Senate Standing Committee on Energy, Utilities and Communications

Alright. Let's call this informational hearing to order. We are this is the the first of a marathon of Senate hearings on the SB 254 report. So, if you like what you see this morning, you have more to come. Insurance committee this afternoon, natural resources and water committee tomorrow.

All very exciting. Now, we know, of course, that California is experiencing devastating catastrophic wildfires. Senator Stern and I are no are are not new to that issue, unfortunately. Several have been ignited by electric utility infrastructure as everybody knows. The Camp Fire in Paradise 2018.

The 2017 Thomas Fire in Santa Barbara. Almost certainly the the recent Eden Fire. You know, we all have seen the impact that these fires have had on individuals and communities, the grief of losing loved ones, their homes, the touch points of their daily lives, local schools, coffee shops, grocery stores, the whole fabric of a community. And, we've seen the impacts of displacement that then last months and years after the news cycle have turned to other stories. Survivors struggle to rebuild their homes and lives.

And in my own home community, one of our local leaders just committed suicide, you know, over a year after the fires. And I I very much, you know, consider him a victim of those fires as well. So we've been working as a state to address all sorts of issues associated with this issue. Bolstering emergency response and firefighting, addressing fuels and natural landscapes. A lot of money just went out a few months ago from proposition four to assist with wildland management and healthier forests.

Of course, improving emergency response communications and protocols. We saw the devastating impact of a lack of decent protocols in, Altadena. Expanding property insurance coverage and trying to address the enormous gaps in insurance that have really harmed the recovery. And of course, the battles that people have been having with the insurance companies. Much of that will be discussed later today.

And then also an important part of SB 254 and some of our other work requires electric utilities to conduct wildfire mitigation to reduce the chance of electric utility equipment igniting fires and many other policies that we've been looking at here in this committee.

So, I know that it's no secret it's no not news to people here, but for the general public, after the terrible fires in, 1819, the state established the wildfire fund to serve as an additional insurance for wildfires ignited by electric IOU equipment with electric IOU shareholders and rate payers together contributing towards a $21,000,000,000 claims paying capacity at the fund.

Now the original idea of the fund that was going to operate for ten years while the IOUs invested in wildfire mitigation to reduce the risk of their wildfire mitigation to reduce the risk of their equipment igniting fires. Now with the catastrophic fires from last year, particularly the Eden Fire, The calculation on the durability of the wildfire fund changed. You know, tens of billions of dollars in liabilities which would wipe out the existing fund.

So last year's energy chair, Senator Becker ran SB 254 which authorized an extension of the wildfire fund for an additional ten years to 2045.

It also required a study by the wildfire fund administrator which is the California Earthquake Authority who's here. We're looking forward to hearing from them on addressing the liabilities and losses related to catastrophic events including IOU equipment ignited fires. So, this is a hearing this is the first as I mentioned of several hearings to better understand the proposed strategies and options that are outlined in the February report. Our charge in this committee today is focusing on the recommendations related to utilities, especially our electric utilities.

We've asked the California Earthquake Authority to spend focus time on those.

You know, of course, we've got rising costs associated with electricity service, the realities of wildfire risks in The States. So we're we're we're also, you know, one of the many challenges in our policy discussion is how do we socialize risks. Does that necessity revive, you know, revisiting aspects of of the economic regulation of electric IOUs? We've also we've invited the CPUC and the office of energy infrastructure and safety to join the hearing and present their recommendations for changes to the existing paradigm.

You know, we also of course are very interested in everything we can do to try to reduce risk in wildfire prevention and and we need the utilities to be not just partners but leaders in that effort given the enormous implications both human, social and economic associated with with these terrible fires.

This is an informational hearing. We don't have any presupposed outcomes today. You know, we know this is a complex challenge. It has implications for many areas including several outside the jurisdiction of this committee. But this is all about trying to help our process of better understanding the trade offs, what that would mean for wildfire survivors, for utility rate payers, for local governments, for utilities.

Also the implications for our legal system, for the insurance system, and everybody else. So let's begin. I wanna welcome the members who are here. We appreciate your presence. And our plan is to begin with our wildfire fund administrator, the California Earthquake Authority CEO, Tom Welsh, and also doctor Lori Johnson and mister Neil from Aon.

And also why don't you come up to the dias and, we'll give you the opportunity to give you presentations and then, we'll start with our robust discussion.

Do you wanna switch?

No. It's alright. I'll sit in the hole. Mister chair and and, senators, member of the committee, thank you very much, for inviting us to present on the SB 254 natural catastrophe resiliency study. This was an undertaking that we took, very, very seriously, and and worked, diligently on.

The chair has provided a lot of the background and context of, what gave rise to the study. So I'll touch very just briefly on and resonate, some elements of that. The wildfire fund, of course, grew out of and was a direct result of both the twenty seven eighteen wildfire season and PG and E's bankruptcy.

The downgrades of the investor owned utility companies in response to that And the recognition that, in the beginning of 2019, there was a genuine crisis regarding the stability of the investor owned utilities. AB 1054, was the solution.

And and that was a wide ranging, set of solutions you will hear from other people, during the course of this hearing who were involved in and and even had their, organizations created under, AB 1054, including the Office of Energy Infrastructure Safety. I wanna just highlight a brief note about the California Earthquake Authority. We were asked to undertake initially the administrator role on an interim basis.

And that was simply because, the passage of AB 1054 was an urgency measure, and it took effect immediately. It created a natural catastrophe insurance fund, as the chair mentioned, of 21,000,000,000 in claim paying capacity.

And yet, it had no money, no capital. But, the moment governor Newsom signed that bill on 07/12/2019 or '2019, the fund was on risk, and it needed to immediately get prepared. The state, surplus money investment fund loaned us an initial $2,000,000,000 to stand up the fund. And we had to set up our infrastructure very very quickly to be ready in just a matter of days to take on that money and get it reinvested prudently for the benefit of, the beneficiaries of the fund.

We were a standby ready, organization that was already managing a multi billion dollar natural catastrophe insurance fund.

So we were able to leverage all of our existing infrastructure on a in a way that was balanced between the interest of the wildfire fund and the interest of our California earthquake authority, residential policy holders in a way that that, ensured that neither fund subsidized the other. And then in early twenty twenty, the California Catastrophe Response Council, which is an oversight body created under AB 111, a companion bill with AB 1054, named us the the permanent administrator.

As the administrator, our focus has just been, principally on, non political prudent administration of the wildfire funds strictly within the statutory confines of AB 1054. So we stuck to our lane. We stuck to our knitting.

And we're very efficient and have historically been very efficient administrators of of the wildfire fund. The this a b or SB 254 opportunity to to facilitate the study that's in front of you today and will be the subject of conversation throughout this session, I think. Was essentially a six month interlude into very deep and challenging policy positions. SB 254 necessarily laid out a scope of topics that we were required to look at. Yes.

Thanks. I wasn't able to get it working. So we'll I'll I'll you should have copies of the slide. I'm not sure I'm able to get the the presentation back moving on on the live presentation. But the SB 254 codified as a set of topics that we were required to to look at and address necessarily because there are no simple solutions to this interconnected set of, of challenges, that the state faced.

And, the sense of the of the legislature and the governor was that you would all benefit from a disinterested analysis of, all of these topics in a way that looked at a whole of society, whole of government approach. And and did not exercise any any fear or favor with respect to bringing forward options and recommendations. And we think that we achieved that. What was important to us was the the process. A very inclusive process.

I will talk about the process. Doctor Johnson will lay out, an overview of of the strategic pathways and and options that we included in the report. And Andy Neal from Aon will talk about some of the larger state interventions. But with respect to the process, it was our immediate goal to be as inclusive as possible. The first thing we did within a couple of days of the bill being signed was sent out a call for stakeholder submissions.

And we sent it out and publicized it as Broadly as we could across the full array of stakeholders, and beyond the array of stakeholders that are specifically mentioned in SB 254. And, we were really gratified with the the vigorous responses and the really thoughtful responses that we got Because it it formed a baseline understanding of the the issues and and where we needed to focus our attention.

We got the e three unique responses from both in preliminary form and then in final form from 65 unique individuals and organizations across an array of sectors in the economy. And and in not just the economy, but among people who were interested in in the topic of, wildfires and utility caused wildfires in particular. We then set about, building a team of subject matter experts.

The California Earthquake Authority is a lean efficient operation. I have a 120 employees who execute our our $20,000,000,000 in claim paying capacity earthquake business and also admin do all the work necessary to administer the wildfire fund. So we're lean and we knew that we needed to tap into subject matter experts.

And the first person I hired was doctor Johnson who is an urban planner, but is a I would refer to, I guess, in baseball parlance as a utility player with broad subject matter expertise across an array of natural catastrophe spaces. And we then built a team and charged them with going out and interacting deeply with stakeholders.

Personal interviews, making sure that we could pick up all of the voices and all of the opinions and all of the recommendations so that we could synthesize those and carry those forward. We literally spent hundreds of hours with individual people who were interested in this space. You'll hear from Joy Chen from the the every fire risk Survivors. Survivors network. Thank you.

And, you know, that was it was really important to us at the outset to make sure that we got to hear those voices of survivors, local business people, community members who were impacted by that and not just stick to the the business interests that are also centered on the the subject matter, topics, that we were asked to study.

And those hundreds of hours of, input that we got were, very very important to our ability to to bring forward, a broad set of of recommendations, that hopefully will be helpful to the legislature as you think about the issues that that you face and that will come before you.

In the report, one of the things we elected to do was to recognize that among the spectrum of options that are available to the legislature is the choice, the option not to take any action to address the topics that were embedded in the scope of the report. So we added, we I asked the work stream leaders, to to reach out people and start talking about what their views were on the cost of doing nothing, the cost of inaction.

So there is a an entire section in the report that highlights what we believe are, the the potential costs of a decision not to act to preserve the status quo.

The bottom line of which, was that as we solicited input from stakeholders, the status quo was really is not working for anyone. It's not working well for survivors. It's not working well for communities that are impacted. Not working well for utility rate payers, policy holders, the insurance industry, and the utilities. So that we we tried to catalog and and organize that as a baseline from which you could look at and consider the options.

Before I I pivot over to, doctor Johnson to talk about the the strategic, the pathway strategies and options that are presented in the report. It's important to note that CA does not come here as an advocate for any particular outcome. We were asked for recommendations, but the scope of the study was so broad. And and it became apparent that there was so much inherent conflict built into these difficult topics. We did not think it was our place, to to put our thumb on any scales.

And so we really tried very hard to be balanced and and neutral, and candid in bringing forward the options that we thought were going to be ones that could be undertaken and considered by the legislature. And to go into more detail on what those pathways and options look like, I will pass it along to doctor Johnson.

Thank you, Tom. Yeah. So we we struggle to figure out how to organize these for you in a logical way. There are three policy pathways. The first one is is around maintaining our investments and mitigation.

As you mentioned, Chairman Allen, the state has done and, and it is continuing to commit a large amount of money in investing in landscape scale mitigation and utility mitigation in the regulations that we've put in place over the past few decades. And, and the execution of that and the investments the utilities themselves have made in in hardening their systems. So there are three. The first policy pathway is really focused on continuing that mitigation investment And where we feel there are areas to be strengthened.

I'll talk a little bit more about that as it relates to utilities. The second pathway is, around the second directive that that you gave us in the legislation, which is to responsibly and equitably allocate the burdens of catastrophes. So this is really how are

we paying for it? Who's paying for catastrophe So this is really how are we paying for it? Who's paying for catastrophe losses? What are we putting aside in terms of investments in advance? And and and, what what what do we have to pay and and react to after an event?

So the focus is really on strengthening the two major mechanisms that we use to socialize the burdens of the catastrophes, the insurance system and the utility system. And then the third pathway is really looking at more novel ways, looking around the world at how governments get involved in helping deal with catastrophes.

And so, we'll discuss, some of those ways in which the state could take a more active role as opposed to the systems alone and the policy holders or rate payers within those systems having the burdens of of the costs of catastrophes by themselves. There are nine strategies across those three policy pathways and 28 options. Next slide, please.

So in policy pathway one, as I mentioned, this is really focused on strengthening this the, with the work we're doing on mitigation in the state. There are three strategy areas. The third is focused on utilities. So I'll just speak specifically about that one. There are four policy options in that.

And as I mentioned, this is really about strengthening the investments we've made, particularly, since AB 1054 and, s, SB 901 were passed. Creating the infrastructure we have today in the Office of Energy Infrastructure Safety, the CPUC's involvement in in ensuring, regulatory oversight, the mandatory wildfire mitigation plans and the safety certification. So the four options within that. First look at setting a risk tolerance standard with binding application to electric utilities.

What this really is saying is, the investments have been made, over time are are, have had a large amount of value at the beginning.

We sort of captured the low hanging fruit of work that needed to be done. But as we move forward in time, the cost of continuing that scale of investments, is not not providing the same level of return on the investments. And this is something that is typical in in high hazard industries.

The nuclear industry, offshore oil, chemical processes, where there essentially is a a binding standard, a risk tolerance standard that is, that we are working to as, what is that residual risk we as society are willing to accept. And so we lay out some discussion around what that could look like and how CPUC could actually, work to develop that.

The second is preserving the safety certificate accountability. This is something that was set up with AB 1054. It relates to the wildfire fund. So if the fund is to sunset, we want to make sure that this is actually codified. And that is what that is laying out is just making sure the codification of all cert certif certificate conditions are established in law.

The third is a minimum statutory, statutory minimum safety weighting, both short term and long term for electric utility executive compensation. So this is taking that, to, giving that direction to OEIS, and the CPUC to actually, develop a statutory minimum floor for incentive programs, so that executive compensation is tied more directly to the safety of their systems. And the, and, and there's a consistent standard across all utilities. The fourth is a confidential reporting system with a statutory safe harbor protection. This is actually modeled after NASA.

This is the idea of having the the utilities themselves actually, confidentially report near misses, precursor events. Some of this reporting already happens, but it happens with the CPUC after an event. But this actually allows for more, robust dialogue. Has been very successful with the aviation industry over time. And it would also, the safe harbor would provide, shielding of good faith reports for use in civil litigation.

