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We recently detailed Senate Bill 254, which overhauls California's approach to wildfires. In addition to promoting new transmission facilities, replenishing the wildfire fund, streamlining the siting process and exempting underground plans, there was a notable addition that has not received as much attention: the Natural Catastrophe Resilience Study. There's a great article by Travis Ritchie, California Wonders if it is Doing Wildfire Risk All Wrong, that covers this topic. In particular, he notes that utilities in California are vulnerable to wildfire liability because of California's unique application of inverse condemnation law, particularly to utilities and irrespective of negligence.
Because of inverse condemnation law, and the potential exposure created as climate change continues to increase the frequency and severity of natural disasters, AB 254 provides that the California Wildfire Fund Administrator (housed inside the California Earthquake Authority) must provide a report to the Legislature by April 1, 2026 that: "evaluates and sets forth recommendations on new models or approaches that mitigate damage, accelerate recovery, and responsibly and equitably allocate the burdens from natural catastrophes, including catastrophic wildfires, earthquakes, and other natural disasters, across stakeholders, including insurers, communities, homeowners, landowners, governments, electrical corporations, and local publicly owned electric utilities, to complement or replace the fund."
In addition to looking at property insurance affordability, vegetation management, and other safety protocols, the Study is also to evaluate "alternative structures to socialize risk of damage from natural catastrophes, including catastrophic wildfires, that most efficiently and expeditiously compensate those harmed while maintaining accessibility to property insurance and access to safe, affordable, and reliable energy for Californians." How should we deal with these risks as climate catastrophes continue while balancing electric affordability, insurance affordability, and housing affordability? And does this open the door for the Administrator to consider reform to inverse condemnation liability?
Submissions are due by December 12, 2025, so it will be interesting to see what ideas are submitted. We've been working with water industry groups to tackle potential solutions.
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