According to CalMatters, fire survivors and advocacy groups say the governor’s proposal will limit victims’ pain and suffering compensation, strip insurance companies of their “right to recover wildfire costs from utilities or other corporations” and cap legal fees, which would limit fire survivors’ ability to retain representation.

Meanwhile, Politico says the proposal limits the amounts utilities have to “pay out to insurance companies, hedge funds and disaster attorneys when the power companies spark a wildfire.” If Newsom’s plan is adopted, insurance companies will no longer be able to pay policyholders’ claims, then turn around and get a portion of the money back by suing the offending utility through subrogation. Of course this might lead to insurers raising their rates. 

California’s compensation process operates under an “inverse condemnation” legal standard, which Newsom’s proposal reportedly leaves untouched. Inverse condemnation allows Californians to seek compensation from utilities for damage, to hold them responsible for the harm caused by wildires ignited by their infrastructure, even if there was no negligence on the part of the utility. In California, inverse condemnation invokes “strict liability,” also a legal principle, in which, according trial lawyers, liability exists even if the responsible party was not careless nor acted with malicious intent.

North Dakota just passed a bill that limits the application of the strict liability standard. California might want to consider a similar approach in the future if there are concerns over strict liability bankrupting utilities. Pacific Gas & Electric Company got a taste of how a utility can be nearly ruined when it filed for bankruptcy in 2019 after racking up as much as $30 billion in liability for fires set off by its equipment. 

Some critics of Newsom’s plan are using the word “bailout.” The California State Association of Counties calls it a “corporate bailout” that puts “utilities’ profits above fire survivors and local communities.” Joy Chen, a survivor of last year’s Eaton fire, ignited by “an electrical event” at Southern California Edison transmission towers, says that it’s not only a bailout, it’s an “end-run around the democratic process” that will do nothing for families and communities that have been “shattered” by wildfires and might never be compensated for their losses.  

Limiting utilities’ financial liabilities is not a terrible idea. It might stir warm feelings to see them smacked with stiff penalties. But monetary fines that have been imposed on utilities that have been found responsible for wildfires are passed on to ratepayers. The California Earthquake Authority noted earlier this year that the state’s second highest residential electricity prices in the country are elevated by the “accumulation of wildfire-related costs in utility rates.”  

Neither should Newsom’s “no bonuses” hard line be considered an extreme proposition. If a power company causes a wildfire, either through mismanagement or negligence, then by definition it is failing at its job. In no world, even in the sphere of investor-owned, government-protected regional monopolies, should executives be rewarded for failure. The 20% raise that Pedro Pizarro, president and CEO of Edison International, parent company of Southern California Edison, raked in last year — the year SoCal Ed’s equipment ignited the Eaton fire that left thousands homeless and killed 19 — must feel like an insult to the victims.

Power companies have been incentivized by public policy to spend heavily on climate schemes, leaving fewer funds available for hardening their systems and updating equipment to prevent fires. The misallocation of funds, and the regulatory burden and web of mandates placed on utilities, needs to be reformed, says Pacific Research Institute economist Wayne Winegarden, “in order to meaningfully address the problems of worsened wildfires and grid unreliability.”

Any serious change in the state’s wildfire policy ought to include an end to this root cause. But it’s one of many flaws embedded regulated utilities that operate on a business model that was drawn up nearly a century ago. Regulated utilities don’t have to compete for customers, and their rates and returns are set by the government that protects their monopolies within their exclusive service territories. They don’t have to worry about being punished by consumers because of poor performance and are managed like government bureaucracies.

What will likely be left out of any legislative compromise are reasonable efforts to better mitigate and prevent wildfires. The options range from thinning forests and dead timber and brush removal to “undergrounding” power lines.

Burying distribution lines underground whenever and wherever possible would be expensive, but the Free Cities Center’s John Seiler estimates that 3,405 miles of power lines could have been “undergrounded” for the same amount of money that has so far been wasted on the high-speed rail. That figure rises to 33,510 miles of underground line if we’re talking about the latest total completion cost of the HSR. 

The costs of mitigation efforts could be paid for from the state’s Greenhouse Gas Reduction Fund, which has poured more than $1 billion into expenditures, such as affordable housing, transit projects, and, yes, the high-speed rail, that will have no effect on the climate.  

Just how lawmakers will use the governor’s outline to write legislation is obviously unknown. But credit Newsom for attacking an issue that needs to be fixed. Californians now deserve a bipartisan effort from Sacramento that will balance victims’ needs with appropriate accountability for utilities.  

Kerry Jackson is the William Clement Fellow in California Reform at the Pacific Research Institute.