Strategy two is around reforming utility liability. There are three options discussed in the strategy. The first is around eliminating inverse comm denomination for both electric and gas utility cause wildfires. You asked us to look at both. We, we, suggest in here this policy option could apply to all utilities, electric and gas including POUs, IO, SMGAUs, and private transmissions, as well as the IOUs themselves.

This would require a constitutional amendment, as well as some companion legislation to eliminate the application of inverse, to utility cause wildfires. It would bring California in alignment with, all all the other states in their liability report approach. It would also transition to a negligence standard. So it would not relieve the utilities of all liability. It would just basically bring that under, the tort principles of proof of duty, breach, causation, and damages.

So, you, insurance companies, fire survivors would still be able to assert claims through the, fault based system requiring proof of negligence. The second is to modify the damages for which electric and gas utilities are liable outside of inverse. So a package of liability reforms is discussed in this option. They include, things on capping non economic damages, providing a diminution in value standard for vegetation. Setting some addi- parameters around additional living expense, and a few others.

Those were then used when we modeled actually the costs of the wildfire fund or other kinds of of of state interventions to cover wildfire related losses. And I'll I'll turn that over to to Andy Neal to discuss. But one last one also is the elimination of insurance subrogation. As discussed and as shown in CPUC rate filings, this is a substantial about one third cost of utility cause wildfires.

And so we lay out the, pros and cons of doing that and what the impacts would be on the industry.

The, last strategy I want

When you say the industry, you mean?

I'm sorry. The insurance industry. , okay. Yes. Sorry. It would help stabilize. It would have It would reduce the legal costs incurred both by insurers and utilities. And resolving claims helps stabilize utility credit ratings, moderate rate payer impacts, but also would have negative impacts on policy holders and the and the insurance companies for absorbing those costs. Lastly, there is, a We heard very strongly from survivors that, the time it takes to receive compensation through the system right now established with wildfire fund is very long.

It gets about an average of four years to resolve claims.

And, so it there is an option in there to create a fast pay facility for survivors. This would be something operated by a publicly governed entity to ensure trust so that you don't have to create and stand up a program after each fire, which is what PG and E has done and now Edison is doing. But rather would codify and set up those regulations, and have that facility there at any point when a fire is caused. And now for ops strategy 2.4, I'll turn it over to Andy Neal.

Alright. Thank you, Laurie. And thank you to the committee and Chairman Allen for the opportunity to share information about the option development, the modeling and analysis that we performed to support the SB 254 study as the financing catastrophes work stream. As the name implies, our work stream focused on considering design options for how to fund losses for catastrophic wildfires across stakeholders. And on providing a consistent framework for evaluating how those options are financed.

We did not seek, as Tom mentioned, to favor one option over another, rather to compare and contrast options as objectively as possible. As an actuary, I deal with numbers. I'm about to talk you through a lot of numbers. I want to say that underneath these numbers are real people, are disaster survivors. I used to be a FEMA employee, very familiar with, and my heart goes out to all the survivors both now and in the future that these numbers represent.

So although it may seem like as an x-ray, I'm being cold and calculated, that's by no means the intent. So picking up where Laurie left off, under pathway two, we considered options on making a wildfire fund more durable and more permanent by increasing the capital used by increasing capital and perhaps using risk transfer under option two point four point one, by diversifying funding sources under option two point four point two, or by implementing liability reforms under option two point four point three.

And so now on this slide, you're gonna see a lot of numbers and a lot of graphs. I'm gonna walk you through a little bit. But let me start by saying that, I wanna give a little bit of context.

Wildfires and the losses and liabilities that result from those wildfires are highly variable. Our analysis is intended to provide understanding in two areas for each of the options. First, we want to provide an order of magnitude about how much capital and or funding is needed for an option to be durable over time. Whether as an initial capitalization or as an ongoing cost. Does it require a billion dollars?

$10,000,000,000? Tens of billions of dollars? While the report provides estimates that appear to have a degree of precision. So for example, on the left hand side of the page, the more durable wildfire fund requires an initial capitalization of $36,000,000,000 That precision is not intended to be an exact amount of funding. That precision is intended to allow for comparability of options.

To allow the policy maker to understand directionally the difference between options and the degree to which they are more similar or dissimilar. The second thing we wanted to illustrate is to show the range of outcomes possible under each option. Once again, the size and frequency of wildfires are highly variable, and the analysis model thousands of multi year scenarios to show how the fund could perform over time.

The durability metric we chose to use for the study for comparability is that the fund should be 75% should have a 75% probability of being solvent over twenty years. That means over twenty years, the worst thing that's gonna happen to you is you're gonna get to 075% of the time.

But the analysis also shows the range of outcomes to illustrate the degree to which that funding may be insufficient and require yet more funding. Now I'm gonna turn to the analysis that you have in front of you. First, consider the capital required. A more durable wildfire fund would require $36,000,000,000 much more than the original AB 1054 fund.

If this were funded by utility by utility rate payers, the monthly cost would add $8.50 to the current $2.50 for a total of $11 per month on average.

Now as we go through these examples and I talk about those utility average utility costs, the purpose of that is not to say, oh, do we tack on this amount or that amount? But rather to be able to translate a big number like $36,000,000,000 onto what it might mean for a typical household in California. It is absolutely an inadequate measure. All of these are inadequate measures, but they're there to allow for comparability.

The graph shows that even with greater funding, there's still the possibility of needing to recapitalize the fund before the end of twenty years.

If you follow some of those lines, there's a lot of lines and graphs. I'm not gonna talk through them all here, but those lower two lines intersect the red line. That means that before you get to the end of twenty years, you've hit zero and you may need to recapitalize. An additional thirty six billion dollars could be needed if you wanted to make yourself durable again.

That would add another $8.50 if you want to fully recapitalize bringing if that eventuality occurs $19.50 and so forth and so on.

Now risk transfer can greatly reduce the initial capitalization costs. Instead of 36,000,000,000, not shown in this slide but in the report, you'd only need $11,000,000,000 of capital instead of 36. But you're gonna pay a premium for that risk transfer. 3 to $4,000,000,000 a year. That translates to $2.50 for the $11,000,000,000 that's not so bad.

But then an additional $9.75 for the risk transfer for a total of including the current $2.50. So $2.50 plus two dollars and fifty cents plus $9.75 is $14.75. But it evens out and makes it so you don't hit those sudden jerk recapitalization needs. Option two point four point three on the right hand side of the page is there to illustrate how liability reforms change capital requirements. The liability reforms shown reduce the requirements from $36,000,000,000 to $29,000,000,000 which does reduce the total capitalization need.

It could be funded through a $7 a month surcharge instead of the $8.50. There's a little bit of an apple and orange between some of the numbers on the left hand side and the right hand side. I wanna acknowledge that. So the $7 surcharge on the right hand side is comparable to the $8.50 on the left hand side. Next slide, please.

Now for the state roles for addressing catastrophic funding, California has created several entities to help manage disaster risk, including the CEA, the wildfire fund, the FAIR plan. Other states and countries have established state sponsored mechanisms to address natural catastrophe risk, including FAIR plans and wind wind pools around The US. Federal approaches to flood and terrorism and natural catastrophe financing approaches are also executed in other countries.

But among all these examples, California's unique in needing to address the tail risk of electric utility liability for wildfires caused by their equipment or operations. Introducing a revised role for the state of California could enable expansion of broader cost sharing and scaling of catastrophic risk.

By pooling risk across a wide base of policyholders, taxpayers, or regions, the state can spread the financial impact of low probability, high severity wide wildfires and address gaps in current recovery protection systems. A state sponsored mechanism can be designed to complement rather than replace private insurance and existing catastrophe risk financing programs. First, the study considers the role of the state in financing the catastrophe risk, With two options focused on addressing utility liabilities, and two options focused on insurance markets in addition to utility liability.

Second, we consider state roles in financing community wildfire mitigation. So next slide.

I will quickly walk through the study's four options for the state to finance catastrophe risk for utilities insurers. This isn't gonna be able to do real, justice to these options because they're very complex, but I will give an overview of each one. Option three point one point one contemplates establishing a state insurer for electric utility payments. As seen in the more durable wildfire fund analysis, utilities are exposed to a large capital requirement with both uncertain timing and size.

The state program would allow the utilities to pay known premiums and the straight state would address that volatility through bonding, loans, and other measures to spread the risk over time that is incurred by the live by the utilities.

Option three point one point two would establish a state backstop for utility liability. Not only perhaps for the three IOUs and also the previous option could also be for other utilities, the POUs, the S and JUs. The backstop would cap the amount of losses utilities are responsible for to a specified limit, and then the state would cover losses, not necessary for negligence or imprudence, but those those losses that that they occur under, under strict liability. The state would then cover those losses above that limit.

And rather than pre funding losses which requires lots and lots of capital, the state could spread the costs when and if they occur through using a temporary sales tax or other broad based assessments, after an event occurs.

Next slide. Option three point one point three seeks to address the availability of insurance in high risk areas by allowing for insurers to write high risk policies without bearing the full brunt of the risk by sharing the risk with state sponsored reinsurers. Option three point one point four removes wildfire risk from private insurance policies and create a state sponsored insurer. The state would provide consistent coverage in high and low risk areas alike.

The state insurer would waive subrogation rights for utilities caused by wildfires, thereby reducing the utility exposure.

Currently, the state's insured wildfire risk is well diversified by private insurance companies. This option would concentrate the state's wildfire risk requiring potential increases in policyholder premiums and also significant capital or post event assessments that are detailed more in our report. Finally, while not on this slide, I will close with three point two point one, a statewide funding for community wildfire mitigation.

I wanna highlight it even though it's not necessarily the utility, jurisdiction, but by creating a more coordinated statewide program for targeted household and community mitigation, not just the utility mitigation that's been taking place. California can accelerate statewide mitigation and maximize, bending the curve of wildfire risk.

Through this statewide coordination and targeting to prioritize mitigation to the highest risk communities that are most prone to conflagration risk, the risk reduction achieved can be more than double the risk reduction for an uncoordinated approach. Targeting mitigation can decrease funding requirements of a more durable wildfire fund from $36,000,000,000 to less than $24,000,000,000 Assuming mitigation can decrease risk in California by 50, addressing only the 10% highest risk communities and properties, you can reduce 20% of the total risk with targeted mitigation. And now with that, I'll turn it back to Tom to close this out.

So not not mentioned, in the slides but absolutely covered in the report is is also a consideration of the incentives that are created around each of these options. As I said, we were not attempting to act as an advocate or or to to get really strong recommendations about which of these very challenging solutions may be appealing and and doable here in the legislature.

But we did undertake in the study and there's a lot of narrative around the fact that each solution potentially has a different set of trade offs and incentives. We did focus on that as as part of the report analytics.

Because creating, you know, choosing to do big things necessarily requires you to to think about what incentives you're creating, that will drive us to be, more resilient over the long term across, the entire state. With that, you know, it we have delivered the report and are happy to answer any questions that you have about the the kind of Meaty and and challenging set of options that

are Thank you, mister Welch. Our plan is to have PUC come and present and also OEIS and then we'll have a full panel discussion with all the members if that works. So let's invite CBC Chief Deputy executive director Forrest Keiser, who's here to present and that will be followed by You guys can stay. Yeah. Yeah. Stay stay safe. We're going to have everybody.

Yeah. It's going to be a fun adventure. So let's start with with with Forrest and and then we'll go to Tony from the OEIS. Great.

Good morning, chair. .Good morning Chair Allen and members of the committee.

My name is Forest Kaser and I serve as Chief Deputy of the California Public Utilities Commission. I'm grateful for the opportunity to share information about the CPUC's role in the development of the report that you've just heard so much about. SB 254 required CEA to consult with several state agencies including CPUC as part of its process to develop the report that is the subject of this hearing.

Governor Newsom then reinforced that directive on 09/30/2025 with executive order N3425 which explicitly directed and requested robust participation in the development of the report from several different state agencies and departments including the CPUC. And this was all part of a whole of government response to the emerging economic disruption posed by the climate crisis.

So in response to the statutory direction in SB 254 and Governor Newsom's executive order, CPUC filed a short paper with CEA on 01/30/2026 for CEA to consider as it worked towards the April 2026, report deadline.

As the regulator responsible for reviewing wildfire costs, approving the rates that Californians pay for electricity, and enforcing infrastructure safety rules, our report was intended to reflect CPUC's specific regulatory perspective, which is that the overall regulatory framework for managing safety and wildfire risk has strengthened, but the cost burden on rate payers has become unsustainable. On safety, the wildfire mitigation plan process is working.

California utilities have significantly matured in their awareness and understanding of the risks on their system, and have developed increasingly sophisticated and effective ways of reducing that risk. Ignition risk has declined as a result.

On cost, SB 254 does include measures that strengthen the review of utility wildfire investment costs. But affordability remains in a serious concern. Wildfire mitigation and liability costs authorized for rate payer recovery totaled approximately $40,000,000,000 between 2019 and 2024. Rate payers paid over $9,000,000,000 in 2024 alone. More than double CAL FIRE's combined annual budget and more than the Federal Government spends on wildfire management nationwide.

This is the core concern underlying the observations and recommendations in the paper CPUC submitted to CEA. The state's current approach to wildfire liability and mitigation costs is placing an unsustainable burden on utilities and rate payers. Driving electricity bills higher in ways that threaten affordability and California's clean energy goals. Another way of putting this, the energy affordability problem in California is to a very large extent a wildfire cost problem.

Now I'm going to shift gears and talk a little bit about the relationship between CPUC's short paper and the larger CEA report.

We appreciated the opportunity to contribute our perspective for consideration alongside the other named state agencies. We defer to CEA on questions specific to the report's methodology and findings. That said, we do see meaningful alignment between the recommendations CPUC submitted for consideration and where the final report landed. I'll highlight three areas in particular. The first recommendation in CPUC's paper was to broaden the state's current approach to paying for wildfire recovery.

We laid out several principles and ideas to enable all wildfire victims to have fair access to compensation regardless of how the fire was started. While continuing to hold utilities accountable and facilitating the state's ability to meet other critical shared policy goals including clean energy goals. The final reports pathway two on equitably allocating catastrophe burdens reflects similar principles and explores some of the same potential solutions in much greater detail.

