Assembly Standing Committee on Utilities and Energy

Good afternoon, and welcome. I am calling to order this hearing of the Assembly Committee on Utilities and Energy. We are here to discuss the California Earthquake Authority's SB 254 report and options for reforming the current utility wildfire recovery system to benefit survivors, rate payers, and other stakeholders. Before we begin, I have a couple of brief housekeeping announcements. First, public comment is welcome in person.

Otherwise, it can be submitted online via the committee website. And second, as is customary, we will not accept disruptive behavior and will apply assembly rules to maintain order and run a fair hearing. With that, on 01/07/2025, the Palisades and Eaton fires together burned over 37,000 acres, destroyed more than 16,000 structures, and killed thirty one people in Los Angeles County. Those fires are still shaping this committee's work, and they may may reshape California's entire wildfire recovery system.

Wildfire related costs now account for roughly 27% of PG&E's total revenue requirement and 17% for SCE and SDG&E.

The average California residential utility customer pays between 250 and $490 a year in wildfire related costs on their electric bill. Over $40,000,000,000 in wildfire costs have been authorized for recovery in just the past five years. Yet despite all of those investments, despite what is appearing on everyone's utility bills, survivors are waiting for compensation, utilities are managing catastrophic legal exposure, and no one has a clear answer for what comes next. SB 254 created an emergency $18,000,000,000 continuation account last September. This was designed as a bridge, not a destination.

On April 7, the California Earthquake Authority submitted to the legislature and the governor the report required by SB 254. This is the most comprehensive state commissioned analysis of the problem that has ever been assembled. The CEA report is unambiguous on one point. There is no pathway that includes the option to simply fail to act. The responses to that report reflect genuine disagreements across every stakeholder group, including survivors, rate payers, utilities, insurers, and consumer attorneys, each with legitimate stakes and different bottom lines.

In today's hearing, panel one features wildfire survivors who will speak to what the current system has meant in practice, what has worked, what hasn't, and what real recovery requires. Panel two will begin to examine the options for reform, what each achieves, who bears the cost, and where the real realistic paths forward may lie. Let's be clear that the trade offs are real. There is no option that insulates every stakeholder, but this hearing is about understanding those trade offs clearly enough to help us make informed choices.

With that, I will call up the first set of panelists representing two wildfire survivor groups.

We will go ahead and welcome we'll we're joined by William Abrams, who is with UWSC organizing advocate with the public policy and public policy consultant and wildfire survivor, and Joy Chen who is the executive director of every fire survivors network. And, thank you both so much for joining us. Thank you for being here. We really wanted to begin with this panel so that we ensure that we center the committee's work on, the recovery of victims. So we're pleased to welcome you. Thank you.

Thank you very much, chair and members of the committee. As mentioned, my name is Will Abrams, and I am a wildfire survivor from the two thousand and seventeen PG&E Tubbs Fire. I am among many fire victims from 2015 through 2018, still waiting to be compensated by PG&E for our losses. And I'm also one of many advocates with the Utility Wildfire Survivor Coalition representing thousands of survivors. From across our state.

I'd like to start with a bit of a personal reflection if I can as you'll see. On this initial slide. That I think is a central issue contemplated by the SB 254 report. This is my son, Leo, and he was 10 years old at the time of the PG&E fires. And then the days after the harrowing experience escaping from the flames.

He asked dad, are we going to build our house out of brick? I asked him what prompted this question. He told me all about the book he had read about the great Chicago fire of eighteen seventy one and how after the second Chicago fire three years later in 1874, the city of Chicago passed all sorts of laws and collaboratively work together to ensure a fire safe city.

They outlawed tar roofs, increase the size of their water mains, mandated brick and stone buildings, and work collaboratively with corporations to mitigate wildfire risk because they wanted insurance to back in that time. Let's compare this with where we are here today in California in the year 2026 with thousands of fires ignited by our utilities just over the past five years.

Let's take a closer look at the system. And wildfire mitigation processes that we have created. As you'll see here on slide number two, I hope this slide is confusing to you. Because that is really the point. Now, here is the utility Wildfire landscape as described within the SB 254 report.

With a finer point put on some of the particulars based upon my lived experiences in the lived experiences of other fire victims. That it has been my honor and privilege to work with over too many years. Advocating across all of the spaces that you see here in this convoluted Circle. Now, the circle representation is pretty analogous to how we have been dealing with the wildfires since 2017. Mind you much of this mess is very well meaning.

But we have some problems here that I want to highlight. So down here at the bottom of the slide, you have organizations that often get viewed as the voice of the people. Which are these strange types of organizations, which are sometimes called out in legal agreements as consortiums. Often formed as LLCs or subsidiaries, but then advertised as civically minded nonprofits. You have organizations like wildfire victims first.

Recruiting fire victims to their cause, which is really as best as I can tell from their formation documents. Just utilities and their investors. Working against the victims interests. Just shameless. Other flavors of these types of organizations are like fairness for fire victims, which apparently is managed by organized labor.

Owned and operated by certain injury attorneys. And yet advertising themselves as a nonprofit. Grassroots organization. To add insult to injury. They're listed coalition members are a who's who of leaders across California who apparently also did not understand who they were signing up with.

I could go on down this list of similar organizations that are mucking around in the wildfire litigation space, but needless to say, fire victims interests are not served by these deceptions. The other point I would like to emphasize regarding this process diagram is that it drives a diffusion of responsibility and a competition for scarce resources. Who wins this competition? It's those shadowy hedge funds that are the primary drivers of this vicious cycle. Firms like bow post, BlackRock Vanguard.

These institutional investors. See these utility caused disasters as a profit Center. They made bad bets on corporations that cause fires due to their negligence and a string of violations, but because of their power and influence, they make money in times of public distress. Some of these investor and utility driven shenanigans drive what is euphemistically called litigation financing and lines of credit, which are among a whole host of financial tools that must be exposed if any of the rest of this is going to get better.

Intermediary financers are the go between between these institutional investors and many prominent claimant attorneys as reported in Bloomberg, The Wall Street Journal, and NPR.

These stories exposed how organizations like Centerbridge and Oppenheimer set up funds central to how victims are represented or not represented by key attorneys during these disasters. Now, if you think there are not Provisions attached to those Financial agreements, that aren't favorable for victims or the public interest. Then as a New York transplant here in California. I'd like to gauge your interest in a piece of the bridge that goes over the East River.

Now, I certainly can highlight more of this morass for the committee if there are questions.

But let me move on to some solutions. So if you can turn to slide three. First, what I really want to highlight as well the SB 254 study does a good job describing a number of pathways. There are really only two legislative paths I would ask the committee to consider. The first is really reinforcement of the current path marked by deliberately opaque processes, a diffusion of responsibility, and misaligned incentive structures.

This path drives higher ROE for investors when utilities start fires. Importantly for this discussion, the same path drives utilities and their preferred investors to deliberately drive a long drawn out and dramatically incomplete restitution process for victims. So investors can hedge their financial positions and seek protections on the backs of victims struggling to put food on the table. Now, you may sense a bit of bitterness in my voice when I describe this because every day, I have fire survivors. Some of which are here today.

Reaching out to me and sharing how they are suffering. Because of these Financial gains. What is the alternative? I urge the committee to drive to three categories of legislative packages this session. First, we much strive transparency.

Any organization or individual that operates in these spaces and that touches any public program associated with how we recover after wildfires must provide complete declarations and financial disclosures, which by the way is in line with the Bar Association rules, which aren't enforced. Second, we must ensure that there are clear roles and responsibilities. As an example, right now, we have the office of energy infrastructure safety tasked with certain safety regulation and oversight.

And due to AB 1054, the CPUC shall approve the wildfire mitigation plans, but we still expect the CPUC to regulate things like a corporate safety culture. We cannot micromanage the utilities and have overlapping regulatory bodies and audits and then throw in some independent audits on top and expect brighter days.

This regulatory pathway reminds me of the prophetic doctor Seuss and his book about the Hawtch Hawcher bee watcher. Where the bee watchers watcher watches the bee watchers to ensure security. And arguably our state budget. Insurance scarcity and other issues that plague our otherwise wonderful and beloved Golden State. Stem from these types of well meaning.

... like regulatory structures. All of this regulatory mess needs to be cleaned up. And the fact that the utilities were successful at driving intervener compensation out of the office of energy infrastructure safety is really a disservice to the public interest as many safety focused interveners. Now are no longer engaged as a counterbalance to the utility interest. Third and most importantly, we must align our incentive structures.

