Fund (WIF), the fund is a central component of AB 1054. Managed by the California Public Utilities Commission (CPUC), the fund shields four of the state’s investor-owned utilities, PG&E, SCE, SDG&E, and Bear Valley Electric Service (who joined the fund in 2020) from bankruptcy by reimbursing wildfire costs and expenses exceeding $1 billion.
How is the California Wildfire Fund Being Funded?
When the $21 billion California Wildfire Fund was created, it was funded from California’s surplus fund. Over time, $10.5 billion will be paid back by utility shareholders and the other $10.5 billion will be paid back by utility ratepayers.
PG&E, SCE, and SDG&E were each required to contribute an initial amount to the fund based on their liabilities and histories of safety, totaling $7.5 billion. The bill anticipated PG&E would be responsible for 64.2%, SCE for 31.5%, and SDG&E for 4.3%. Subsequently, the companies will contribute their adjusted share of $300 million annually to the fund until they reach $10.5 billion.
The bill extended a monthly surcharge on ratepayer bills from the Department of Water Resources that will finance their portion of the fund over the next several years. The charge is estimated to cost $2.50 per month for the average ratepayer.
How Does the California Wildfire Fund Work?
In order to be eligible to use money in the California Wildfire Fund, the CPUC has to determine 4 things:
- The fire was caused by the utilities’ equipment
- The damages exceeded $1 billion
- The company’s insurance will not cover the fire damages in total
- The utility company did not act negligently
So how exactly does the California Wildfire Fund encourage utility companies to prioritize safety, invest in risk reduction, and foster a culture of safety?
Previously, utility companies involved in wildfires were responsible for proving that they safely maintained their equipment and acted reasonably. Now, as long as they obtain a safety certification from the state, they are presumed to have acted responsibly.
The certification (which must be re-applied for every 12 months) is issued by the California Office of Energy Infrastructure Safety and is a marker that the utility company has implemented certain safety measures and is working towards becoming safer and improving its operations and culture.
Of course, a utility company can still be found negligent even if they have a safety certification, but now the burden is on other parties (like advocate groups and victims) to convince the courts. Outside parties must create a “serious doubt” as to the reasonableness of the company’s conduct, and only then does the utility have the burden to dispel that doubt.
If a utility company meets all the criteria and uses the fund, it is required to reimburse the fund, within six months, only the amount the commission finds not just or reasonable. If the CPUC finds the utility company did not act “prudently” in maintaining and operating its equipment, the utility company has to repay the fund, though having a safety certification may limit the amount that must be repaid. The bill also requires utility companies to make additional payments into the fund if they negligently cause a wildfire.
The California Wildfire Fund was designed to cover future wildfire costs from 2019 on and does not cover prior liabilities. The California Earthquake Authority is the Wildfire Fund Administrator.
AB 1054 Controversy
AB 1054 has garnered both support and criticism due to its complex implications.
Supporters commend the state legislator for establishing the California Wildfire Fund, which provides financial stability to utility companies and ensures timely compensation for wildfire victims. They believe it incentivizes safety investments and improves overall safety culture within the utility industry.
However, critics consider the California Wildfire Fund to be a bailout of sorts for utility companies. They believe insurance protection shouldn’t be provided to companies that have violated safety standards time and time again.
Critics have also expressed concern over the state’s safety certification that grants utility companies a presumption of innocence. “It’s a David and Goliath situation now,” said April Maurath Sommer, executive director of the Wild Tree Foundation. “There’s an assumption of safety here that the utilities don’t deserve.”
Many believe that it is also unfair for ratepayers to have to contribute to the fund, as shareholders have continued to receive substantial dividends. However, the CPUC found the charge to be just and reasonable because of its benefits, which include more financial stability for utility companies and decreased spikes in electrical costs, which would be especially high if these utility companies failed.
Moreover, according to Public Utilities Code 3292 (i) (1), “The administrator [of the fund] shall, to the extent practicable, manage the fund to prioritize the use of electrical corporation contributions before the use of ratepayer contributions.”
“We’re on our way to building a safer, more resilient energy future—one that treats wildfire victims fairly and protects California consumers,” said Newsom in his June 2019 Strike Force Progress Report. Referring to AB 1054, he said, “The framework we will pursue maximizes shareholder contributions to a solution, minimizes ratepayer exposure to sticker shock rate increases, and mandates a culture of safety in our utilities to prevent wildfires.”