The second recommendation in CP's report was that wildfire mitigation should shared more broadly across utilities, local governments, land managers, and property owners. And not concentrated on investor owned, utility rate payers alone.

And CEA's final report, pathway one on community wildfire risk reduction makes the same case. Again, which month with with much greater depth and detail. CPC's third recommendation was that the state explore general fund revenues, cap and invest proceeds, and other non rate payer sources to fund a portion of utility wildfire mitigation. The final reports pathway three on state roles in financing catastrophe risk reflects that direction. Again, in much greater detail.

So in closing, I'd like to reiterate that CPUC is grateful for the opportunity to share our perspective as the regulator responsible for reviewing wildfire costs, approving electric utility rates, and enforcing safety rules. In a nutshell, the energy affordability problem is to a large extent a wildfire cost problem. If we address wildfire costs, we go a long way towards solving energy affordability too. We look forward to working with the legislature, CEA, OIS, Cal Fire and other partners as this work moves forward and policy direction takes shape.

The commission stands ready to provide any additional information that would be helpful to the committee as it continues its work.

Thank you and I'll pass it to my colleague, Tony Marina from the Office of Energy Infrastructure Safety.

Thank you, mister chair, madam vice chair, and members. I have a couple slides. They're mostly just to demonstrate like who we are and how we work. And then I'll go into the recommendations. I wanna thank, all of you for, all their continuing ongoing support for this type of work.

And definitely thank Senator Becker and other members, for your work on SB 254. There are several provisions related to energy safety that we're implementing right now. Energy safety, was created by Assembly bills ten fifty four and one eleven in response to the tragic fires of twenty seventeen and eighteen. Energy safety's job since our establishment 2021 has been to drive California's investor owned utilities and transmission owners to both better understand their risks of catastrophic wildfire and to take meaningful action to reduce that risk.

Energy safety's primary mechanism for doing so is the wildfire mitigation plan.

The IOU submit these plans. We review and evaluate them to make sure that the utilities are consistently demonstrating improvement and understanding their risk and mitigating those risks. Upon upon planner removal, we also ensure that the utilities are implementing those plans through our performance oversight process. This includes field inspections, audits, and independent evaluation by a third party. And, our own, annual report of the utility's performance.

As part of this process, last year we conducted field inspections of about 5,000 poles and 20,000 trees. AB 1054's great advance was in tying these forward looking accountability measures to the wildfire fund. And so our recommendations aim to build on the statutory framework of forward looking accountability. And we're not talking about forward looking accountability. Basically, it is, you know, once a disaster happens, it's too late.

Really, we need to hold people accountable for what their actions to taking they're taking to prevent the disaster. So we have seven seven recommendations. But in the interest of time, I'll highlight the two that might be of most interest. Our second recommendation is on safety reporting and information sharing. So Wilbur Wright of the Wright brothers once said that carelessness and overconfidence is more dangerous than deliberately accepted risk.

He also deliberately accepted his brother flying the plane first, in case you were wondering. The utility's biggest risk is not those that they have identified and are mitigating. It's those that they have not yet identified. And so the best tool that we have to find out those unknowns is the effective sharing of safety information. And there are three components to this.

One is employee reporting systems. So workers see the problems before those problems escalate into disasters. While all of the IOUs have programs to have their employees report safety issues to them, they're all at different stages of getting them to work effectively. Component two is information sharing across utilities. In our wildfire mitigation plan review, we find that the utilities generally do a pretty good job from learning from their mistakes.

Not as much from learning from each other's mistakes though. And then three is public trust. So the public and regulators need confidence that this whole system is working. And again, successful safety reporting systems really do depend on that trust. Employees need to trust that they won't face negative repercussions from reporting safety issues.

And utilities need the confidence that sharing their experiences, including their failures, is a better option than locking those, you know, lessons down and hoping they don't come out in discovery later. So energy safety, the PUC, and partners at utility commissions across the West have been working to implement components of this recommendation. The second one I'll present is our third recommendation exec related to executive compensation. So energy compensation. So energy safety doesn't set compensation values and rates.

We look at the structure. And we look at the structure to essentially ensure that there's safety, there's financial stability in the three components. Three components are base salary. So what most people get for their job. Second one is annual bonuses.

So the short term compensation. And the third is the long term, compensation which is generally over three years. So executive incentive compensation executive compensation can really align management incentives with those of shareholders, bondholders, workers, rate payers, and the public. You know, one of the things that brings all these groups together is safety. The current framework however, allows for relatively low safety weightings across the whole compensation package.

As IOUs are really only required to provide those safety elements in the short term plans. And those are often only 20% of the compensation package. Long term incentive components are usually about 60% of the package. And those are tied to generally to stock performance. PG and E is the only one of the three large IOUs that has safety measures in its long term incentives.

And given this clear alignment of safety with all of the parties involved, we believe there's room to, make this important component of the forward looking accountability even stronger. So I've highlighted two of our second rec seven recommendations, but I would happy to, of course, elaborate on any of the other ones and happy to answer any questions you may

have. Alright. Alright. Thank you. Thank you all for your presentations and all the work that went behind them.

Can I ask one clarifying question real quick?

Yeah, please.

The last part that you've shared right now, the long term safety component incentive. Just expand on that just a little bit, please.

Okay. So, compensation plans for most people are just salary. Right? But for executives at, you know, major US companies, there's three components. There's a base salary, which is usually about 20% at the highest level.

It's a short term annual bonus structure, which often has various different performance elements. And then there is a longer term structure which is generally generally defined as, measuring performance over a period of three or more years. And that is, you know, 60% of the compensation at the highest levels. The measures that are usually used for that are stock performance. And that's kind of just the way kind of the American corporate world works.

And some of them are restricted to certain performance levels and some of them are just kind of stock at best at later times.

Okay. Thank you. Thank you.

Okay. Mister chair.

Alright. Let's take this opportunity to open up the floor for questions and discussions. Remember folks we have on this panel and then afterwards we'll have a stakeholders discussion. But this is a great opportunity for us to talk to the folks who are at the heart of the report. So we'll start with Senator Stern.

Thanks. Thank you, mister chair. I'm honored to join this hearing today both as member of this committee and chair of emergency management as we endeavor on the grueling task ahead. I'm honored to have our budget subcommittee chairs as well as chair of Senate natural resources and other members. I think it's a testament to the Senate's and the Senate president's seriousness about these issues that we're we're gonna dig deep.

So I appreciate you making this initial convening into the CEA and and the other agencies engaged here. The diligence is much appreciated. Lot of important numbers and concepts to wrestle with. It's also super personal. Right?

So it's hard. And as somebody who's gone through this stuff and walked through the ashes of my neighborhood and my own house and just felt that sting and doesn't really go away, when you go home, it's like doesn't feel like it's home anymore, you know. It's it was hard to it's always hard. And the crazy thing for me at least growing up in Malibu, which is a pretty charmed life to get to live, except when it's not.

And that's the strange thing about it is there's such plenty and yet there's such danger.

And I sort that's how I come to this whole conversation just as somebody who yeah. Seeing two neighborhoods, first in Woolsey and up behind my old high school and then next in this most recent one, we had moved out and Big Rock is gone now. And, you know, it's strange that when you look over the hills of those canes, you see those power lines and you're like, how did they get that here? It's amazing.

It's in all those other parts of the year, my power's on and it's perfect.

And it feels like magic because you're in the hills and yet someone engineered this this feat to get it to you. And I actually pay the same rate to the people who live by the power plant, like, next door to it. I I literally pay the exact same rate on my utility bill and I always wrestled with that. It's like what why did I deserve to have that risk insulated from me?

And why even at that time, you know, growing up there, the my insurance bills weren't that much higher than other people's insurance bills who didn't live in those areas because they were writing policies very differently.

And we got to sort of enjoy the yeah, enjoy a life sort of insulated from all that risk with such plenty. Again, it's Malibu. I don't need to I don't need to overstate what that place is and how special it is and how privileged I was to get to live there. So I just I I yeah. I'm trying to fig get my head around some of the solutions here.

I know we sort of talked about a lot of a lot of detail on the solution side. The piece I I missed or I I'd like a little more on is the cost of the cost of the status quo side.

So we sort of talked about how to recapitalize or things like that, but there are some startling conclusions that I've I've read in these reports that seem to I just want to hear this sort of broader, I guess, economic or rate impacts of of sort of keeping things as they are as the status quo goes and what rate payers as a whole could could shoulder here more.

I was looking back at the numbers for the high fire threat areas and just how much of the costs we generate in our communities for the rest of the rate base. And so when when you're thinking about what the future could look like for what more is everyone not in the fire zone is gonna have to pay to make sure that people like my folks, pay the same rate that they do.

What what happens if the fund isn't capitalized sufficiently? There's a there's a final clause in the PUC report says, maybe you could comment, mister Kayser. Absent a continuously well capitalized fund, whether California's electric utilities could remain credit worthy is unclear. Could you, expound upon that point, the broader financial risk to the system and perhaps, is that just a utility issue at that point or does that become a broader economy issue? And maybe if the CEA's comment there as well.

Yeah. I was gonna say, that was aligned in our report and I will say that, you know, just thinking about the fundamental role that electric utilities play in the functioning of the economy and the economy of any, you know, modern, you know, state or country. Certainly, the threats to the the viability of those corporations and publicly owned utilities. You know, they're they're a load bearing part of the economy.

So I think it it raises a lot of concerns when you see those challenges and risks being faced by those companies.

I know that the the CEA team did a lot of more detailed modeling on durability and the total dollar amounts that are at stake here. So defer to them for the details on those.

Thank you, Senator. Our condolences to you and the rest of the survivors, that have been unfortunate enough to experience what you've experienced in your communities.

I'm going to start to answer your question by going back to 2019 when AB 1054 was passed and the wildfire fund was created. We had a genuine crisis there that was imperiling the state's ability to keep power on for the entire state.

That was the existential crisis that was faced. We've never tested, we mentioned in the report, we've never tested the notion of having utility companies operate under the supervision of a federal bankruptcy judge.

Which was the situation in 2019, AB 1054, one of its achievements was getting that PG and E out of bankruptcy back to where it could be regulated here without a federal bankruptcy court overlay.

As it went into bankruptcy, not fully detailed here in the report but there were questions about the ability of PG and E to continue to honor its power purchase contracts.

So there was work behind the scenes, that was done in cooperation with the bankruptcy court to keep PG and E running in that immediate aftermath and just before its bankruptcy filing.

That uncertainty then rippled out across, the other investor owned utilities in the form of being subjected to the potential of very severe rating downgrades and simply a rating downgrade to junk bond status could have precipitated bankruptcy filings by the other two.

I don't want to speculate about how that could have been worked out without a bankruptcy but debt holders always have covenants that say that, if your ratings drop to a certain point, that can result in a call on all of your outstanding debt.

So it could have been a liquidity crisis. That was the atmospherics that existed when the wildfire fund was created and the other solutions that emerged from AB 1054 were enacted. The ultimate answer to your question is we now have a wildfire fund, the original wildfire fund, which still has about $22,000,000,000 worth of claim paying capacity.

Because that claim paying capacity has grown over the years, through investment earnings and prudent investment returns but it now has to respond to the Eaton fire. The total magnitude of which may exceed the total claim paying capacity of the original fund.

That's why in in Senator Becker's SB 254, you created the continuation account. The important element of the continuation account and the reason why the study asked us to focus on durability, is that the original wildfire fund is funded 50% from the stockholders of the three utility companies.

Then 50% comes from non by-passable rate payer surcharges that we all pay on our electricity bills and the original fund is collecting non by-passable charges through the end of 2035 to go back and make sure that we have all the liquidity that we need.

We can borrow against that revenue to bring liquidity in but that revenue stream all the way through 2035 is now essentially spoken for, in the first wildfire fund. The continuation account capitalizes another up to $18,000,000,000.

Whether or not we will ever get to $18,000,000,000 will depend on the timing of a wildfire necessary, to fund recovery for survivors. That has the same fifty, fifty split between stockholders and rate payers.

The non by-passable surcharges though, go from 2035 to 2045. There's another ten years. So the structure and the challenge about the durability of the wildfire fund as a risk bearing mechanism to create liquidity, create claim paying capacity, emerges from the fact that we are borrowing against the future.

That's why Senator Becker's bill asked us to study the associate and to look at whether there are more durable solutions and so we we made eye contact with that and we looked at those solutions and we put them forward in the report.

It is to Senator Stern's point a potential existential problem, if we don't have stable utility companies that can meet not just affordability but long range carbon reduction goals and clean energy goals.

Do you think this is just a IOU issue? Or do you see broader risk in the public sector as well, In the POUs?

It exists, I think across the utility spectrum. The liability of the utilities, as we mentioned in the report, emanates from our constitution. Which says that if you damage public property or you damage or take private property for a public use, like distributing energy across the state, you have to pay just compensation for that.

So it's a constitutional principle that applies not just to the investor owned utilities but to public utilities as well. At the risk of oversimplifying, public utilities are are taxpayer owned.

SMUD LA, Department of Water and Power, is an integrated part of the city. The real concern in LA could have been, if Palisades had been ignited by LA DWP. That could have imperiled the city's solvency. So I think it cuts across all utilities because the liability emanates from our constitution.

What I want to defer to the other members so we can get a good robust conversation going. Just maybe something to contemplate here. One of the solutions you put forward and I forget if it's two point four point one. I don't know if you're following along. The more durable wildfire fund with risk transfer.

There's sort of this presumption that the only tool you've got is non by-passable surcharges and that's sort of the only way to within the rate base at least deal with these issues because that's sort of the structure we've leaned on but there are other risk adjusted ways I would imagine you could do that. Right?

I mean there are many other sources as well and we're going to talk about all of them. You guys threw out a bunch of them. There's also the liability reform issues. I think some are not going to fly but I think there's some interesting points made.

I guess just on this piece since we're in energy here, this non by-passable charge, could it in theory focus on high fire threat areas and get to the same sort of end number. When you're doing your modeling at Aon, you're trying to get to an end number. Right?