As an example, return on equity must be aligned with driving affordable energy rates. Bottom line, wildfire safety performance, such as fewer wires down rates wires down and fewer ignitions, full victim restitution. There are straight line ways to do this by tying utility approved ROE to where they stand nationally in terms of these measures, or we could be a bit more prescriptive and tie this to other metrics such as CPI.

Our utilities operating as regional monopolies and under the their certificate of public convenience and necessity must have their incentives aligned with our public goals as proxies for competitive pressures. If we continue to promote Financial structures and direct contradiction with our public interest outcomes.

We will not be able to see our way out of these disasters. I encourage the committee members to engage with us. Around these types of solutions. So I will end by just telling you that my son, Leo, who I mentioned at the beginning of this presentation, is now 18 years old and just last month decided to enroll in my alma mater sorry. Indian University, and he's focused on public policy.

While I am, of course, hugely proud of my son that he has turned his fire trauma into positive action and education. I'm here today because I don't want him and all of our kids chasing our tails and working on these same issues fire after fire. I encourage the committee to learn from how we responded to past fires and from how we responded to historical events like the great Chicago fire.

So we can all work collaboratively this session towards our common goals and hopefully with aligned incentive structures. Thank you for your time and consideration.

Thank you, mister Abrams. And welcome, miss Chen. Thank you.

Thank you all. My name is Joy Chen. I'm 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 Palisades survivors and allies. For survivors, here's the reality on the ground now as our great assembly members, Harabedian and Erwin know all too well according to the Department of Angels. Two and three survivors now 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. Mental health providers report rising suicidal ideation driven by extreme financial and housing insecurity as displacement is turning into homelessness. And the for profit company that caused all of this, record profits.

Last September, we were very disappointed to read 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 protect their financial stability. That same logic 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.

Two months later, 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, Black Rock, New York, State Street, Boston. So let's be honest about what happened here. Instead of protecting Californians from bankruptcy, these backroom deals created a massive transfer of wealth from California families to 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 a single year. What company do you know whose profits triple in one year? And did Edison achieve these spectacular results from innovation? No.

From operational excellence? Definitely not. On Edison's earnings calls, CEO Pedro Pizarro is explicit. These profits came from regulatory decisions, from the backroom deals that state leaders handed to Edison last fall. Pizarro's own compensation rose 20% to $17,000,000 for the same year his company killed 19 of my neighbors and destroyed the lives of tens of thousands more.

So who's paying for all this corporate excess? The same families now fighting to stay housed. AB 1054 explicitly tied wildfire fund access to executive compensation being linked to safety records. So what happened? 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, and we oversaw the LADWP. And I wanna know this. Why do publicly owned utilities deliver lower rates, better service, and don't cause catastrophic fires.

While California's three for profit electric monopolies charge rates double the national average, provide much worse service, and keep burning down communities across California because we let them. People often ask how the Every Fire Survivors Network grew to more than 10,000 survivors and allies so quickly because we are built on principles that every Californian agrees with regardless of party. Every fire, every survivor after a disaster should have a real shot at getting home. Insurance companies should fulfill their contracts.

And corporations that repeatedly cause catastrophic harm should be held accountable.

With Senator Sasha Renee Perez and more than 250 nonprofits, we asked Edison to advance urgent housing relief to the families whose homes they burned down and poisoned. Edison would be fully reimbursed the 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. Renters get a flat $25,000 when the median renter losses are $250,000. Smoke damage survivors get $10,000. My smoke remediation cost $200,000. The SB 254 study was supposed to evaluate how to equitably allocate catastrophe burn ins.

Instead, it's a bailout for these three for profit electric monopolies dressed up as policy language. Every burden that it shifts away from utility shareholders lands on someone else, on survivors, on policyholders, 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 only protects and enriches them. Many of your constituents are reaching the point where they just want to throw the bums out. Now I'm glad to discuss any aspect of the SB 254 study with you, but here are three things that you can do right now. First, demand that Edison advance urgent housing relief. Survivors should not be going homeless while funding Edison's record profits and shareholder dividends.

You can learn more about that proposal and the coalition of 250 nonprofits behind it at edisonrelief.org. Second, pass AB 1774 from assembly member Boerner requiring independent audits of utility wildfire mitigation spending. The last CPUC audit, the first and last CPUC audit, was done in 2021, and it found that utilities got $6,000,000,000 in wildfire mitigation spending and could not account for 2 and a half billion of it.

We need to not just enable and hold utilities accountable for charging customers for wildfire mitigation spending. We actually need need to make sure they're doing it as well with the money they've already collected from us.

In the four years before the Eaton Fire, Los Angeles Times reported that Edison failed to spend $500,000,000 in wildfire mitigation funds they already collected from us, including for removing the ghost lines which ended up causing the Eaton fire. It haunts me to know that if had AB 1774 been law, the Eaton Fire may have never happened. Third, reject any proposal that strips protections from survivors. The SB 254 report proposes eliminating punitive damages and capping non economic damages.

That means compensation for death, pain and suffering, and losing everything.

Does Boeing compensate families after crashes? Yes, it does. Did Big Tobacco pay billions after spending decades hiding the public harm its products cause while lobbying government to block accountability? Yes, Big Tobacco did. Well, we are at a big tobacco moment for California's three for profit electric monopolies.

If the financial rewards for repeated catastrophic failure are record profits, record executive compensation, and record shareholder dividends, then catastrophic failure is exactly what this system will keep producing. Consumer Watchdog found that these three companies spent $12,000,000 lobbying you in the state legislature over the last two years. But we cannot allow special interest to run our government. We, the people of California, our leaders, we must work together to create corporate accountability in this state. Corporate accountability is a necessary condition of a functioning society.

Families across our state are depending on you. Thank you so much for having me.

Thank you. Alright. Before I open it up for questions from members, I wanna clarify, I think, a couple things. So the first is related to the report because I think I heard both of you use the word recommendation. I've heard from many stakeholders using the word recommendation.

This report, is not a set of recommendations. This is, in my mind, an inventory of all of the possible different, that's why they call them pathways, California policymakers could consider pursuing. Many of these, pathways are in fact contradictory with one another. So I think it's important to understand this is not a set of recommendations. This is a set of potential policy pathways that we're trying to dig into right now.

And, the reason that we are having a public hearing now, the reason that we will continue to have public hearings is precisely miss Chen because we wanna make sure that this is a public process and that there is not an impression of the public that this is somehow some backroom deal. So that is the point of today's discussion, the point of the conversation.

The Earthquake Authority has been really clear with us as they passed off the however many 100 of page report to say, here's a set of potential policy pathways. It is now the job of the legislature to interrogate those potential pathways to weigh the costs, the benefits, the trade offs, and determine what we think is, appropriate for legislative action. So thank you for being part of that discussion, and, I'll open it up.

Mister, Harabedian.

Thank you, madam chair. Thank you for doing this. Thank you to mister Abrams, miss Chen for being here, for the testimony, and, obviously, everything that you guys are going through. We continue to be with you and, obviously, trying to support you in every way that we can. I guess, you know, my main question, it's really to I guess, I'll just throw it to miss Chen.

But mister Abrams, you can, jump in as well. The 254 report, as the chair said, it's very comprehensive. There's a lot in there. Would you say from a survivor standpoint, there are certain needs or gaps for survivors that weren't addressed by the report? And if so, what would those be?

You each laid out a few legislative items that you would like to see pursued. But miss Chen, maybe just start with you. What gaps from the survivor's standpoint did 254 not either delve into enough or not address that you think should be addressed?

Thank you very much, mister Harabedian. And thank you especially for being such a champion for us. Your legislative career has been taken up by, championing survivors since this fire started at the start of your term. And so thank you for that. As we see it, this SB 254 and also, thank you so much, chair, for your clarification of that.

I didn't mean to imply that these are backroom deals. I was saying the Los Angeles Times described what happened in the fall as Backroom deals around the final gut and amend of the original SB 254 legislation. And I really do appreciate, how open you have have you been and inviting for us to come and so interested in having a real public discussion here.

As we see it, while there have not been specific recommendations, I guess, set in stone in the 254, there's been a series you know, the section about utility allocation of catastrophe burdens specifically is focused on limiting and protecting the three for profit electric monopolies from the financial consequences of their actions. It doesn't address the publicly owned utilities or the CCAs, specifically just these three companies and protecting them through elimination of punitive damages.