You're you're not necessarily trying to figure out how you got to that number. You're modeling, okay, we accumulated this much from the rate base. So in theory, if you got that from a different mechanism through through the rate base, it could arrive at the same result. Is that fair?

Right, as you opened, you talked about your own personal experience. One of the things that we struggled with is we did our analysis is recognizing that wildfires are and you've experienced this, they are cruel and they are uncaring. So they happen and then losses occur and then people are left to figure out what do I do now.

Right? So when that happens, we set about to say first of all, what we wanted to measure the cruelty of the wildfire. How big can these wildfires be? What kind of losses do they create? Not only from a property damage standpoint but from other liabilities that are incurred.

When we use the word liability, it's not just a legal construct. It's people having to leave their homes. It's pain and suffering. It's other costs that people really incur and so we wanted to measure the cruelty of that so that we could give you an understanding of what it takes to apportion those costs out.

As you go to compensate people for the losses that they've had, whether they are insured or uninsured, what's covered by insurance, what's not, what is falls under a legal kind of recourse that someone has.

In every decision that you'd make about how to apportion that cruelty, you're having to say you are going to pay and you're not going to pay and you're going to have to come up with that on your own or there's someone there to help you with that.

With that, we found that at least at this stage as the dialogue is beginning, it's the right thing for us to do to first measure it and to lay out options for how that could be compensated. I would say in the final report that you've seen, the translation of that to non by-passable surcharges, is intended like I said for comparability.

It's by no means intended to say that that is the right option. We have option two point four point two I believe that it's brief in the report that discusses there are a lot of other people that could contribute to this liability.

Within that there are some that almost many stakeholders suggested this group could pay, that group could pay, these monies could come but then you talk to other stakeholders about it and they say never could they pay.

So rather than try to, as Tom mentioned, untangle that and say, this is how we believe it's best apportioned between these people and those people.

We actually, respectfully and humbly give that to you to help determine how to allocate those costs.

Oh dear. Alright. Every member has questions. So we're going to start with Caballero, go to Richardson, Becker, McNerney, Reyes, Rooio. Let's start with you, Anna.

Thank you very much, mister chair. I actually don't have a question. I really appreciate, the panel and the I think the last statement, the conundrum, it's okay. Here it is. Put it on your lap.

I want to riff a little bit off of something that my colleague said and recognize that he's been burned out twice and that is a tragedy all in itself but it also, I think, puts a real spotlight on some of the challenges that we face and let me just say that I'm interested in prevention because in the end, it costs us all more money.

However you parse it out. I think you made a really good point about the risk that, doesn't get passed on in high risky areas.

So part of the challenge is, I visited an area in Southern California, Orange County, where they had a massive fire come through and they've repaired the homes that were burnt and they're planning another three or 400 homes in the same area. In a high fire risk area.

Despite the objections of the homeowners in the area that said we didn't have enough egress and ingress to begin with and now you're putting more hundreds of more homes. This is not safe.

So there has to be some local government skin in the game and I don't know what that looks like quite frankly but what used to be a downgraded fire risk area has now become because of climate change has become a high risk area.

I think we need to go back and take a look at that and figure out how we built in areas that maybe shouldn't have been built in or if we're going to build there that the residents assume the higher risk so that we're not spreading the risk out to everyone.

I say that because we've adopted this model in climate change that everybody should pay a little bit so that we can share the risk but in poor communities, it's incredibly difficult. As an example in the Central Valley, which is where I represent, people are paying 5 to $700 a month in energy costs and there's no relief.

Bringing in solar doesn't give them any discount in their neighborhood and it is obviously a really good thing to do in California but there should be some benefits to people who live in the area that have to look at it in place of agricultural land.

So I think there's there's an issue of building local government responsibility and then, I really do think that the residents are going to have to assume some responsibility for home hardening because there's some fairly cost effective ways.

I mean, I you take a look at at some of the fires we've seen, nothing was going to save those homes. I mean, that's just the bottom line but there is home hardening that needs to happen.

I guess what I'm interested in is, this risk on our tally sheet, lack of affordable housing, homeless population, wildfire risk, flooding risks. All of that affects our bond rating when we go to the market and we've got these great bonds that for affordable housing, for park space, for climate change and it makes our our financing more expensive.

So if we don't come up with some solutions, it's got a much broader picture, on Wall Street than, than and I don't mean to, as you said, not look at the human cost because the human cost is just horrible, horrific.

I had family that was burned out in the paradise fire and they never went back. They sold because they just couldn't afford it quite frankly. Blue collar workers. So I think we're going to have to figure out how to solve the issue without burdening rate payers and I venture in terms of my district, it's all on the valley floor. We don't have wildfire risks.

It's in agriculture right now but they're paying for it, either because the energy is so high or because their insurance rates have gone up, regardless of the fact that they don't live in a high fire zone.

So I don't have a solution for it but I just want to be able to put a finer point on what you were talking about, Senator, is that this really does have a cost for everybody.

It's a question of how do we deal with this and not put the burden on people who can least afford it.

All that talk about our bond ratings makes you think you're interested in treasure or something like that. Alright. Let's go to, let's go to Senator Richardson.

Thank you, Mr. Chairman. I wanna first take a moment to applaud Senator Becker on his leadership with this bill. Had we not had people who were strong and visionary to say we need to look at the bigger picture. I was just somewhere earlier this morning and said one of my biggest frustrations as a Senator is I don't feel we're looking at the bigger picture. I don't think we're really answering the questions.

What's happening? Why is it happening? And what do we do before we start doing all these wonderful bills that oftentimes are not consistent, work separate from one another, end up being hurtful. So I wanna thank you, Senator, for the stand that you took of bringing this forward. And for those of you who took the charge seriously, timely, and gave us really good information.

This is not something we get every day, unfortunately. So I want to say thank you for the leadership that you took to do this. Because now at least we can have that discussion and now it's on us, frankly. You know, you passed us the football and now we gotta punt or throw or run or do something. But we can't just not do anything.

And so I wanna thank both of you. I have not had the opportunity, sir, with the CEA to talk to you. So I'm gonna ask you three very brief questions and then I'll give my final comments. And, you know, a lot of people historically have not been around to answer to know these answers. When was the CEA founded?

Why was it founded? And how many homeowners today are utilizing, you know, and are being insured through your way? And the reason why I'm asking these questions because I think it's, frankly, potentially where we're going again.

And it would be helpful to kinda know, look back a little circumspect of how the whole earthquake situation happened and what we did as a state to begin to address it. But if you could be very brief because those are really questions for the gentlelady from Baldwin Park in the Insurance Committee. But I'm gonna take advantage of you being here.

I'm happy to answer the question. Thank you for the question. CEA was created in the mid 1990s following the 94 Northridge earthquake. We think about it as an earthquake driven creation. But really, it was created to resettle and resolve an insurance availability crisis and a real estate crisis.

When the insurance companies in California write homeowners business, they're obligated to offer earthquake business. They were doing that up to 94. And they didn't understand the magnitude, the potential economic loss of an earthquake in a heavily residential area like Northridge.

And so they stopped writing insurance and that made it impossible to get a mortgage or to buy a house. So it was a real estate crisis, a mortgage crisis, an insurance crisis, not just an earthquake crisis. And the legislature acted to solve that by creating CEA to allow insurance companies to sell homeowners insurance, resume selling homeowners insurance, but then they offered our earthquake policy.

And any it's voluntary products. Any or any homeowner that wants protection against earthquake that buys homeowners insurance from our 21 participating insurers can get our policy. We have about a million customers across the state. And that's a very small percentage of homes that are exposed to earthquake.

Approximately how many homes are there?

I would say maybe within the IOU territories, it's about 11 million homes. The we our market share is in around an average about 10% of the market in California. More concentrated in high hazard areas, high seismic risk areas, and lower in places that have have less seismic risk.

And are you solvent?

Absolutely. We have a very strong claim paying capacity. We've got, we can pay up to $20 billion worth of losses under our policies through our investment capital as well as reinsurance that we buy. And then we have a small layer of risk transfer to our participating insurers through assessments. And so we can, we measure our claim paying capacity based on the potential magnitude and probability of an earthquake.

So we can cover off on and easily pay all the claims that that we would get from our policy holder if there was a recurrence of, say, the 1906 San Francisco earthquake, the largest urban earthquake in the state of California. We could cover off on one or two, well, two Northridge sized earthquakes.

So we have a lot of solvency and a lot of claim paying capacity to meet the need when it happens. Our claim paying capacity minimum is set by our governing board, which is the Governor, the Treasurer, the Insurance Commissioner. And then we also have ex officio members from the Pro Tem and the Speaker.

Thank you. So you know, there's an old saying, there's nothing new under the sun. And the reason, I didn't ask those questions cause I was ignorant. I answer, I asked the questions because I really think we're kind of back in the same situation, just another topic.

You know, it's maybe it's not earthquakes, maybe it's fires. Maybe it's not fires, maybe it's floods. But it's the same issue that when we have a catastrophe, the question becomes can the current insurance market support it? And if it can't support the current catastrophe that's occurred and the potential that's coming that could happen down the line, what do we do? So I just have three comments and then I'll summarize.

One, to me, it seems like today there's a discussion of who pays. And what I got out of it is potentially the state may need to pay. Some utilities may need to pay some, and rate payers may need to pay some. Various options, but essentially those were our options. The second thing I heard but I think we need to focus more on is what are we paying for?

For my constituent, if we were to come to my constituent and say, you're gonna pay $10 more per month, but God forbid a catastrophe happens, you're gonna have the coverage. You're gonna have insurance coverage that's gonna pay for if you have a one off issue or that's gonna be affordable.

Because to me, I don't think it's fair that if we come up with a scenario that rate payers are paying and the state is paying, then I think the insurance companies also then have to make sure that people are insured. And that to me is one of the problems we're facing today is whether insurance is assessable and whether it's affordable. So to me, what are we paying for?

If we're gonna come up with a scenario that rate payers are gonna pay, utility payers are gonna pay, and the state is gonna pay, then that means we need to get something out of it, which is coverage. And we need to have risk assistance, risk protection that when this God forbid thing happens, people then are in fact covered.

I think the average Californian, if you tell me I gotta pay $10 a month for this, I'll pay $10 a month if I know if there's a fire, if there's an earthquake, if there's a flood, whatever it is, I'm gonna be covered. And to me, that's our challenge is I think we're hearing we're gonna have to pay. Yes, things are gonna happen.

But I think the challenge is gonna be working in conjunction with the Insurance Committee, which I also serve on, is that then we're gonna have to say, if we're gonna pay, then people have gotta get something for what they pay for.

And then that leads me to the last point which is it has to be equitable. And that's why, in my mind, this is a more broader end up solution I think we need to get at. That people, whether it's an earthquake happens, horrible. Whether it's a fire that happens. Whether it's a flood that happens.

Because if everyone's gonna pay, then everyone needs to be protected. So in my district, in Watts and in Compton and in Carson, where we don't have, you know, as many trees and, you know, land and hills and all these things where these fires and things can happen. If you're, if we're not your. If we, because I'm a part of the you're now.

If we're going to have people pay, then everyone needs to benefit. So to me, it's not right that we're if we're gonna have a wildfire mitigation fund that people in Watts and Compton and every place else, Wilmington are gonna pay for, then I don't think it's fair that they're expected to pay for wildfire protection but then they don't get their earthquake protection.

So it's all gonna have to kind of work together of disasters, all these things. And say, okay, you may not have the fire but you may get the earthquake. So that's why you're paying. You may not have the earthquake but you may have the flood.

And so I'm really gonna challenge both this committee and the Insurance Committee that I think, you know, one, yes, we need to fix the immediate band aid, which is the wildfire situation that we see as reoccurring reoccurring more continuously, faster. Yes, we need to fix that. And I'm committed and on board to doing that.

But I think we also have an obligation to fix the broader problem, which is disasters, things are going to occur. And how can we make sure that every, if everyone's gonna pay, then everybody needs to be covered. And then the final point I wanna make is the issue to do with local government. I happen to live, I'm blessed.

I bought the most horrible house on the block. But it happens to be on a bluff looking at an ocean. Okay. Well, the bluff going below me from my home down to the ocean, who's supposed to keep that clear? All of that vegetation that's grown up. Okay.

Am I as the homeowner that I don't have the right to the ocean that's below me, am I supposed to pay for the mitigation clearing of the brush from my home up on a bluff down below to the ocean? Okay. I clear that. But then my neighbors on both sides of me, they haven't cleared it.

So God forbid this, you know, a fire comes up, you know, is it gonna jump over my little cleared area? Or is it gonna burn and then rise up to those homes? So I think also a part of our ending solution is gonna have to be those other areas, the hillsides, the everything that's not your home, not my home, but it is out there and can eventually get to your home.

Who's responsible for that? And who, how is that gonna be mitigated? So I think we have so, I just, I'm excited and I commend the committee for getting the information. But now I think, you know, the pedal is now on our shoes to take it and to do something with it. And what I find frustrating, and this will be my last point again, is that we're getting ready to vote on a bunch of bills that are piecemealing trying to fix the problem.

And I really think we as a Senate, as the Assembly, and the Governor, we need to collectively sit down at some point and say, what is the big issue? What is it that we need to do to fix this? And what are the bills to fix it? And we need to have the courage to stop these one off bills here, one off bill here.

You know, a 100 different bills that people are gonna attempt to implement that collectively are not really going to solve the problem. So that's my comments, and count me in. But I just wanna let's get going on ultimately solving the problem would be my challenge. Thank you. Thank you very much.

Thank you. Thank you, Senator. Agreed. Let's go to Senator Becker.

Thank you, Chair. I thank my colleague for your words and appreciate all the work that went into this that's reflected in the report. I've been fortunate to have some long plane rides so I get to really dive in. And also, you know, for my colleagues as well that all the stakeholder contributions are also available on the cawildfirefund.com. Right? Dot com.

Cawildfirefund.com.

Yeah. So all the, you know, from TURN and others and, you know, all the letters and there's a lot of, you know, good reading and detail that went into all of this report. And I appreciate and also my colleague, Senator Caballero, you know, that it starts out with the community wide risk reduction.

And we will tackle that in a joint hearing on natural resources and emergency management. But the other big part is how do we pay for that? And Senator Richardson has a bill, and we've been working on that already this year. But that's gonna be gonna be one of the big pieces of all this and that undergirds this.

I do appreciate how you've highlighted in the report the cost of the status quo because I think we don't fully appreciate that. And what you just, you know, said Forest that the that the energy affordability problem is not not exclusively a wildfire cost problem, but is to a large degree a wildfire cost problem.

And I think that report lays out, think it's about 20% of PG&E bills is directly or indirectly wildfire costs, and I think 12 to 15% for other utilities. And that's substantial. So if we can come together as a body and with the Governor, if we can come together and figure out ways to, you know, a way to to solve this, then they'll have a real impact.

Because as you say, it's not only not working for energy rate payers, which affects the whole rest of our economy, anyone who wants to electrify, any anyone, you know, any business or resident in the state, but also it's for insurance policyholders is really not working. So I think that's so I appreciate, you know, that, you know, and sort of calling that out.

And I think, you know, one of the issues we sort of look at it sort of like we gotta look at the reduction of risk and then there's sort of the kind of reinsurance and sort of the the whole, you know, liability sort of piece and then the restitution.

Right? How do we make sure that the that the that people, that the survivors, the impact are paid out quickly, fairly. And and that we we figure that out. It doesn't take seven, eight, nine years, you know, as it has has done in the past.

And before we had the wildfire fund, you know, because I've, you know, been this committee and others where, you know, you heard the folks who were victims of wildfires before we had this who got, you know, 50% on the dollar, you know, payout, as opposed to some of the hopefully more equitable payouts we're we're getting now.

So I just wanna sort of thank for that and listen to the conversation. I just do wanna ask, you know, when you think about 31, 3.11, 3.12, 3.13, 3.14, as some of those solutions. As you look at those, you know, were there some other states or countries that you feel are doing this well, where it's working, that there's a model that we want to look at?

I know, you know, TURN and its stakeholder contribution and the overall liability framework did look at Washington, looked at Oregon, looked at Colorado, looked at some of these other areas. But when you think about some of these more creative approaches, with other places you looked and said, hey, this is this is working really well?

Thank you for the question. We, there are a number of of countries that have undertaken similar state interventions. The creation of protection, what we call protection gap enterprises. Where the private markets are not filling the gaps. So the state steps in and creates a mechanism.

What's interesting about the spectrum of approaches is that they all work in their own way for their own communities. Some of them are more pre funded. The creation of large of funds that have a lot of claim paying capacity like the Earthquake Authority does right now awaiting the event. Other examples of protection gap entities that also work for them are like Turkey, for example. They have an earthquake claim paying capacity.

They had a very large earthquake several years ago. Incredibly devastating. But it was a post event capitalized organization. But it was an existing distribution mechanism to help recovery after the fact. It worked for them and is working for them in part because they didn't have the economic flexibility to to do a lot of pre funding.

Across that spectrum, you see a mix of approaches that work for the local communities. I'm hesitant to to call out anyone as working particularly better than others because each state has an opportunity to create a mechanism, fill that gap in a way that works for them, works for their economy. But it but creates some kind of recovery focus, survivor focused enterprise. Do you, do either of you wanna comment on...

I wanna jump in. Yes. So CEA is actually a founding partner of something called the World Forum of Catastrophe Programmes. W C A T. Something else as their website. But there is, there are a couple of papers that are referenced there that are very useful.

There's also some some books on this. But I will say most of these organizations that deal with climate hazards are all facing the same challenge right now, which is the hazard is changing and anticipating that for the future and what that means in terms of capitalization.

Either what is needed pre event to capitalize it or what would need to be set aside and planned for post event is a challenge that most of these public protection gap entities are facing. So New Zealand's has something called it was the Earthquake Commission. It's evolved into it always did cover some some climatic issues.

So they've changed their name to the Natural Hazards Commission. They, right now, are doing a study on the insurance market, constraints and the impacts that that will have on the government in the next large climate disaster that they may face. So most countries, Australia is doing some of the same thing.

Most countries are actually starting to sort of look at how their hazards are going to change, if they're covered under their current system. And what they need to do to sort of understand the magnitude of that, the rate at which it's going to be changing, and how they have to set aside some protections for that. That would be what I would add.

No. Interesting. Actually, you mentioned those countries. Actually, we did a Senate trip actually with our Insurance Commissioner a couple years ago to Australia and New Zealand and talked about the the early work in some of those areas.

So that's interesting to hear. Just maybe one other question, we'll turn it over. I mean, when you, so just so I'm understanding clearly because, I mean, we can spend hours on any one piece of this. There's so much here. Unfortunately, we do have a few different committees that that will be diving into this.

But, you know, just what I understand is when you lay out the idea in 311 of, you know, utility premium sufficient, you know, it's idea that you got utility premium sufficient to cover the one in 10 sort of threshold and then you have some other mechanism of kind of reinsurance on top of that to cover the more, the risk outside of those kind of frameworks. Is that?

Yeah. That's right. That particular intervention option focused on the fact that we don't have to just collect money from Californians and create a a self funded catastrophe fund. There is a robust international reinsurance market where we can essentially buy at a cost, a market driven cost insurance or or protection for the fund.

And so that option looked at the availability of that market to help meet the essentially the insurance needs for utility caused wildfires as one way of of making the fund more durable and reducing the initial capitalization demands of on the fund.

Yeah. This notion of a couple tiers. You have one mechanism that gets you to sort of certain level, covers certain level of risk, and then another mechanism to cover risk above that.

Correct. Yeah. And those markets are very dynamic. They will sell you insurance or reinsurance with different attachment points based on the severity of the event. So the less probable the event, the lower the cost of buying that reinsurance. If you want that insurance to tap to attach at a lower more frequent event, smaller but more frequent, the cost is higher.

Yeah. Yeah. Okay. Good. Well, thank you. We'll keep tapping into this and we really appreciate all the work here.

Thank you.

Okay. We'll go to Senator McNerney.

Well, like my colleague, Senator Richardson, I wanna thank you for your diligence on this, Chairman. And it's made a difference. And I wanna thank the Earthquake Commission for your hard work. I mean, clearly, you put a lot into this. It's not an easy subject.

It's not something that you can just quantify, which as a mathematician, I like quantifying, but we're we're talking about people here. And what I wanna say is the insurance companies are leaving California and they're increasing premiums.

And basically, what that shows is that just pushing off this to insurance companies or pushing this off to utilities isn't really working. It just pushes, it's like playing the little game where you push down when it comes up. I mean, I think that's kind of what you're trying to get at.

And Senator Richardson was also trying to look at it from the big picture. How can we look at it with all the parts in play to find out what the right solution is? One thing I've been advocating is for the insurance companies to to be able to sue the fossil fuel companies. Because right now, I believe there's pretty good scientific methods of attributing liability for fossil fuel damages.

And so allowing insurance companies or encouraging them really to, to sue oil companies might be something that would help put us on the step of having folks that are at least partially responsible for this pay their fair share of the cost.

And of course, with regard to climate change, which is a big leading cause here. It's not the only cause, but these are these are wildfires have been happening forever, but they're just increasing now because of, because of climate change.

But putting, putting some of that liability back where it belongs would be appropriate even though we all do contribute to climate change. So my first question is, has any been, has there been any consideration of holding fossil fuel companies at least partial responsible for for the for the damage that these wildfires are causing?

Thank you, Senator. We very carefully hewed to the subject matters that were in SB 254. There was not, I mean, I could have have probably in retrospect construed the statutory scope of topics that we were asked to to study to expand out and and reach that. But we didn't, simply put.

I mean, everyone it's been part of the conversation, but the focus of the scope of the study was really around looking at our existing systems and our existing mechanisms to equitably allocate the cost of catastrophes and focus on where those intersect, where they are in conflict with each other.

And what solutions might be brought to bear to help make those systems stronger and more equitably allocate losses. So the short answer is is we did not go off on a deep examination of the opportunities to hold fossil fuel companies accountable. But that certainly remains there. It's just it would have occupied a huge amount of our attention at the expense of the topics that were specifically called out in SB 254.

Well, Senator Wiener had a bill that would have the Attorney General sue the fossil fuel companies this year. It failed in committee. But I think we need to be looking at that as one of the options to pay to help pay for this rather than $8 or $12 additional utility bills.

Because we're gonna we're gonna hear about that if if we go down that path. The other question I have regarding inverse condemnation, and you have mentioned that a ballot initiative would be needed to overturn the inverse condemnation. But ballot initiatives, it's a big lift and there's risk.

Oftentimes, the ballot initiative will backfire. You'll get you'll get a situation worse than when you start out. So I'm not advocating that. But I was wondering if if there's any other alternatives that would reduce the risk that that these insurance companies face when they're not really responsible for the damage.

When they're not, it's not negligence or some identifiable fault that they are responsible for. And Neal, I think you mentioned in section 3.1.2 that that might help mitigate the risk for insurance companies. I mean, for utility companies. Is that, am I reading that correctly?

So I would say 3.1.2 is it acknowledges that there is a large liability that's created. And it seeks to have a way to apportion that where there's a limit to what the utilities would face. And then the state fund would then pay for the rest. It does not address directly inverse condemnation.

There's other places in the report that talk about the way that the liability could be, could be changed based on what is what would be the utility's responsibility, what would not be the utility's responsibility. And I'm not the the liability expert.

So I'll let Tom and Laurie talk about the way that that we looked at other states and said, this is not universally true in every state that what falls into the liability bucket in California is universally accepted as as a liability associated with a wildfire.

At the risk of oversimplifying, the genesis of this report was focused on the decision to create a wildfire fund. You created the wildfire fund in part because the insurance markets were getting so expensive when it comes to selling insurance to the directly to the utility companies.

So you created a non profit, low cost insurance facility to provide wildfire insurance to the three utilities to reduce the cost to rate payers ultimately. Even though they bear a part of the cost, half of the cost through surcharges. Balanced against that is the fact that they no longer go outside to the private markets to buy insurance.

But when you focus on the creation of insurance fund, you've got inflows. How do you capitalize it? What's the mix of capitalization? How much capital do you bring in before an event? How much do you wait for, to collect until after an event?

But then there's the issue of outflows. How much money flows out of the fund and when to help survivors recover. And that's pathway two within the report focuses on a variety of opportunities and looking at other states that have addressed the same problem. California is not unique here. There are other states that have created funds like this.

And have looked at ways to to make their funds more resilient by controlling some of the outflows. And we called all those out as opportunities to address the outflow element to make this low cost insurance mechanism more durable and longer lasting. So it's it's a...

Well, I mean, the focus to my question was nobody wants to see the utility companies file bankruptcy. It's not any bunch of interest. It causes higher rates, higher loan for loans, for infrastructure improvement, and so on. It just sort of trickles down the line. So is that, capping liability, is that something that's legal? And that could that be a mechanism to reduce the chance for utility companies have to having to declare bankruptcy?

Yeah. I'd lost the thread on the question. So thank you for bringing it back to to inverse. The source of that of the utilities liability is constitutional principles. And that's what generates the more challenging pathway because you have to amend the constitution to eliminate that strict liability.

Balanced against that is the fact that the utility companies, even if you rescind it or the state voted to change the constitution to eliminate inverse, it is not a relief of liability for negligent conduct on the part of the utilities. And so you would still have a circumstance where utilities can be held accountable for negligence or imprudent management of their infrastructure irrespective of inverse.

So we call that out and note in the report that simply dealing with inverse or trying to get to that constitutional amendment isn't necessarily going to suddenly relieve the utilities burden of liability if they are negligent. It just moves from a strict liability for the property damage to a cause based liability system.

Okay. Well, we're looking for solutions. You guys are trying to find them. Certainly appreciate that, and I'm gonna yield back to the Chair.

Did you have a quick follow-up?

Well, I was just hoping you could delve deeper maybe to the other Members' comments or questions on the prudency determination process at the PUC and how that correlates to the litigation process. And, you know, you brought up the, I don't think the inverse path is is viable. I think it's a, it's sort of a it's kind of unhelpful hypothetical. No offense. Just for our conversation. I just think it's not a real thing.

But I do wonder in that prudency determination process that happens to the PUC and then these dual claims that are occurring, if you could sort of pull that thread a little further for those who, you know, are sitting there in the process right now. Could you actually make that a better pathway to fast pay and things like that?

Let let me start with the first part. How does prudency work within the regulatory, system? The first thing we have to recognize is the existence of the wildfire fund does not relieve the utility companies of their liability to survivors. So even if we run out of claim paying capacity, they keep paying, and they then have to find sources to fund their liabilities. So it's not a bailout.

It's simply claim paying capacity and liquidity tool. And they, we reimburse them under AB 1054 after they pay a claim. And then when they're done paying claims after a covered wildfire, they start a catastrophic wildfire proceeding in front of the CPUC. In which, if they have a safety certificate, they go in with the presumption that they were prudent in the operation of their system.

It's a rebuttable presumption. So other people can bring forward evidence to contest that and show reasonable grounds for eliminating that presumption. And then the utility company resumes having the burden of proving that they were prudent operators. The prudency decision isn't always binary, and the CPUC can talk about this some.

But in a nutshell, a finding that they're imprudent or were in some manner imprudent is not exactly negligence. But it's akin to negligence and the consequence for a utility company that has drawn money out of the wildfire fund is they have to reimburse the wildfire funds. But only up to a cap. So if we if you take the Eaton Fire for example, it's gonna be a tens of billions of dollars of liability that will flow out of the wildfire fund.

The reimbursement obligation if they were to be found imprudent and had a reimbursement to us would be to us would be capped at 20% of their transmission and equity rate base, which is currently calculated at $4 billion. So it's that rate base that existed at the time of the covered wildfire. So the fund would get back 4 billion, and if that leaves a shortfall, it would be up to the utility stockholders to capitalize that loss.

I think the challenge for victims is it's taking too long for that prudency determination. And I think that that and frankly for, you know, for those who wanna have someone fighting for them, going into the wilds of a PUC process versus having an attorney fighting for you every day and holding utility executives directly. Even if it's not right away and it takes seven years, the chance to cross examine or to depose or go through the discovery process. Think of it for victims.