I mean, we live in a country where punitive damages are an essential part of the justice system. Capping, quote you know, basically, capping all damages for death and suffering and pain and suffering. I mean, we live in a world where sexual predators, you know, they have to pay for their crimes when they hurt people. Companies have to pay when they hurt people.

And there is no reason why these three companies out of the thousands of companies in The United States should be exempt from the basic system of justice that covers our society. So that's the overall comment, I think, on this report that survivors have to pay for all of this and then have to pay more when these companies respond to the financial incentives to keep on causing catastrophic fires.

We need to align, as Will said, we need to align the financial incentives of these companies with not burning down communities. And that means that their shareholders, not their rate payers alone, their shareholders and their executives need to feel the pain because it's their actions that are causing these fires, not survivors, not rate payers, and not taxpayers.

So we just need to, you know, sort of basic economics that we need to align financial incentives with actors so that we can get the outcomes that we're looking for.

That's sort of the global comment. Furthermore, I appreciate that the report does say that there needs to be some fast pay because as we can see, our survivors are suffering sixteen months later. Their survivors are suffering eight years later. And so there needs to be some mechanism for paying out survivors faster. However, what the SB 254 study does is it recommends that, oh, the public come in and create this fast paced facility.

That's taxpayer money again. When we've just set up the wildfire fund of tens of billions, the continuation fund to protect the utility shareholders so that they could pay out the people. So why would we have set that whole those structures up to protect utility shareholders and then set up another fast pay that's funded with taxpayer money? Those utilities having been protected, they should be the ones that compensate survivors. And that's what we have asked with the Edison relief program.

And it is really galling, not just galling, but devastating and will create even more loss of life to the Eaton Fire survivors when all of this mass housing insecurity and homelessness is happening as a result of Edison having received these massive protections, a tripling of profits from us, from the state, massive executive compensation now refuse to take a fraction of the triple profits we've just handed them, a fraction of that to temporarily advance money to Eaton Fire survivors so that we can keep a roof overhead.

So the fast pay facility, yes, great idea, but it should come from the utilities that paid for it. And then just the one last thing I'll say is that report contemplates wildfire mitigation spending and says it's really essential for utilities to do that. And indeed it is. Right now, the utilities are charging us $9,000,000,000 a year for wildfire mitigation spending.

That is 27% of our rates, which are twice the national average. So a huge chunk of our high electrical bills are for wildfire mitigation spending, which truly is important. And the CPUC has a process for saying, you know, where the utilities can go and say, here are the urgent wildfire mitigation things that we need to have done. CPUC allows them to do it. But the CPUC has not been auditing whether they actually do it.

They do have a process that's like a couple years later. They're like, did you take care of these items one, two, and three? But there's no financial audit. The last financial audit of this spending was in 2021, the first and last. And out of $6,000,000,000, the audit could not account for 2 and a half billion of it.

We talked about this at the last time we all met when we passed AB 1774 out of committee. And that is so painful for us because, Edison in the four years before the Eaton fire collected $500,000,000 of our money that they never spent on wildfire mitigation. That was 500,000,000 for wildfire mitigation that they never spent, including for clearing those ghost lines, including, it's one of those ghost lines that caused our fire. The Eaton fire should never have happened.

I mean, it's all the senseless loss of life, destruction of life.

If they'd only just done the wildfire mitigation that they promised to do that they already charged us for, we wouldn't be here. So those are the three things that I would say. You know, please do not just charge them charge us for wildfire mitigation, but financially ensure that it gets done through a B1774 that vehicle. Please ask that Edison advance emergency housing relief now that they've been protected. And then the last one, I forgot what I said earlier.

Thank you.

Thank you. Assembly member, Boerner, you got a name check and we're opening we're passing it to you.

I wanna thank you both for sharing your stories, and I'm sorry for what you've had to go through. And well, when you're speaking about your child going to college and how proud you are, but their success probably in life will be based on their trauma that they had experienced, and I'm sorry for that. You know, I've been in the legislature.

I came in with the chair in 2018. In 2019, we had to pass out AB 1054, and I was on the fence about it, but we were told we couldn't make victims whole without it. So I voted for it. And I feel like with, was it SB 254? Was it SB?

SB 254. Last year, it was the same thing. I was on the fence. I were, are we doing the right thing? Is this the right thing?

But we were told, you can't make victims whole. At the end of the day, I think every legislator wants to make victims whole. And when I think about it, I mean, miss Jen, you have said it more eloquently than my talking points here will say. But when we look at the balance of profit and liability and what we're doing to protect Californians, and I read the CEA report, I don't see the balance in the favor of Californians.

And that's what's my most concerning thing about reading that report is, and I appreciate the chair's clarification about pathways we may consider.

And so when I look at it, we've bailed out and we've bailed out and we've bailed out, and we've had loss and loss and loss. And we forget San Diego County had ours, and I think it was 2007. And there was no wildfire fund back then.

Yeah.

And so all parts of the state with these three IOUs have had losses, and there's not a path to stop the losses unless we change the incentives. So as survivors and representing your networks, when you read the CA report and you kind of answered this with my colleague, Assemblymember Harabedian question, what things do you think are the right path and what things do you think are the wrong path when we consider these pathways that the CEA is laying out in this report?

What would be? If you were you're talking to all of us. This is public record. What are the right what do you think for us as elected officials the right path is and what's the wrong path?

Will, why don't you go? Yeah.

Will, why don't you go? Yeah.

So great question, and and thank you for that sentiment about my son. I think from being engaged in these spaces since the fires in 2017 and seeing how utilities and all of their vast resources can triangulate between the courts and the PUC and here at the legislature and elsewhere. I would love to think that, myself and all of the other, public advocates in this space can jump into their kitchen and help them orient towards, safer utility. And, I certainly have have tried that over the years.

In fact, some of those are are represented in my in my slide deck about how to do that given some background that I have in quality assurance.

And bullets coming out about undergrounding and, you know, everybody's got their silver bullet and comes to this legislature and says, I know I've got I know how to do it. And what I'm confident in is if we set their profitability based on our public outcomes, they'll figure it out. They're bright people. And by and large, really good people. They just have the wrong incentive structures.

And so too often they come in here and they say, well, look, you know, we are incentives to start fire, you know, incentive to to not have fires. No. Look at your ROE. You start fires, you are making money in ROE, your investors are making money in all sorts of other ways that I could go into in terms of how they engage in the bankruptcy process and elsewhere to buy up those, that insurance debt in all sorts of other ways.

The only way to get at this is to say, okay, you want to be at the top percentile in terms of ROE across the country.

One of the good things that was pointed out in this report is that California is a outlier. We far exceed any other state in terms of ROE for the utilities. You wanna learn earn that top echelon? Fine. I'm a capitalist.

I support that. You need to drive affordable rates. You need to pay all your victims, and you need to show us by bottom line incentives, not, you know, how you are reducing wires down events and how are you are reducing ignitions. You do those things. You're better than the rest across the country.

Great. Here's your high ROE. If you're at the fiftieth percentile, don't be looking for the top ROE. So that's one way to do it. There are other ways to do it in terms of time to, like, CPI for utility rates and things like that.

But we we've gotta just get to bottom line incentive structures. We can revisit them, have the CPUC revisit that these things, you know, every year, every couple years. And by the way, this fits right into their mission. Their whole mission at the CPUC is to balance, right, utility financials with the public financials. So this is what they are supposed to do.

All of that safety stuff, hypothetically, was moved to office of energy infrastructure safety. So this fits right there. So that would be my recommendation. I would say regarding the report. I think the chair is absolutely correct that this does not point in any particular direction.

I would say that one thing that I would really, really wanna highlight is that Rand did a fantastic job, I think, of sort of engaging stakeholders, but they had a directive. Right? They had five key stakeholder groups. Joy and I were not among the key stakeholder groups. Right?

We were we were in the back of the room saying, me too, me too, please take our inputs. Right? But their marching orders were listen to the utilities, listen to the insurance companies, right, listen to the claimant attorneys, and listen to the ratepayer advocates, and I forget the fifth one. But the point is is that the communities which we're trying to solve for and the fire victims that we're trying to solve for weren't part of that.

And and and yes, we are traumatized by these fires, but we also come with a set of ideas and and ways to contribute to the policy that moves forward that is important to do.