There's an inherent trust in that kind of that litigious mindset because you're gonna get to maybe some truths. I think the PUC process ought to be looked at and see if we can have a process there that's gonna be trusted with the same rigor and even and having those early upfront interventions. And I'm not saying it's a deposition at that phase of the proceeding.

But something that has that level of rigor to make, say, a fast pay facility actually attractive to a victim or to utilize the attorneys, you know, who are normally representing and utilize their expertise in the process. Right? Like, I feel like we're sort of we're sticking it after the facts. I don't know. Maybe PUC. I'm sorry for the side track.

Really quickly, I'm probably gonna turn it back to Tom. But, like, Tom, correct me if I'm wrong here, but my understanding is that there are no victims that are waiting for a prudency determination at the CPUC. That's one of the purposes wildfire fund is to provide that liquidity so that utilities can repay, you know, promptly to the to compensate those victims.

So the prudency process at the CPUC is after the fact and really is about whether or not the utilities have to repay the fund or not. That's way downstream of the victims actually receiving their compensation.

I'm saying to have that liability out there while you have a class action process going on. That's a big dual track decision for a utility to deal with now. If you had that determination earlier in the process, would it not be a, you know, a sort of more full story to the financial puzzle? No?

I think I see what you mean now. You mean, establishing whether or not the utility was prudent earlier on? I see. I could see the benefits of the potential benefits for that.

Alright. Let's go to let's go to Senator Reyes. We'll continue discussion.

Thank you so much. And I want to continue on my colleague's conversation regarding inverse condemnation. In the option 2.21 is where that talks about that. And it says eliminate inverse condemnation for electric and gas utility caused wildfires. And I agree with my colleague about how difficult that would be. But in the PUC's report, it says to modify inverse condemnation.

And it it ties it back to incentivizing the utilities rather than making the rate payers pay for something that utilities caused. I want to, I appreciate the comments from PUC rather than saying just to eliminate it, get the constitutional amendment in there and be done with it, to say let's modify it so that it means something.

And I recognize, as an attorney, it's strict liability, but still to to find some of the way to salvage it because there has to be something to hold the utilities responsible in those cases. I also, I do want to thank our Chair for not only putting this panel together, but for also including the victims and those who most suffer from this to put together a panel to hear from them. I also want to take a moment to thank CAL FIRE.

They, our firefighters put their lives on the line when we have these catastrophes and the work that they do and it is also reflected in the place we put, when we're putting together our budget, as well. There's no question we need a more holistic statewide resiliency framework.

That's what we have to do. Trying to put all the pieces together, and the report is very well done. The number of stakeholders you've included in this, it provides the framework that my colleague, Senator Becker, required in his SB 254.

And so I'm glad that that was done. In the report or somewhere I had read that we need to look at the impact on our California communities, and I think that should be number one. That includes our survivors and our victims. On the utility rate payer, that should be number two. And then third, the electric utilities, and it should be in that order.

And insurance, the insurance market. I, finding this balance, again, I take it back as a Budget Sub Chair specifically dealing with many of these issues. We do have to find that balance. The cost burden on rate payers is unsustainable. One of you said that earlier and that is absolutely the truth.

In finding this balance, we have to make sure that it isn't just one group that is having to foot the bill or cover the cost for these catastrophes. And that includes our utilities. I recognize that because we don't want them to go bankrupt.

We don't want them to to have such horrible ratings that they then can't take out the loans to do the very infrastructure, the various resiliency that is needed to to contain these wildfires. The second issue, related is on the capping the recovery, and Senator Stern spoke a little about that.

I'm concerned about that. I recognize that we're looking at every possibility so we can bring the cost down. But bringing that cost down means that the victims, the survivors are the ones that are going to lose out. When we start capping, when we start dealing with what they can and cannot recover, I'm concerned about that. The, in the report, it talks about looking at other sources of, looking at other sources for this.

And one of those was GGRF. As you may or may not know with the state of GGRF right now, there will be no money left. And we're concerned about that for many other reasons because everything that would go to the communities that would help them with dealing with climate change is all zeroed out.

But it also means that it's not a viable option for us here. The other thing that was talked about was executive salaries. In looking at the report put together by the Energy Policy Institute, PG&E's CEO... And the title of it was CEO Pay Surges Amid High Profits and Customers Struggles.

For PG&E, the salary or the total, the total compensation was $19.8 million. For, San Diego SDG&E, 22.2 million. And for Southern California Edison, 16.5 million. The profits have also gone up for all of them, as noted in the article, but it's the customers who struggle.

And when we're looking at how to balance it, I want us to to recognize that if our customers are struggling, and as was noted, the cost burden on rate payers is unsustainable, then we have to find ways so that the burden is not so great on the rate payer and on the victims because a lot of what we look at on how we save money has to do with something that will impact them negatively.

And I think that that's something that we need to be concerned about. My last question is I would like to know who is it that I can call that has done the most work on trying to figure out the funding because that's going to be my department, my committee, and I want to be able to talk to to those maybe more than one person who has looked at the potential funding.

We recognize it's going to be various versus rather than as was met mentioned earlier, we're not gonna say how much each one should pay. But to to look look at that picture, and I'm sure in all of this, looking at all the various reports from each of you.

Although you don't say you should do it this way, I'm sure there's been some some thought and some talk on that. Who is it from your various organizations that would be in the best position to have that conversation with me?

It's a great question. Every funding option, involves necessarily trade offs. So that conversation kind of permeated all of the work streams to one extent or another. But we'd be happy to take that back and and reach out to your office with some some recommendations of thought leaders who emerged through the process.

And they may be people who actually came in, as as stakeholder contributors. So we'll we'll take a look at that and bring something back to us.

I know that Senator Stern and Senator Becker having another informational hearing. It will be discussed but again as a chair, I would like to to have more information as we make a proposal, on how we best, fund this, this, the wildfire fund.

I happen to have been on, the conference committee when that was finally put together, the S.P.901. And so I learned a whole lot more about wildfires than I ever knew in my life because like Senator Richardson, we're more prone to earthquakes.

And the comment from Senator Richardson is something that I think absolutely needs to be taken into account as we look at the bigger picture. Thank you. I look forward to receiving that information. Thank you. Thank you, mister chair.

Thank you. Thank you, madam chair. Appreciate that. Well, one of our senators wanna ask some questions but she needed to go to a meeting and we've got to get on the next panel too. So I if if any of you stay, I may subject you to more questions from her, which is not a reason to leave.

But but I really do appreciate you you being here and this is obviously the first of of much much discussion on the lines of what Senator Richardson had to say.

Thank you for the invitation and the opportunity.

Thank you. Okay. Let's bring up some key stakeholders who are gonna share their perspectives on the the the report, discuss the trade offs entailed with these proposals. Obviously, there's so many stakeholders who have interest in this in these issues that we were not able to incorporate today. But we're gonna start with Joy Chan from every every fire survivors network to provide an important perspective of wildfire survivors.

She she will then be followed by Tyson Smith, who's the vice president of law strategy and policy at PG and E to speak about speak about things from the perspective of the IOUs. Then we'll hear from the publicly owned utilities, Fernette Valero, who's executive director of strategic issues at LADWP on behalf of California Municipal Utilities Association. And Mark Toney from the utility reform network who will share the perspective utility rate payers.

And finally, Melissa Spark Krantz who's a legislative advocate for the League of California Cities to provide the perspective of local governments.

We'll ask each of you to speak three to five minutes regarding the recommendations related to electric utilities from your various perspectives and then we'll have opportunity for discussions. We'll start with you, Joy. Thanks for being here.

Thank you, chair Allen. Thank you, senators.

And you gotta press your little button there. Oh. There you go.

Thank you, chair Allen. Thank you, senators. My name is Joy Chen. I am an Eaton fire survivor and executive director of the Every Fire Survivors Network, the nation's largest survivor recovery hub with 10,000 plus Eaton and Palisade survivors and allies. For survivors, here is the reality now, according to the New Department of Angels survey out last week.

Two in three survivors are still displaced. 40% of us can only afford temporary housing for a few more months, if that. Credit cards are maxed. Retirement savings are drained. Families who spent decades building a future for their kids are watching that future slip away.

Mental health providers report rising suicidal ideation. Ben, as Ben mentioned, a mutual friend of ours, a community leader, recently committed suicide just a couple of weeks ago. All of this mental health strain is driven by extreme financial and housing insecurity as displacement is turning into homelessness. And the for profit company that caused all of this is enjoying record profits.

Last some last September, we were very disappointed to read in the Los Angeles Times that in the final hours of the ledge session, SB 254 was gutted and amended from protecting survivors to protecting corporations.

The LA Times called it effectively a bailout. We were told these backroom deals were necessary to protect utilities from bankruptcy and to maintain financial stability. And that's the rationale that we is now driving the SB 254 study. In October, the CPUC approved a massive Edison rate hike and nearly $1,000,000,000 in back pay. Just two months later, in December, Edison increased shareholder dividends to pay out $1,300,000,000 in 2025 alone.

Its three largest shareholders are all out of state. Vanguard in Pennsylvania. BlackRock in New York. State Street in Boston. Instead of protecting against bankruptcy, the backroom deals force Californians into a massive transfer of wealth to seize Wall Street shareholders.

And the shareholder enrichment didn't stop there. In 2025, Edison's profits tripled from 1,300,000,000 to 4,500,000,000 in one single year. Was that from innovation? Operational excellence? No.

On Edison's own earnings call, CEO Pedro Pizarro is explicit. These profits came from regulatory decisions. From the backroom deals that state leaders handed Edison last fall. For 2025, as we heard Senator Reyes say, Pedro's own compensation rose 20% to $17,000,000. In the same year, his company caused one of the most devastating fires in United States history.

So who's paying for all of this corporate excess? The same families fighting to stay housed. AB, AB 1054 explicitly tied wildfire fund access to executive compensation being linked to safety records. So what happened to that accountability? These three private companies are granted monopoly status because the public is supposed to get something in return.

Safe, reliable, affordable service. But I'm a former deputy mayor of Los Angeles. We oversaw the LADWP. And I wanna know this. Why is it that publicly owned utilities don't cause catastrophic fires?

While California's three for profit electric monopolies charge rates twice the nav the national average, deliver much worse service, and keep burning down communities. Because we do not hold them accountable. People often ask how our group, the Every Fire Survivors Network, or EFSN, grew to more than 10,000 survivors and allies so quickly. It's because we're built on principles every Californian agrees on, regardless of party. Every fire should have every fire survivor should have a real shot at getting home.

Insurance companies should honor their contracts. And corporations that repeatedly cause catastrophic harm should be held accountable. With Senator Sasha Renee Perez and more than two fifty non profits, we asked Edison to advance urgent housing relief that's desperately needed to the families whose homes they burned down and poisoned. Edison would be fully reimbursed through the California wildfire fund. We did not ask them to pay survivors $1 more than they already owe.

We simply ask them to pay sooner. But Edison said no. Instead, they launched what they call a fair and timely compensation program that requires survivors to sign away lifelong legal rights in exchange for payments that would make recovery impossible for most. Renters, under Edison's plan, get a flat $25,000 when the median renter losses are $250,000 Smoke damage survivors get a flat $10,000 My smoke remediation cost is $200,000 The SB 254 study was supposed to evaluate how to equitably allocate catastrophe burdens.

Instead, it is a bailout for utilities dressed up in policy language. Every burden it shifts away from these utility shareholders lands on someone else. On survivors, on policy holders, on taxpayers. It's a zero sum game. If companies that start fires pay less, everyone else is forced to pay more. Californians are furious at these backroom deals.

The system meant to regulate these companies instead keeps protecting and enriching them, even when they cause massive harm. Many of your constituents are reaching the point where they just want to throw all the bums out. Full compensation for survivors is not radical. It is a baseline that allows markets to function and risk to be priced accurately. Continuing to protect utility executives and shareholders from the consequences of their own negligence has one predictable outcome, more catastrophic fires.

So I'm glad to discuss any aspect of the SB 254 study with you, but I'll leave you with three things that you can do right now. One, demand that Edison advance urgent housing relief, because survivors should not be going homeless while funding Edison's record profits and shareholder dividends. Two, pass AB 1774, requiring independent audits of utility fire wildfire mitigation spending.

The last audit done in 2021 found utilities got $6,000,000,000 on wildfire mitigation spending and couldn't account for 2 and a half billion of it. In the four years before the Eaton Fire, Edison failed to spend $500,000,000 on wildfire mitigation funds they already collected from us.

Had AB 1774 been law, the Eaton Fire may never have happened. Third, reject any proposal that strips protections from survivors. The SB 254 report proposes capping non economic damages, which means compensation for death, pain and suffering, and losing everything. Does Boeing compensate families after crashes? Yes, it does.

Did Big Tobacco pay billions of dollars after spending decades hiding the public harm its product products caused while lobbying government to block accountability? Yes, it did. Well, we are at a big tobacco movement. California's three for profit electric monopolies. Will government stand with the public or simply continue to protect and enrich the private companies that repeatedly burn down our communities?

We hope you'll stand with Californians on this point. Families across our state are depending on you. Thank you very much.

Thank you, Chad. Thank you. Alright. We're next gonna go to Tyson Smith from PG&E.

Good morning. Good morning. Is it on now? There we go. Good morning. My name is Tyson Smith from Pacific Gas and Electric Company appearing today on behalf of the state's three large, investor owned utilities. Thank you for the opportunity to speak with you today.

At the outset, we want to thank the CEA for his work in preparing the resiliency study starting last fall. They led a transparent and very inclusive process that took a deep look at the wide range of wildfire related issues. The input from state agencies like the CPUC was especially well done we thought and provided valuable insights into the issues we face as a state. The resulting study is really comprehensive and remarkable in its clarity around the problem that we face in California due to wildfire risk.

The report makes one point crystal clear that inaction is the worst possible outcome for Californians.

If we do nothing, we face rising energy bills, declining grid reliability, and a shrinking safety net when disasters strike. These cascading costs ultimately hit all of us. Ratepayers, taxpayers, the economy at large if we fail to act. The stakes could not be higher. We agree with the report on the impacts to utility customers.

Wildfire related costs, as some have mentioned, make up about 20% of utility bills now. This reflects the billions of dollars that our sector has poured into wildfire safety. Hardening the grid, implementing new technologies, and stepping up maintenance and vegetation management. Yet climate change continues to outpace some of these efforts. The report also makes another fundamental point.

Wildfire risk harms utility finances and a financially weakened utility directly harms our customers and the state's broader goals. A financially distressed utility can't invest in safer operations, clean energy, and create resilience. And its higher borrowing costs flow directly to customers. Put another way, inaction and utility financial distress results in higher customer bills. And all of those costs fall hardest on those that can least afford them.

Lower income houses devote two to times two to five times more of their greater share of their income to wildfire related charges than others. The report also is clear that effectively mitigating wildfire risk isn't just a utility problem, it's a whole of society problem. Utilities alone cannot reverse decades of development in fire prone areas or the build up of fuels. And the report is clear that acknowledges the benefits and the improvements in risk mitigation that we've made as delivering real results.

But it's clear that additional investments face declining returns without broader efforts beyond just utility equipment.

Simply put, the spread of fire results from factors outside of any one entity or one sector's control. And we as a state need to keep that in mind as we approach solutions. Finally, we can't wait to take action. As the report makes clear, if nothing changes, the pressures that we face as a state continue to mount, even absent another catastrophic wildfire. We need an all of government, all of society, all sector of economy approach to tackle these interconnected challenges head on.

And we agree with the reports. Primarily, three pathways going forward. First, committing to community risk reduction, such as through better home hardening, land use planning, streamlining mitigation activities. Second, equitably allocate the catastrophe burden among all involved stakeholders rather than have them fall disproportionately on anyone's, winning one sector of the economy. And third, develop state led financing strategies for resilience by creating new tools to fund wildfire losses and mitigation activities.

At bottom, I think the report offers a clear eyed warning. The cost of inaction is greater than the cost of taking tackling reform. By acting on the reports pathways, we can improve the safety net for survivors while ensuring that communities become safer, that utilities remain financially stable and accountable, that insurance is affordable and available to homeowners. We urge the legislature to seize this opportunity to fortify our state's catastrophe resilience and safeguard California's future. Thank you.

Thank you. Alright. We'll next go to Fernet Valero who's here representing, California Municipal Utilities Association.

Chairman Allen, members of the committee, I just want to say thanks for having me. I'm here on behalf of Los Angeles Department of Water and Power and we're a member of the California Municipal Utilities Association. So first let me say we applaud the SB 254 study in finding that catastrophic wildfire risk is a society wide problem for which a status quo approach is unsustainable. We also emphasize that the current liability framework, results in a compounded vulnerability for communities served by municipal utilities.

Because legal risk, credit risk, and the fiscal health of both municipal utilities and the cities that own them are interdependent.

The financial stress that wildfire liability places on public utilities carries over and creates financial stress for the cities they serve. After after severe wildfires, when support is most needed, Californians residing in such cities are exposed to the risk of both rising utility rates and more costly or more limited essential city services to rebuild and recover. In an extreme scenario, wildfire liability placed on a municipal utility could bankrupt the city itself. For the roughly 10,000,000 Californians served by municipal utilities, this risk must be explicitly addressed.

To do so, reform should focus on non regressive strategies that most directly improve liability certainty, cost containment for utility customers, and just effective and timely victim recovery.

Reforming inverse condemnation is the most direct and durable solution because it removes the core legal doctrine that plaintiff's lawyers are using to seek uncapped liability regardless of fault. Exposure to inverse condemnation is difficult to ensure, difficult to model, and difficult for capital markets to price. For both municipal utilities and the cities that own them, it can increase borrowing costs, impair access to capital, and direct investment away from productive uses.

For reform to be effective, this pathway should also define fault, establish a reasonable standard of care and reduce litigation incentives. If inverse condemnation reform cannot be achieved, we believe that an integrated three pillar solution is required.

First, the solution must establish a liability cap via state sponsored insurance framework. We recommend option three point one point one in the study, which is a state administered wildfire liability insurance program for utilities. Because it provides the most flexibility to participants with varied risk and financial conditions. Second, the solution must reduce the severity and volatility of claims via targeted damages and subrogation reform. We recommend limited limits on punitive damages and tailoring of certain damages components such as non economic damages or vegetation replacement costs.

Reforming insurance subrogation would provide an additional and meaningful tool for reducing liability while relying on markets to price risk. Addressing subrogation could reduce wildfire settlement cost by up to 40% and if needed could be implemented through a phased approach. Third, the solution must improve customer access to residential property insurance and address under insurance. If customers lack adequate first party insurance, post disaster recovery will default back to litigation, subrogation, and other delayed recovery channels.

Measures that strengthen the sustainable insurance strategy tighten the link between risk reduction and insurance, and provide state support for protection gaps are all worth considering.

Each of the three prongs I just described act together to ensure utilities can access financing, liabilities can be financed, and victims are protected. Other states have already made progress in implementing reforms and we look forward to supporting your efforts. Thank you. Thank

you. Alright. Let's next go to Mark Toney from TURN.

Thank you Chair Allen and all the members of the committee for holding this hearing. I also want to provide thanks to the California Earthquake Authority for conducting such a thorough study and for reaching out to TURN and so many groups that TURN had recommended, ought to be interviewed. My main message here is that we are in a red alert situation and that it's critical, urgent to adopt welfare policy reform this session. We have a crisis for rate payers.

Cannot keep coming back to rate payers every four or five years to replenish the fund.

There's a crisis for utilities that are on the verge of losing access to capital from investors that we need for investments in wildfire safety, in electrification. It's a crisis for the insurance industry that these wildfire claims are driving up, cost for property premiums and driving insurance companies to leave the state. And it's a crisis for wildfire survivors who have been waiting too long to get their claims paid and then often get short changed. Look, turn doesn't have all the answers by any stretch. But I have some principles I'd like you to consider.

One is in some ways it's important to treat all wildfires the same. That part of the goal needs to be to reduce damage from all wildfires. At the end of the day, when someone loses their home, loses their property to wildfire, their most important concern is how to be compensated. How to be made whole. It is a less concern who caused the fire.

So, I wanna ask you to consider the fairness of a program that treats utility wildfires completely different from other wildfires. There's almost like a gravy train aspect of utility wildfires. Where because of subrogation, because of the wildfire fund, there are a lot more attorneys, insurance companies, other parties, municipal cities who who, you know, have claims. There are a lot more claims to be had. And, for other wildfires that are just as destructive, that doesn't exist.

And the third principle is rate payers have already paid more than our fair share. My calculations is $53,000,000,000 of committed rate payer funds for wildfire mitigation and damages. And it's not just residential that pays into this. It's industrial. It's agricultural.

It's small business. It's important to understand we're not just looking at residential. We're looking at businesses that that power our economy. I'd like to make some concrete recommendations for you to consider. One is to invest in wildfire risk reduction to reduce the ignition and spread of all wildfires.

Take a look at banning retail sales of fireworks, of metal helium balloons. These are causes of ignition. We should do everything we can to reduce all ignition sources. When it comes to utilities, this, you should consider declaring a state of emergency and requiring the shutdown of transmission lines ahead of wind storms. Wind storms were predicted three days in advance of the twenty seventeen fires in Northern California and the twenty twenty five fires in LA.

I know this isn't a popular idea, but I think we need to start looking at unpopular ideas. We need to look at replacing the 300 to $400,000,000 for Cal Fire Vegetation Management. That is not gonna be available in the future from cap and trade funds. I understand that. Let's figure out a way to replace that.

Let's provide Cal Fire with the resources that is necessary to complete investigations of fires that are suspected to be caused by utilities. I have a list of 12 fires since 2020 in which Cal Fire still lists under investigation. Of course, including the Eaton Fire. And why this is important? I'm gonna put the liability question aside.

The lessons learned from safety. The importance of these investigations is what can we learn to prevent these fires. And for the utilities to become better at it. We don't know when it's still under investigation. We ought to provide homeowner incentives to create defensive space around their properties.

The fair plan does a good job. My, because I did a good job and there was legislation, my fair plan premium dropped by $2,000 because of the work I did on my property. That's incentive. We need to protect utility rate payers from unlimited wildfire costs. I think we need to protect the wildfire fund from subrogation claims and find another way to support insurance companies.

We need to look at setting a cap on how much can be collected per incident or per utility for the lifetime of the wildfire fund through 2045, which is what we're now committed to. We need to pro provide prompt compensation to WAFIRE survivors. I need we need to take a look at the state managed fast pay facility to accelerate payments to survivors and reduce acceleration costs. We need to do work at establishing the state as the wildfire insurer of last resort.

The policy recommendations that crew, you know, a state sponsored insurance plan for all the wildfires.

I think we should do some work on. We should consider making property insurance mandatory, like it is for automobile insurance. And, explore revenue options to set up a $36,000,000,000 wildfire rainy day fund. We could have wildfire bonds, wildfire bonds, second home assessments, tax assessments. The bottom line, this is my final point, is that wildfire policy reform is urgently needed this session.

Turner's prepared to engage in a constructive manner to reach solutions that balance the need for rate payers, homeowners and wildfire survivors with the interest of utility, insurance and finance sectors.

Alright. Can you hear me okay?

Yeah.

Here we go.

Okay. Good morning, Vice chair and committee members. Melissa Sparks-Kranz with the League of California Cities. We appreciate the opportunity to provide remarks today on behalf of Cities Statewide, as well as our local government partners at the California State Association of Counties and the rural county representatives of California.

Where together, we represent local governments impacted by wildfire in both rural and urban communities. Such wildfire impacts from recent utility caused fires have included damages to critical infrastructure, roads, communications, and utility lines, incinerated water systems above and below ground, destroyed public buildings, facilities, and schools. Where these fires have completely wiped out entire communities following these disasters. I'd like to start by emphasizing at the center of this discussion is safety.

Safety for our communities and incentivizing safety in utility operational actions to prevent utility caused fires in the first place. Local governments do strongly support a wildfire risk reduction package this year to move forward.

We believe the legislature has already introduced legislation and bills that align with the concepts in the 254 report that must be moved forward as a package this year with urgency. Everything from increasing the frequency of the fire hazard severity zone designations, to codifying the Governor's executive order to expedite fuel management projects, to implementing a robust home hardening certification program that is tied to lower insurance rates.

While at the same time, we do recognize the Earthquake Authority had a very challenging task in front of them in developing the 254 report. But the report does raise critically important questions about wildfire risk. We believe it reflects a series of analytical gaps that warrant serious reconsideration before any changes are made to our state policies.

We are here to do today to express significant concern and opposition to the recommendations related to Utility Cost Recovery and Wildfire Liability Allocation.

I recognize I am last on the panel and ironically, in this discussion. Feels like local governments will be the last ones holding the bag. We are deeply troubled by the report options and stakeholder input that would recommend the elimination of inverse condemnation, modifying damages outside of inverse, such as caps or the elimination of certain types of damages, such as punitive damages and damages awarded to public agencies, as well as the development of risk standards as part of wildfire mitigation plans to lessen liability.

WMPs are not going to have an inventory of every hook, line, and tower, which will inherently undermine safety if approved wildfire mitigation plans do allow for lowered liability. The legal framework that the courts use to determine liability is the best system for determining if a utility acted prudently or not and if there was negligence. We would strongly oppose these recommended changes that raise fundamental equity and governance questions that are not fully analyzed in this report.

For example, under current law, if it is deemed inappropriate for the rate base to bear the cost because the utility may act imprudently, on what basis is it appropriate to shift those same costs to taxpayers, local governments, or through increased insurance rates that will still impact the rate payer? The report suggests a redistribution that does not eliminate the cost. It would merely reallocate the cost to parties who neither control utility operations nor contribute to causing the wildfire.

For utilities to act with safety as the highest standard in their operations, we cannot allow the bar to be lowered. Even when utilities have acted prudently, the current system allows them to socialize the costs among their rate base.

The PUC reported last fall that wildfire liability costs specifically are $10 per month, only four and a half to 6% of the average IOU utility bill. We ask the question, is that unreasonable? If it is, should shareholder earnings be reduced instead of pushing the costs onto the very victims and local governments tasked with rebuilding their community. We recognize there is a bright line in the sand for publicly owned utilities compared to IOUs.

We recognize the POUs do not have access to the wildfire fund and are solely reliant on their rate base.

We believe a distinct policy solution for contingency or backup fund for POUs does warrant a policy discussion, but not as an exchange for overall liability relief. In closing, we ask this committee and the legislature to ask this very question. What really warrants deeper policy solutions based on the systems that are not working? We believe we must focus our efforts to reduce wildfire risk, to prioritize and target high fire areas, to prevent utility caused fires before dismantling our liability structures.

We believe wildfire liability, the structure that we have is in fact working as it should.

By proposing to decouple cost responsibility from operational responsibility, risks weakening incentives for utilities to maintain safe, prudent, and responsible behavior. Strong accountability in the name of safety require requires that those who control the risk exposure also bear the financial consequences. This is what will protect our communities. Thank you for hearing our perspective today.

Thank you. Alright.

Great set of perspectives. Very valuable to hear everybody's thoughts. Let's go open up to floor questions from the members. We'll go to first to Senator Becker.

Okay. Thank you to all of you. Super valuable and I wanna first, Miss Chen, I'm sorry. I feel a loss in your communities and I just really wanna uplift a couple things you said, you know, independent audit of wildfire spending. The fact that, you know, we've had $53,000,000,000 as Mark Toney said in rate payer funds for wildfire mitigation.

You know we had, in 254 also called for focusing on the bang for the buck in wildfire spending. And so, I think this is a really important point. It's a massive amount of money, and we have to make sure that money is being spent wisely. And, you know, I had a bill last year to focus on the coordination aspect between, you know who's doing what at the local level, regional level, state. And unfortunately, that bill got vetoed.

And so, I think we still have a lot of work to do there to figure out that piece. And again, whatever money is spent going forward, make sure that money is being spent wisely. You're pointing about executive compensation also. It is very galling to think about the those massive payouts to CEOs at a time of of fires. Anytime, let alone at a time of a catastrophic fire.