And that's why I'm so thankful to be invited to this discussion. And certainly, I know that Joy and myself will do everything we can to help the committee to these are not easy issues and and by no means am I representing that, but man, we just gotta get to the bottom line incentive structures, and and I think that that's, you know, gets us, most of the way there.

Agreed. Thank you.

Alright. Assemblymember Rogers.

Thank you so much, madam chair. You know, one of the things that I'm sure we'll talk a lot more about is one of the the paths, as you called it, that's in the report. The direct quote was socializing the risk of damage from natural catastrophes.

And I think when I talk with survivors, when I talk with folks from local jurisdictions, I think in many ways, it feels to them like we already have done that at a time where we are seeing those record profits from the utilities. And in fact, there were previous settlements that some of the utilities had been under or until certain conditions were met, they weren't able to pay out dividends.

And yet we don't talk about that same type of an accountability structure for wildfire survivors or victims, from these wildfires to make sure that before dividends are paid out, before shareholders are increased, that we're making sure that, that that the folks are taken care of. And and, Will, I know my colleagues have heard me talk about this quite a bit.

But as a reminder and from a different voice, can you explain to them how wildfire survivors from camp and from Tubbs were compensated and how it's different now?

Yeah. Thanks very much for that question. Thanks for your advocacy. I I yeah. I think that we've sort of learned some good lessons from what occurred with the PG&E bankruptcy, but I think to a large degree, we've actually overlearn some things associated with that bankruptcy as well.

The bankruptcy was fraught with problems. Much of which could and should have been remedied by the first priority that I mentioned to the committee, which is transparency. Okay? So when you don't know the financials of the folks who represent you, it does lead to issues. Right?

And so that led to all sorts of other issues, you know, being provided with a 50%. In stock. From the company that burned your house down. And in addition to that, just burning you personally. It also is just completely unfair and unjust because they leveraged our trust holding.

The reason why we're sitting here years and years later is because they leveraged us holding a third of the company with stock and dragged it out so that their preferred investors could make more money. I mean, this is just it was a fraught with issues. But what I'm saying is our overlearning is that now I feel that the sentiment is do everything possible, but just don't go into bankruptcy. And I would say that that is overlearning. Bankruptcy is about restructuring.

If we drive transparency, then we'll have great representation of victims. One of the things that got cut out of the bankruptcy early on was there was a motion to have rate payers be represented in that courtroom, and those were pushed out.

So bankruptcy can be a good solution, not not the first line of defense by any means, but we shouldn't bend over backwards to do everything possible on the taxpayer dime and on the ratepayer dime to keep them afloat because of fear of, oh my gosh, what if they go into bankruptcy? So I think that there were a lot of learnings from that and and things that can be applied. Thank you.

Oh, thank you. And I think picking up on the point about getting folks rapidly rehoused, we don't have a represent representative on the panel right now from, local jurisdiction, local government who is navigating not just the rebuild of their own city, but the rebuild of each individual home. But one thing that I do want to mention is these wildfires create their own economic climate in each of these communities where the cost of goods, the cost of materials go up pretty substantially.

I think we saw in in Santa Rosa about a 40% increase in the cost of labor as well as the cost of materials for folks. You had a lot of folks who ended up being underinsured as a result of that, even folks who had an extended policy.

And then you also had some folks who had clauses in their insurance contracts that said that they had to rebuild like for like, which meant that they couldn't even rebuild a smaller house to try to get back, faster. And from a city perspective, when you have a a major natural disaster like this, property values are held to the the cost of the land because there's no longer a home on it.

So you have cities and counties that are trying to front load money to be able to rebuild while also recognizing that the dollars are not gonna come in at the same rate that they were and anything like development fees or fees that they might need for the amenities that folks have lost. Typically, they're being asked to defer those as well to try to keep the costs below. We have socialized the costs.

As a council member and as a mayor, it was heartbreaking to talk to folks from unimpacted parts of my city about when are we going to move forward with a park project or a transportation project. And the answer was, we can't help you right now. We have to help these other folks, and people believe that that was the right thing to do.

They thought that bringing, our fire survivors home was the right thing to do, but that didn't mean that there wasn't a socialized cost to the rest of the community for having to go through that rebuild. I think, Sarah Rose, I think we spent about a $100,000,000 in the first two years, played hopscotch with our budget, literally draining our reserves three different times and having to rebuild them three different times to advance money to get projects back faster.

And what we knew, what the data shows is that the longer it takes to get your residents home, the longer it takes for recovery to occur for all of those reasons. And you can do things like buy local and other things to try to bolster your your local economies. But the reality was the longer it took to get people stable in your community, the longer it would take not just for that individual to recover, but your entire community to recover.

And I think we need to talk about the socialized cost of that as well. And when I look at this report, and we'll dive into it a little bit more, there is very little retrospective on negligence.

There is very little retrospective on the accountability question about how do you adequately capture that you have communities that have been undercompensated. How do you capture that you have had work that has not been done that was promised to communities while investors and shareholders were paid out, and we instead socialized the impact of those fires? And so, I know we'll get into the next panel.

I wanna thank both of you for being that voice that can help to talk about it, because I do think it matters that it breaks through up here. But, also, to your point, it needs to be included in all of these discussions, and we can't just look forward and say we're gonna change things without actually looking at what a lack of accountability has created to get us here in this moment. So thank you.

Thank you. Alright. I have I have a follow-up question related to the fast pay process, which I think, miss Chen, you highlighted. What would need to be part and that is part of the the I think that was pathway option two point three point one. Create a fast pay facility for survivors of utility caused wildfires.

So what in your in both of of your view would have to be part of a fast pay process or the features of a fast pay process in order to make that a viable alternative to a protracted litigation process.

That that's a really exciting future to imagine, madam chair. I what we have done with the Edison Urgent Housing Relief program is it's not as big and visionary as what you just laid out, which is you just get the money that you need to recover or compensate for your losses fast so that you can rebuild your home, so that you can get on with your life as you were before the fire took away your home.

All we have done, I guess, we haven't been we've been too scared to think that big. All we've been really hoping is for Altadena families to be able to keep a keep a roof overhead because people are literally running out of housing now. And that's been a huge barrier for people who are in process of going homeless.

Right now, two out of three of us are still not home, and most of us are running out of insurance housing, ALE payments within the next six months. If not, we haven't already run out. So people are really scrambling like, oh my god. How do I keep a roof over my kid's head tomorrow? So if you're just in survival mode, you're not thinking about rebuilding your house.

You're just, you know, trying to survive. And in this kind of scenario, we've been saying to Edison, hey, we just juiced your profits by three times in all this executive comp and this and that and shareholder dividends. Would you just take a tiny, you know, a fraction of the profits we just gave you and advance it to us? Don't give it to us. Just advance it to us from what you'll give us in the future.

And you'll be fully reimbursed from the wildfire fund. But it's just this cash flow gap of when you'll be reimbursed and you wanna pay us in the future. And now that could be years. So who should cover that cash flow? It should be Edison because they got all the money from the they're getting all the money from the state, not us.

Right? Because who are going homeless. So that's all that was. This idea and and we hope that they will come through on that. On on this question then, a fast pay facility, I don't know right now what that would look like, but I would love to be a part of envisioning what that would be because that will be really exciting.

I mean, you know, these are people who were doing okay before the fire. They had homes, and now they're totally not okay. So, you know, our whole goal, our whole mission is to create a future where everyone has a real shot at getting home. And the one barrier to that is money. Right?

And so unless we can create some way to fast pay people, then the only people who will get back home are people with money. And recovery in California will be reserved for the wealthy, and that's what we're trying to avoid. So yeah.

Thanks. I I I'd echo that. I I have to say that I'm a bit skeptical about that recommendation because when I hear words like streamlining and fast paced, I I think of streamlining for whom. Right? And I think that there are certainly incentive structures to not pay fully and to get that done quickly and move on to avoid liabilities.

And so I would just caution that we not we not do that. You know, we advocated within the the study report for them to highlight full as a goal because it's just not fair otherwise. And so I I would also say not socialized. I think part of what I've heard, echoed through different quarters is sort of equating this to a lightning strike.

Well, you know, look, this is just another result of climate change, and so, you know, we should just treat it just like any others and and socialize the cost because we all are responsible.

You know, if this was an individual who, you know, through negligence and mismanagement started a bonfire in their yard and burned their neighborhood down and came into court and said, well, you know, I'm sorry. It's it's climate change. It's it's all these external factors. We wouldn't let them off the hook, and we shouldn't do that here. And so I would just say, with full with fast pay, it's gotta be fast, full, fair And not socialized.

And and if I may, this interest it's an interesting wording choice, semantic choice between full and fair. Because Edison has created this compensation program that they want everybody to take, and you have to sign away your lifelong rights. And they call it fair and fast. And then they can pay you out, they say, you know, within a few months. But what they define as fair is far from full for most people.

As I said, they give renters 25 k. They give smoke damage 10 k if you're within the literal burn line. But if you're outside the burn line, it's zero. And they call all of that fair, but fair is defined by them. I mean, you know, actual costs of compensating people for most families far, far, far exceed, you know, what they are offering here.

So so they say they say what do they say? They say fair and timely, but we're saying full. And full and between the words full and fair is a world of difference. We're just saying, just restore us to before you burn down our homes and communities. I mean, that's not Yeah. All we're asking.

I wanna I'm I'm I'd love to understand what you both mean when you say full. Does that do you mean the cost of the cost of rebuilding a home? or do you mean something else?

Yeah. So as part of the determinations that we received as part of the the PG&E fires, paper at home that says, this is how much your house is worth, and this is how much your your, your property was worth, and the pain and suffering of your kids. And I have a piece of paper and it has a bottom line number on it. And PG&E has said, well, sorry, you know, can't do that.

You know, I know we talked about, you know, full before and, you know, Bill Johnson went in front of the CPUC and said we're committed to paying victims full.

Well, sorry. Can't do that, but it's fair. And I cross examined Bill Johnson at the CPUC for hours and trying to, you know, get him on what is fair. Fair is in the eye of the beholder and all of this type of thing. So full is really, really, really important as we move forward.

And one just thought to throw out there, I think we have some existing programs to leverage. I think we have the California Wildfire Fund. We have the continuation fund. I think I think one way to look at this could be, okay, these are gonna be some stopgap measures because also what is fast for somebody who has to put food on the table tomorrow and lives paycheck to paycheck is different than what somebody needs as fast to might have some grace period there.

And so maybe we would wanna leverage these funds to get some of that fast payout and then sort of the slower payments that that might take a little while to have the utilities on the hook that for paying back back the fund and and and and meeting those obligations and having a system in place where we can quickly evaluate.

Okay. You know, Will's house is worth this much and and have that type of expertise to be able to to to do those checks. And the last thing that I would say is that part of this is a litigation industry that has arisen from these fires. And ordinarily, an attorney, third when they have to go into court and prove out that somebody did this. Right?

And so they get paid that that one third for that work. Largely in these disasters, they don't have to do any of that work. The fire department comes in, Cal Fire, some other folks come in and say, yes, they did it or no, they didn't. They don't have to do that, but they still wanna come in and charge a third. And then on top of that, which is what I was alluding to before, the third just isn't enough for them.

So they negotiate other deals behind confidentiality agreements, which again just muck around with the system.

I wonder if and just thinking out loud. So, like, the welfare fund and continuation fund, right now, it can only go to utilities. And then they decide whether, when, how much to pay us. Is there any way for that money to start to come to us first? Since we're the ones who have urgent needs, they're just, you know, you know, doing whatever they do, shareholder dividends and this and that.

But this money was supposed to be helping Californians. Right? And so can that money come to us before it goes to them and take come out of what they are going to owe us. You know what I mean? Like, have it come to us first because that would bypass this time problem.

The time problem is it only goes to shareholders and then, you know, at some undefined point in time, they choose some undefined number of, you know Yes. Amount of money to pay.

And I think that is a good that's actually, I think, a good transition to our next panel where our first, our first presenter is going to be Tom Welsh, who is the the chief executive officer of the California Earthquake Authority and the administrator of the, the wildfire fund. So I'll I'll I will just say that the way the wildfire fund is structured today is that it's a reimbursement fund. So the money does not it doesn't go to the Utility

That's true.

So when they if they pay you a $100, then they are able to submit a reimbursement request to the wildfire fund at that point. Right. But I think the question of what would an effective fast pay process look like, is is something that I think is really important for us to dig into both with our next set of panelists and hopefully in continued conversations with both of you. So with that, I'll just say once again, we really, really appreciate you being here.

We appreciate your advocacy, and we appreciate your work on behalf of, of victims across the state of California. So thank you.

Thank you very much.

Alright. So we are now going to transition to our second panel. As I said, we're welcoming Tom Welsh, the CEO of the California Earthquake Authority, as well as Lloyd Dixon, who is the director of the Rand Feinberg Center for Catastrophic Risk Management and Compensation amidst other titles. Tyson Smith, vice president from Pacific Gas and Electric. Fernando Valero joining us from, Los Angeles Department of Water and Power.

John Fisk, who is an attorney and part of the Consumer Attorneys of California, doctor Nathaniel Skinner, who is with the Public Advocates Office. And I think we also have Andy Neal, who will not be presenting, but is here as a technical resource, with Aon. Alright. Well, welcome, gentlemen. And, mister Walsh, the floor is yours.

Madam chair and and members, thank you very much for the invitation to come and and speak and and lead off an aptly named panel, which is examining trade offs. Because when I when I thought about and looked back at the scope of work that you gave to us when you authored SB 254, and it was passed and signed into law on September 19, it is laden with trade offs as as we will discuss.

The what I will do since the report has been out for a while, it has been digested, and it it will take some additional time to really digest it. I'll focus principally on, the process that we undertook, to attack the topics that are are in the study. Ultimately, the the report, speaks for itself and was the product of of a a very robust process that I'll I'll start.

But but that scope, we we decided that it was important to include the scope in its entirety on page 15 of the report because many of the questions that have arisen throughout, the hearings that we've done so far and and the the commentary that we've received so far find answers, inside the the depth and thoroughness of the scope of topics that you asked us to undertake.

When we looked at the scope, one of the first things we did was recognize that you had called upon us to produce a report that was really based on very deep, thorough engagement with a broad array of stakeholders. Within a couple of business days after the bill was signed into law, we started the process by issuing a broad call for stakeholder engagement.

And we asked and we spread that far and wide, and we tried to get everyone who we thought might be interested in participating in this process to give us early written submissions to help us continue to build on a process in an evolutionary way that that heard people's voices early so that we could be responsive to those voices. We got a fantastic outpouring of contributions from a wide array of stakeholders.

80 different unique submissions from nearly 70 individuals and organizations that wanted to participate and contribute. All of those materials are posted side by side with the report. We wanted to make sure that, those materials, that that first person input was available to the legislature alongside the report, and those are there on on our website. That feedback also helped us inform how we were going to organize the topics into work streams.

And we created, four work streams to focus on risk reduction and how you pay for it, the mitigation piece of bending the risk curve down.

We had a a work stream focused on the utility sector and also how the utilities, finance and pay for their own system risk reduction. We had an insurance industry work stream, and we had a catastrophe financing work stream. One of the first things we had to do was, hire subject matter experts to make sure that we had the right people guiding that process, asking the right questions in a really informed way.

I gave every work stream leader a directive to engage with stakeholders, not just stakeholders, but survivors in particular. The systems that we use to equitably and fairly allocate losses from catastrophes are embedded in the insurance industry.

They're embedded in the utility sector, and survivors have a voice across every piece of what we're doing. So I told the work stream leaders that it was really important to the process that they engage with stakeholder or, I'm sorry, survivors and survivor representative networks like the ones that you just heard from because that was, necessary to really help inform our thinking as we distilled and brought forward strategic options for your consideration.

This the Workstream leaders went out and spent hundreds of hours engaged with in personal conversations with with a wide variety of stakeholders, not just the ones that were identified in the SB 254 and that we were directed to connect with, but everyone who would talk to us and had meaningful input was contacted. And and those hundreds of hours of conversations and interactions and interviews helped inform a a robust convergence process.

The pathways and strategies that we'll talk about and you may have questions about We're the product of bringing those separate work streams together through a convergence process and getting together on multiple days on multiple occasions within the CEA office to share notes and to make sure that voices were heard across those work stream organizations.

When we when we then converged and and got together and started building the report, the next part of the process was to charge the work streams with helping deeply analyze the cost of inaction. And as the chair mentioned, the outcome of of that interaction really demonstrated to us, to everyone involved in the project, that the status quo is not working for anyone. Survivors, as you just heard, foremost among among them.