So I hear you and I do, you know, in my bill, in 905 my bill this year does also look at the next tier of because my understanding is that the for the those top executives, that money is paid for by shareholders who is calling as it is.

But then so my bill sort of looks at that next level of kind of everyone VP and above and sort of ties their a a portion of their salary to, keeping rates below inflation, which is something that we've worked with turn on. Do you have a comment on it?

Yeah. You know, on that one

Press your button, please.

It's very interesting that the LA Times and I was quite shocked by this on everyone's compensation. So you're saying there's the executive compensation. Well, if shareholders are paying for that, but we're providing all this extra money to shareholders. I mean, money is money. It's fungible.

Right? So we're still paying for it, indirectly. But the second point, Steve, that was really shocking to me and that the LA Times found was that the median Edison employee gets paid $220,000 a year, which is 2.4 times the median household income of California. That's a median employee.

That means half of employees get paid more than that. And, so here we are paying these rates, which are twice the national average, second highest in the country to it's not just the CEO. It's everyone is paying, is getting paid so much more, more than twice than us. If we have two people working in the household, then it's like four times more than us. Right?

So, and so I think that's something that we really need to think about. That we keep on raising rates. We keep on, as you say, you know, increasing the wildfire mitigation spending. They get $9,000,000,000 a year now that there's no accountability for. The last time they did, PUC did an audit was in 2021 where $6,000,000,000 were gotten by the three for profit electoral monopolies.

Out of $6,000,000,000 they could not account for 2 and a half billion. And yet the PBC allowed them to keep that 6,000,000,000 and keep on charging more and more and more. So I think, you know it's great that the 254 study says, we need wildfire mitigation. They need money, to do wildfire mitigation. But we also need to make sure they're actually spending the money.

If Edison actually spent the money that they got from us for wildfire mitigation, it's possible the Eaton Fire could not have happened. I mean, that just haunts me. You know, all of this senseless loss of life from not spending money like they got $500,000,000 from us that we couldn't afford to give them. And they didn't spend it as they promised. And as a result, so much destruction.

Well, again, thank you. I did not know that other study that you cited, so I appreciate that. And, you know, you will also be in our hearing tomorrow. So we're gonna have a chance to dig in, you know, even deeper sort of this the notion of, you know, how is this money being spent, what share be spent on, and, you know, is it being spent effectively. So, again, I really appreciate you for for highlighting all those pieces.

And the report also calls for, you know, make codifying some of the the safety metrics into compensation as well that was supposed to be, as you say, in 254. And, you know, I don't feel that it's come out as clear as it needs to be. Right? And that's also why 905 tackles this as well. So I appreciate that.

Thank you for that legislation.

Yeah. And then yeah. I'll just say to to Mister Toney, I appreciate I mean, that red alert's strong, you know, coming from you with, you know, your organization and with your background. I think sends a really clear message to this legislature that, you know, we do have the opportunity to to do something this year on this. And I know it is mid session, but, you know, you sending a red alert is a really strong signal that that we do need to address this.

So we'll continue to go through your pieces here, your suggestions here. But I really appreciate that urgent call.

We'll go to the vice chair.

Hi. Good morning. You've been listening. Miss Chen, I really appreciate your notes today. As a matter of fact, I was hoping that I could get a copy of your statement?

Sure.

Just so that we could really follow through on each one of the items. It was very enlightening. Very enlightening. And in light of that, I do have a question. And I believe it might be for Mister Smith, perhaps.

What she brought up and I know it's you may not may or may not have the answer but I am kind of curious as to the your thoughts on the you know over $2,000,000,000 that have not been accounted for for mitigation funding that has that was not accounted for. Do you have any thoughts on that?

I'm not familiar with that specific number or that specific report. What I can say though is that there is ongoing extensive oversight of our activities by the CPC, by the Office of Energy Infrastructure Safety, and others. So while an audit may that I'm not familiar with those results, I do know that there is very extensive oversight ongoing review both after the fact and as well as on a go forward basis what we plan to spend our money on in terms of wildfire risk mitigation.

Do we have?

Forrest, did he have the

Do we have?

This was brought up also in the Assembly Utility Committee, this specific question. When we when the committee passed AB 1774110. And chair, the chair asked the lobbyists that specific question also about that 2021 report. And again, the lobbyists didn't have an answer. I mean, that it can be looked up.

It was the CPUC. It was the last time that wildfire mitigation spending was ever audited.

By who?

It was in it was by the CPUC.

And it was in 2021. They got $6,000,000,000, and they couldn't account for 2 and a half billion. It's cited in our letter, our sponsor letter, on the

Okay.

do we have the information here?

It's cited in the in our sponsor letter on AB 17441774. We can, we can get you documentation on that if you like.

Okay. It's Yeah.

There is also this Los Angeles Times report. Los Angeles Times spent nine months studying how Edison spent its money on wildfire mitigation and found that for the four years before the Eaton Fire, Edison got $500,000,000 for wildfire mitigation that they never spent.

Senator, do you wanna

Oh, I was just gonna say maybe helpful if we still had, OEIS here. Tony, do you mind jumping up? We're gonna insert you for maybe where Forrest from PUC would have would have been as well. We know you review these WMPs, the wildfire mitigation plans. So Somewhat Miss Chen's been referring to.

Can you just yeah. Sorry to because I'm looking at your review of the 2026 to 2028 Base Wildfire Mitigation Plan that PG&E just submitted. So I think there's a implication that none of these plans are being audited. Maybe that's not the right term of art to be using, but you're doing the review of those Wildfire Mitigation Plans annually and multi year. Correct?

Yes. So what we review is, when the plans come in, we review the plans. Our evaluation criteria is basically are you continuing to improve. Once a plan is approved, then we go and do inspections and audits to determine the things that they promised that they would do in the Wildfire Mitigation Plans. Are they doing it?

We don't have a whole lot of insight into the financials. They report financials to us. But that's not really our strength. And so we don't audit the financials that they provide us.

So you're not doing a financial audit, but you are doing an audit?

Yes. We're doing audit on the work whether it was done or not.

So to say that there's been no audit of the Wildfire Mitigation Plans maybe isn't the most accurate way to describe it. But maybe Miss Chen, what you're getting at is more concerned about the financial side?

Yeah. Part of the funds that they get to go to the PUC and say, hey, you know, we need to do all of this stuff and this is how much it's gonna cost. And the PUC says, okay, you can collect this amount of money. So then they can put it on ours. Alright.

So you're talking more about cost of capital and that element in the broader rate case of how they just

My understanding is a separate- it's a separate, a separate piece from the rate case from the, you know, the ROE. It's a separate bucket. So they get allowed to charge that separate bucket on our bills. And we don't get to choose, you know, whether or not our bills go up.

And then there's no audit on do they actually spend that money? So So what 1774 asks is that there are audits every year and you have to spend that money before you get more.

Right. I guess the question and maybe Mr. Tony, you wanna jump in on this one too, but that the that portion of the of the financial that she's talking about, that's just within the the 1054 fund we're talking about here. What what is she where is she?

The utilities all get money, allocated for wildfire mitigation. Okay? That is outside of the general rate case.

Sure. That's the it's capped at what? In statute? About $5,000,000,000 or so?

We'll see. Okay. I'm gonna answer your question. It there's an approved amount, but because of SB 901 in 2018, the Dodd bill.

Right.

There was a memorandum account that was approved. And it said that if the utilities overspent the amount, they could put it in a memorandum account. I cannot tell you for Edison. I can tell you for PG&E that from 2020 to 2022, they were approved in the general rate case to spend $4,500,000,000 for vegetation management because of the authorization of the memorandum account. As part of statute, they ended up spending about a little over $11,000,000,000.

And then came back to recover that later. So this is part of it. Part of it is in the general rate case, but there's a substantial portion that ends up in memorandum accounts that are collected after the money is spent.

Alright. Mister Smith, did you have a comment just before we move on from that topic? Do you feel that the memorandum account ought to be audited in some way? Are they going through sufficient review both? You're speaking on behalf of not just yourself now, but we know there's been a call for Edison's accounts to be, Yes. Audited.

So have that burden for everyone.

Understood. A little context. First of all, I think the in the late teens, there was all hands on deck sort of work to address wildfire risk mitigation across the state. So for that time, there was formed the wildfire memorandum account to collect cost beyond what was authorized in the general rate case so that we could go do the important work of reducing risk across the state.

When we so those accounts allow us to track funds that we spend beyond our general rate case, those costs must still be reviewed by the CPC.

We go through a rigorous process. Mister Toney and his organization participate in it, where those costs are reviewed before they're approved by the commission. So there is an active oversight and ongoing review in a public process that includes the CPUC before those costs are passed on to customers.

So in other words, your concern may still be met through the existing process whether it's a rigorous enough review by the PUC is the open question is, does it need to be independent of the PUC?

It's that it's goes through this review process before they're allowed to charge the customers.

Sure. Yes.

But there's not a process for saying, did they spend the money on the back end? They could be spending it on anything else. Right? So that's where this gap is. So it should be, you know, it's good that it's considered on the front end.

What money do they say that that needs to be done? The problem is, do they actually spend it?

Yeah.

And, you know, for Edison not to have spent $500,000,000 that they've already collected from us for this purpose. And then the Eaton fire happened. It's heartbreaking to all of us. Like, if somebody had just held them accountable for spending the money that they said they needed to get to do these emergency improvements. If that oversight and accountability had happened from our government, then this fire could not have happened.

Let me turn it over to Senator Rubio. Unless you

No. Well, that's fine. I can yeah. That's okay.

We can do that tomorrow.

Yeah. Tomorrow.

Natural natural resources. Let's go over to you, Senator Rubio.

Thank you. And I'm sorry I had to. We were running back and forth, as always. So we don't always get to to be here and I wanted to address the previous committee members I'm sorry, panel.

One of the things that I find sort of interesting the way that the legislature works is that, for example, I was part of the committee that put together 10, what was it, 1054 back in 2019 and we had hours and hours of getting together or talking about what solutions we can push forward to, first of all, eliminate risk, keep community safe and making sure that we had the financing to ensure that, you know, we don't always pass it on to rate payers.

As a Chair of insurance, seven years of committee hearings listening to everything and in a very comprehensive way. So and I've been part of, this committee for seven years. And so I have the privilege of having a big picture. And I'll tell you, sometimes my frustration is that we have committees, and then we get to hear snippets right here.

And then people leave, and then we have, you know I guess I'm gonna start by saying I agree with the gentle lady from Carson, that then we leave and then there's like 20 bills that come out and people trying to solve all these little pieces and that's not the best way to solve policy.

Because I remember even with 1054 and I think you guys were part of that committee, we were meeting with the Governor. We were hearing from stakeholders, I mean, hours and hours. And that's not how we pass bills per se. You know, a member passes a bill. We get to hear it in snippets.

So for example, earlier today, and I'm sorry if I didn't get to address it, I heard Senator Becker ask, you know, what other countries have a solution that might work, that are joining well. And then I heard New Zealand and I heard Australia, that they have a good insurance system that works. Well, I'm here to tell you that's not accurate because I've heard hear that often and often where California is compared, and the solutions are simplified.

If we only did what other countries did, it would be work. Well, I went to New Zealand.

I talked to their insurance agency. And I went to Australia, and I talked to their agencies as well because I wanted to see is it really what everyone's saying. And the answer is no. Because the way the insurance works in New Zealand and Australia is that the government pays for every fire up to $300,000, then the insurance kicks in. See what I'm saying?

So we're comparing insurance to other countries, Unless California is willing to pay for every household up to 300,000, then put it on the insurance, then that's a false comparison. And I even asked the, I think it was New Zealand. I said, well, what have you had that's had Eaton fire at the time? It was like a Paradise, a Woolsey fire.

They admitted that they don't know what would happen and they admitted that probably their system would collapse because they don't have enough, you know funding to sustain an Eaton fire or a Woosley fire or a Paradise fire.

And so I find that we come in, we hear these snippets like this is the solution. And then we put I won't say false because that's what I keep hearing. So I'm not gonna say false. It's just that these topics require more in-depth conversation. And I'm hearing frustration because I've heard a lot of things today that I don't agree with.

And I have depth of knowledge, having had committee hearings for seven years, having travelled to all these other countries when people say this is the solution. So I go to these countries to see, let's bring it down. Let's solve it. And then with the information I get is not accurate because, again, unless California is willing to pay 300,000 per household, then the insurance kicks in, then we can't be comparing ourselves to New Zealand or Australia.

So you're gonna hear my frustration because, you know, and with due respect, I mean I think I just heard a statement right here.

You know, have they spent the 6, you know, what I think was a 6 billion and there's 2,000,000,000 loss. Have they just found this money, that fire wouldn't have happened. I find that to also be inaccurate because it's not that simple. There's so many elements that are colliding. I mean we heard, you know, some of the water pressure wasn't working at the Eden fire.

You know, we had unusual, you know, winds that are unusual for our territory, and I live right next door. So I know how bad it got. There's so many elements. And I also hear sometimes, like PG&E and other agencies, as well insurance agencies, saying that they run into red tape from local government because they wanna do some things. And it's you know, it takes time.

It's not like you give them money and then they could spend it in six months and then it gets taken care of. Like these things take time. And so the reason I'm a little frustrated because, there's a solution somewhere. But my caution is that I think it has to be comprehensive. It just has to be.

Because we keep passing these bills that end up pushing the costs onto rate payers. And then we keep saying that we're tackling the affordability issue. And here we are trying to pass bills that will end up pushing the rate payers, you know to pay more. And so we have this cycle of us saying we wanna do better. And then again, we continue to do what we say we're not gonna do.

So I just wanted to clarify the New Zealand statement, the Australia statement. And again, respectfully disagree. Had they just spent this money, this fire would not happen because we're dealing with so many colliding factors. We're dealing with, you know, again climate change is getting, you know, it's something that's real, something that's created a year long fire season.

When I came in in 2019 and I took over insurance, we had just had the Paradise and the Woosley fire.

You were, Senator Stern lives. And at the time, it was the deadliest, the costliest fire in California history. And then here we are with the Eaton fire the deadliest, the costly. And then we're just gonna keep moving forward in this way. And I just would like to petition and encourage my colleagues to figure out if we can have that sit down.