But survivors, communities, ratepayers, insurance policyholders, the utility sector, the insurance markets, they all are challenged in one way or another by the level of natural catastrophe resiliency that we have here in the state. And and and that in turn really identifies that the report needed to bring forward and examine trade offs.

And and that's why the framing of this particular panel, I think, is is so apt because the status quo doesn't work well for anyone. We when we talk about the pathways and strategies and options, we did struggle to to try to come up with a good way to synthesize the 10 topics and and bring together in an organized way the ultimate options that are available for you to consider. What we came up with was breaking them into these three pathways.

Earlier in the process, I have to confess that I I spent some time thinking about a systems based approach to presenting options so that we would present options that were related to the insurance industry as a system that we use to allocate losses from natural catastrophes and the utilities for as a system that we use to allocate losses from utility caused wildfires, but that was an incomplete organizational structure that that tended to lose some important voices like survivors.

Instead, we came up with a a a set of pathways starting first with an area that we all agree on, which is the need to find ways to invest in reducing the size of the problem through mitigation.

And and that first pathway focuses on the community level personal responsibility of landowners and communities to address the needs of their community when it comes to resiliency.

The second pathway is is where most of the trade off and most of the friction that you will hear over the course of hearings and and subsequent hearings on any bills that are introduced in response to the study and and in response to the challenges that the state faces, those are those trade offs are really deeply nested in the second pathway when we come to the topic of how we equitably allocate losses across the state when natural catastrophes strike.

And then the third pathway is essentially the the larger, more transformational opportunities for the state to step in if it chooses to, to approach natural catastrophe resiliency more holistically and more fully by creating new funds and and new mechanisms. Protection gap enterprises are is generally in my business how they're referred to where there is a a gap in the systems that provide protection from natural catastrophe. What are the different structural options that are available to the state to to fill that gap.

An important aspect of the report is that although we have three pathways, nine strategies, dozens of different options for you to consider, I really want this not to be taken as a a singular, exclusive list of things that you can do to address the problems that we face. It's designed to bring forward options that that felt fully baked or baked enough to be actionable to be picked up.

But the creativity, the life experience that this body, the assembly along with the Senate bring to the discussion is a vital aspect of your efforts moving forward. So the you could call this a a choose your own adventure or or kind of build a bear approach. And and it's it's more serious than that.

I I don't mean to to undermine the seriousness of it, but but I don't want the report and the list of options to be viewed as exclusive. I think that the legislature, the individual members, the experience of of your staffs will add value and see opportunities that the study didn't have the the timeline to fully develop. So there may be other additional or combinations of things and packages that can be put together to help address the challenges that you face.

I can go into to greater detail, but I wanted to just, in in the short time allotted, given the fact that there's seven of us seven of us up here, to just give you that overview, the process of how we got to where we got to. We were pleased pleased may be the wrong word.

We were honored to to be given the opportunity to to deliver the report, to undertake the work. It was a lot of work, and we hope that we've delivered something that is ultimately useful to the legislature and to the governor as you do the hard work that lays lays ahead.

Well, thank you. And we're gonna go ahead and hear from all of our panelists before we open it up for questions. But, mister Welch, I think it would be helpful before we hear from our other panelists if you could just remind committee members as well as as folks that are are watching the hearing how the current wildfire fund is structured and how the the claims process works. How do things work in a situation where a utility has been negligent on the one hand?

How do things work in an instant where a utility has been found to have behaved prudently, and who is is paying in both of those cases. If you can just give us the one minute

Okay.

Reminder version.

The one minute version is that the the key characteristic of the wildfire fund is that it does not sit between utility caused wildfire survivors and the utility companies. The utility companies, whether the fund exists or not, is liable for utility caused wildfires. And and so it's sometimes characterized as a bailout. It actually is just an insurance fund. It's a nonprofit way of providing insurance for the utility companies for when they cause when their infrastructure causes wildfire that that produces damage to property lives and and produces other types of damage.

The way the process works is the wildfire funds is activated by a utility caused, wildfire by what's called in the statute AB 1054, a covered wildfire, which can be triggered either by Cal Fire or a governmental entity determining that the ignition came from wildfire infrastructure. Or, alternatively, if that process is taking long, a utility company can decide to settle pending litigation on terms that result in the dismissal of that litigation with prejudice.

And that in turn is another independent trigger of the ability to seek coverage from the wildfire fund. The whether or not a fund is covered or a a wildfire is a covered wildfire or not, is is not a determination that's based on negligence. It's just a binary.

Either either it's a utility caused wildfire or it's not. And and they once it becomes a covered wildfire, they pay the first billion dollars out of their own claim paying capacity, and then we pay the remainder of the eligible claims that emerge from that wildfire.

After that is done, then there is a subsequent proceeding in front of the CPUC, a a catastrophic wildfire proceeding in which there is a determination of whether the utility acted prudently and met the the prudent manager standard with respect to that particular wildfire and the the particular infrastructure that was the source of the ignition.

If they were prudent, say, they had perfectly maintained infrastructure, but the ignition source was a metallic balloons or a wildfire or a a wildlife a a bird flying in and and causing the ignition, that prudency would allow them to keep all the money from the wildfire fund.

If that proceeding results in a finding that they were imprudent in some fashion, which is akin to but not exactly the same as negligence, then they have to reimburse the wildfire fund for a portion of the money that they drew out of the wildfire on account of that particular covered wildfire.

So there's there is in the instance of the Eaton Fire, for example, there's a cap on how much they have to reimburse, which is 20% of a regulatory number. Their their transition transmission and distribution equity rate base, it's a common number all three of the utility companies have available and it provides a formula for how much they should have to reimburse if they're found to be imprudent.

So, for example, in the Eaton Fire, that number would be just under $4,000,000,000 that they would end up reimbursing back to the wildfire fund.

From shareholders?

Well, from it the the wildfire fund is funded 50% shareholder, 50% rate payers, and and we have an obligation to prioritize the use of shareholder funds first when we reimburse them for their claims. But whatever money they got from the wildfire fund, they would have to reimburse to us. And from whatever money that they have available to themselves, which

Alright. Folks may have some questions on that as we go into the hearing. Alright. Thank you though for reminding us how that works. Let's move to director Dixon. Welcome.

Yeah. Pleasure to be here, madam chair and members of the of the committee.

So my name is Lloyd Dixon. I'm a senior economist at RAND and director of RAND's Feinberg Center for Catastrophic Risk Management and Compensation. And my job today, here today is to provide some background on where the money comes from and where it goes under the current compensation figure current compensation system.

So I'll bring up and pose and address three questions. So the first is, how much have utilities paid to compensate survivors of utility caused wildfires? And I think I have a slide that you can put up there that that I'll go into. But first, let me note that, you know, the first, you know, insurance payments are the first source of compensation after wildfires.

They pay out whether a wildfire is utility caused or not and they cover property, typically replacement costs up to the policy limit, as well as additional living expenses, again, up to the up to the policy limit.

So when the wildfires utility cause, you injured parties can seek compensation from the utility for their uninsured or their under insured damages. And as as seen in this figure, between '27 and 2017 and '24, utilities paid approximately $38,000,000,000 of compensation to the the groups I'll go through in a minute. And just to put that number in in perspective, Southern California Edison's and PG and E's annual annual revenue from electricity revenue is about 18,000,000,000 a year a year. So this is 38,000,000,000, a large sum of money.

About 55% of the payments, as you can see in the figure, are to injured parties for uninsured and under insured losses.

So these are payments for property damage, additional living expenses, wrongful death and bodily injury, noneconomic damages. And so examples of those are for emotional distress during evacuation, loss of irreplaceable personal items, or difficulty adjusting to a new living situation. And the utilities also cover part of the attorney's fees of the of the of the claimants. About 40% are the the next area there, the the orange area, are payments to insurers. Okay?

Insurers bring claims against utilities on behalf of their policyholders to recover the insurance claim payments they've made to parties who've suffered damages. And these are called subrogation claims. But insurers don't recover all their claim payments. They typically recover on the order of 50 to 70% of their claim payments, and and we'll come back to that later. And the last part there are payments to public entities, and those account for a much smaller share.

And therefore, uninsured property damage, response costs, staffing of evacuation centers, other things like that. Okay. So now let's that was the first question. Now let's turn to the second question is I wanted to talk about how much is spent on litigation costs in our current compensation system. So legal costs in our current system are considerable and compounded by the approximately four years it takes on average to resolve claims.

That's on average. So some take far longer, some are shorter to resolve claims between a survivor claimant and the utility. So I'm talking about utility utility claims there. Plaintiff's attorneys the plaintiff's attorney's fees are typically are sort of between 20, 25, 35% are not unusual. There are some occur outside that range, but that's a kind of a typical range.

And applying this percentage to the approximately $21,000,000,000 in the blue area there to the injured parties means that injured parties paid roughly 5 to $8,000,000,000 in legal fees for this over this period in attorney's fees. The utility and the utility and electricity rate payers cover part of these fees, but survivors recover cover the rest. And these legal fees take dollars away from the money survivors have to to rebuild. Okay. So litigation costs are also incurred by insurers pursuing the subrogation claims I talked about.

20% of the recovery is not uncommon, and this would amount to roughly another $3,000,000,000 in this period. Fees for attorneys that defend utilities, the defense costs also add to the totals, and these can add billions more. So that's, like, an overview of the litigation costs in the current system. And now I just wanna finish with a looking at a third question, it's about how are the costs of wildfires the wildfires spread over the different stakeholder groups.

So first, let's talk about the split between utility payments for the utility payments covered part of that, but let me just sort of kind of emphasize that for fires after AB 1054 was passed, the wildfire fund reimburses utilities for, the the compensation payments they made.

And that's but those funds are half from rate hares and half for, utility from utility shareholders. We're a half half split subject to the the the caveats the mister Welch went through in order meaning subject to the CPUC prudency review, which I won't go into again. But if the fund so that's for while the fund has money. You know, if the fund runs out of money, the utilities are still liable. They still need to make the payments regardless if there was a fund or not.

And the CPUC has the authority to determine what portion of those payments are passed on to rate payers. And there's some guidelines from that that we can go into as as needed. But, you know, bottom line, there's an allocation process that goes on there. Now I just wanted to point out that if the result of the allocation of funds between rate payers and shareholders, Shareholders causes utilities to be more financially fragile, you know, more cause the credit ratings to drop, for example.

That will add to the cost that utilities incur in raising debt and in their equity, their capital equity, their equity costs.

And ultimately, you know, those those costs are passed on to rate payers. So one of the key things here is that, you know, you you deal with this. There's a market for investment and and and shareholders or investors can invest in California utilities, other utilities, and the return they demand is based in part on the volatility and the uncertainty of their investment.

So once you make it to the extent that this allocation of cost between utilities and shareholders makes utilities more fragile, that adds to these costs of debt and equity, which end up in the long run moving on to rate payers. Okay.

So that's how the what I wanted to say about the division of utility outlays outlays between shareholders and rate payers. So I also wanna point out that a smaller share of the overall costs are, of utility cost wildfires are born are born by insurers and their policyholders. So that's because as recall that, insurers recover about 50 to 70% of their of their claims payments from the utilities and utilities caused wild fires.

And so that means that some of the costs of utility caused wild fires are sort of in effect transferred from the rate payers to insurers and their policyholders. And over the long run, this shift means that insurance policyholders are paying more for their coverage than they would be otherwise.

Now the the amount paid by insurers and their policyholders is far less than the amount paid by utilities and their rate payers, but there's still a that group is contributing. Finally, I wanted to point out that, you know, as I think it's become apparent from the conversation today, a lot of costs there are costs that are born by survivors. And and it's hard to quantify those, and we can talk about, you know, more about what fair and full means and that kind of thing.

But the bottom line is the amount that is born by survivors is determined by, you know, how much their settlement, their settlement from the utility, net of litigation costs, once you take out the attorney's fees and others, fall short of their losses. So, you know, under our current system, you know, the survivors are also bearing.

So you have the utilities and the rate payers, you have the insurers and the policyholders, and you have the survivors kind of currently in the current system spreading spreading these costs. Also, I'll just conclude by the similar argument can be made for the cost for public a cost that are paid for by public utility public sorry. The public parties up on that figure that the public entities that bring bring claims that that are then passed on to their taxpayers. So thank you.

Thank you. Alright. Moving to, mister Smith, who is joining us from Pacific Gas and Electric. Welcome.

There we go. Thank you. Good afternoon. My name is Tyson Smith. I'm from Pacific Gas and Electric.

I'm appearing today on behalf of the three the state's three large investor owned utilities. Thank you for the opportunity to speak here today. At the outset, I want to thank the CEA for its work in preparing the resiliency study. They led a transparent and inclusive stakeholder process that took a deep look at wildfire related issues. The input from the state agencies to that process was also especially well done, including from the CPUC, and it provided valuable insights into issues that we face as a state.

The resulting study is comprehensive, and it's really remarkable in its clarity around the problem that we face in California due to wildfire risk. I think the report makes one point crystal clear, and that is 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, homeowners, taxpayers, and the economy at large if we fail to act. The stakes really couldn't be higher.

We agree with the report on the impacts to utility customers from the current system. Wildfire costs, as we've heard, make up approximately 20% of utility bills. This reflects the billions of dollars that we've poured into wildfire safety, into hardening the grid, implementing new technologies, and stepping up maintenance and vegetation management. Yet climate change continues to outpace some of these efforts. The CEA report also makes a fundamental point that wildfire risk harms utility finances.

A financially distressed utility can't invest the way we need in the state in safety and clean energy or in resilience. And those higher borrowing costs, as mister Lloyd pointed out, flow directly to rate payers. Put another way, inaction, combined with utility financial distress, means higher customer bills, and all of those costs fall hardest on those that can least afford them as lower income households devote more of share of their income to energy related costs.

Another theme that you see in the report is that effectively mitigating wildfire risk is a really a whole of society problem. Utilities alone can't reverse decades of development in what fire prone areas or the buildup of fuels.

I think one of the important points from the report is that utility investments and risk mitigation have delivered real results. We've reduced ignitions and reduced risk. But as we make additional investments, we face declining returns without broader efforts beyond the utility system. Simply put, wildfire spread results from factors that are outside any one entity's control, and we need to approach solutions with that in mind.

And finally, the key point, again, at the end is, as the report makes clear, if nothing changes, the pressures we face as a state continue to mount even absent another catastrophic wildfire.

We really need an all of government, all of society approach to tackle these interconnected and interdependent issues head on. And to that end, the the report identifies three pathways which make a lot of sense for addressing this risk. First, we gotta commit to community wildfire risk reduction, whether that's through home hardening, better land use planning, streamlining mitigation work. Second, we've gotta equitably allocate catastrophe burden among all involved stakeholders rather than have them fall on a single sector of our economy.

And third, we need to look at developing state led strategies for resilience by creating new tools for funding wildfire losses and mitigation.

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

Thank you. Alright. Next up, joining us from Los Angeles Department of Water and Power, Fernando Valero

Valero. Welcome. Thank you, chair, and thank you, members of the committee, here on behalf of DWP. And we're a member of the California Municipal Utilities Association. First, let me say that we applaud the SB 254 study and finding that catastrophic wildfire risk is a society wide problem for which the 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 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 city services to rebuild and recover. In an extreme scenario, wildfire liability placed on a municipal to 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.

Performing 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 as identified in the CA 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 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 costs 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 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 prongs I just described act together to ensure utilities can access financing, liabilities can be financed, and victims are protected.

We understand that this is an immensely challenging issue, and we look forward to supporting your efforts. Thank you.

Thank you. Alright. Next up, we are hearing from John Fisk with, the Consumer Attorneys of California. Welcome.

Hi. My name is John Fiske, and I'm an attorney speaking on behalf of Consumer Attorneys of California. For over ten years, I have represented thousands of wildfire victims, including families, businesses, and over 130 public entities, like Los Angeles County and the city of Pasadena in the twenty twenty five Eaton Fire. I've also represented the city of Malibu, the city of Sierra Madre, Pasadena Unified School District, Ventura County, Placer County, Santa Barbara County, the city of Santa Rosa, Sonoma County, Orange County, and the town of Paradise.

I speak on behalf of the tens of thousands of wildfire victims, rate payers, small businesses, farmers, and public entities, which have had their properties, and in many cases, their lives destroyed due to the negligent and sometimes criminal conduct of investor owned utilities. Over 35,000 homes, businesses, structures, and governmental properties have been destroyed.

Tens of thousands of lives have been devastated, and over 130 Californians have lost their lives. These statistics overwhelmingly point to investor owned, for profit utility negligence and mismanagement. IOU caused wildfires are not natural disasters. California's civil and criminal attorneys have spent two decades exposing the causation of investor owned utility caused wildfires. It is inaccurate to term, as the CEA report does, IOU caused wildfires as natural catastrophes.

When the overwhelming decades of evidence collected in California's civil and criminal judicial systems point to mismanagement and, in some cases, crimes. PG and E plead to 84 counts of manslaughter and one felony for the two thousand eighteen Camp Fire that took over eighty four lives. Legislators reviewing wildfire policy must ask themselves, who are the institutional investors who own these for profit utilities? And how much profit are they making while cushioned by AB 1054 wildfire fund, already partially funded by ratepayers.

PG and E's and SCE's top shareholders include institutional investors such as Vanguard, BlackRock, and State Street.

In 2025 alone, PG and E's net profits were $2,590,000,000, and SCE's net profits were even higher, $4,460,000,000. In the same year, its equipment started the Eaton fire, which burned over 9,000 structures and killed nineteen people. If the California legislature is looking for ways to fund the liabilities of IOU caused wildfires, they need not look further than the multibillion dollar net profits of the IOUs that caused the wildfires. In this discussion, safety must come first.

Relieving IOUs of legal liability will only disincentivize IOUs from preventing wildfires to begin with.

The most destructive and costliest wildfires in the past ten years have been started by IOU infrastructure, equipment uninspected, or inspected and ignored. Meanwhile, in the same time frame, there has been a dearth of wildfires started by municipally owned utilities, which are locally managed, non for profit, and subject to the democratic process without the influence of corporate profiteering.

IOUs should not be allowed to cost spread or raise rates to pay for liabilities unless they have proven beyond any doubt that they manage their equipment and infrastructure with the highest safety standards in mind. Today, the highest safety standards must account for higher temperatures, drier climates, and stronger winds. Relieving IOU liabilities will decrease safety standards, not increase them.

Likewise, the role that wildfire mitigation plans play in cost spreading decisions must be strengthened. CPUC and other regulatory oversight must be stronger to simultaneously promote safety and protect ratepayers. Bills like AB 1774, which impose audits of wildfire mitigation spending, are necessary and overdue. And executive compensation must be tied to wildfire safety performance as the governor's office once lauded in 2019. Attorneys do play maintaining these safety standards by exposing evidence of negligence through documents and depositions in a court of law.

CAOC has introduced and sponsored several bills to further maintain the strong ethics of the plaintiff's bar. I direct this committee to CAOC sponsored bills and laws such as AB 931, precluding lawyers from sharing fees with non lawyer financial investors. SB 37, precluding misleading or deceptive advertising. AB 2305, prohibiting private equity firms from directing or influencing the practice of law. And AB 2039, further enhancing protections against capping, misconduct, and bad financial arrangements.

CAOC and its members support responsible practices that protect access to justice while maintaining safety standards for all Californians. I thank you for your time, and I'm available to answer any questions you have.

Thank you. Alright. Let's see. Last but not least, doctor Skinner joining us from the public advocate's office. Thank you.

Good afternoon, madam chairs and members. Thank you for the invitation to speak with you all today. My name is Nathaniel Skinner, and I am here in my capacity as deputy director of energy at the public advocate's office. We represent rate payers of investor owned utilities and advocate for affordable, safe, and reliable service across energy, water, and communications while advancing the state's climate goals. This includes representing investor owned utility customers on issues related to wildfire mitigation costs, wildfire mitigation plans, and related matters.

The SB 254 report identifies many statewide risks and consequences regarding wildfires and their societal impacts. However, my comments today are focused on the rate payer and utility cost recovery aspects of the report. A critical starting point is recognizing that rate payers are already paying substantial and growing wildfire related costs. The cost the scale of these costs is significant.

As the SB 254 report notes in the five years between 2019 and 2024, the investor owned utilities spent $27,000,000,000 in rate payer funds on wildfire mitigation measures including covered conductor, undergrounding, and vegetation management.

Over half of those rate payer charges have come outside of the general rate case process. $9,300,000,000 has already come into rates outside of the general rate case. Another 7,300,000,000 is currently pending before the commission and a further 2,000,000,000 is pending in accounts that the investor owned utilities have not yet sought recovery for. Allowing utilities to recover costs outside of the general rate cases, which should be the IOU's primary budgeting process further exacerbates affordability concerns.

And for those following on the slide deck, we're on slide three now.

Since 2007, the investor owned utilities have sought nearly $30,000,000,000 from rate payers to recover major catastrophic wildfire costs. We currently pay $900,000,000 per year for the wildfire fund, and if necessary, the continuation fund. Rate payers pays about $700,000,000 per year for utility wildfire insurance. As noted in the s b February report, PG and E and Edison customers pay approximately $10 a month out of their bills just for these two insurance mechanisms, and SDG and E pay approximately $6 a month.

And as discussed by other panelists, wildfire costs now account for up to 20% of customer bills.

Adding another $10 per month through a permanent wildfire fund would exacerbate the already unsustainable bill growth and threaten California's climate goals. Turning to slide four now. Given the scale of wildfire related costs already being borne by ratepayers, several questionS Become particularly important when evaluating the proposals discussed throughout the SB 254 report. To highlight a few of these, does the proposal meaningfully reduce wildfire related costs? Are increasing wildfire related costs tied to measurable reductions in wildfire risk and improved safety outcomes?

And who ultimately bears the financial responsibility over time? Electric rate payers, utilities, insurance rate payers, insurers, taxpayers, or some combination? Turning now to the last slide. With these questions in mind, I wanna close with several broad recommendations that can help ameliorate the affordability crisis. One, do not increase costs to rate payers.

Further shifting wildfire cost on the rate payer bills worsens affordability and undermines California's clean energy goals. Number two, keep the investor owned utilities accountable. Wildfire related cost recovery must be tied to measurable reductions in wildfire risk and demonstrated improvements in customer safety. Number three, lower cost to rate payers. Reduce financing costs associated with investor owned utilities wildfire related capital expenditures to deliver direct meaningful bill relief to customers.

And four, increase transparency and prioritize investor owned utility spending. Investor owned utility wildfire mitigation costs should be reviewed holistically in the general rate cases to ensure spending is prudent, prioritized, and in the rate payers best interest. For example, in Senate bill 254, alignment of the general rate cases at the CPUC with the wildfire mitigation plans at the office of energy infrastructure safety is a good step towards getting that alignment.

As policymakers consider proposals discussed throughout the SB 254 report, it is critical that clear standards for risk reduction and cost effectiveness must be put into place to ensure wildfire mitigation spending remains targeted, effective, and sustainable for rate payers over the long term. Thank you, and I look forward to your questions.

Alright. Thank you. I think that is all of our panelists. And as I mentioned, we also have an additional witness available to answer questions. So thank you so much for being here.

With that, questions from committee members? Assembly member Papin.

I just wanna follow-up very quickly on, words like measurable appeal to me. What what are your thoughts on how one determines what measurable is? Whether it's measurable reductions in wildfire or measurable you had one other measurable in here somewhere. I think it dealt with mitigation costs as it relates to rate cases, perhaps. I'm not sure.

Rate based best interest. So do you have thoughts on that?

Thank you, Assemblymember. Part of this is it will take a while to actually understand is the mitigation effective. We're looking at utility tools and models. We're assessing them. The Office of Energy Infrastructure Safety has a public process that looks at that.

And just looking at how the utility wildfire models are changing can inform those risk reduction measures to help understand which should be done where. One item I wanna highlight is when we're discussing a financial assessment of where's the money going, that just tells us was the money spent. It doesn't tell us if it was spent on the right things. So it needs to be more than that.

The commission does have a process that's starting to relook at and more thoroughly dive into when the utility is given money, are they spending it?

And not only are they spending the money, but are they getting the units of work done that corresponded with that forecast authorization from the commission? So it's looking at both sides of that is what is the cost of the work getting done, and is the work itself getting done, or are we paying two times as much or half as much?

It seems to me there must be some scientific analysis that comes into play as well when we're talking about modeling, and do we think that wildfire mitigation is really happening? So where would you see the scientific analysis coming from in this measurable term? Because we we talked about spending money and being accountable for where the money is spent. Are you getting the units done? But what about effectiveness?

Because we have these we want to you know, I heard from the trial lawyers and and there's some trepidation to interfere with liability and that sort of thing. But if you act prudently and all this other good stuff because you spent the money and you had measurable results that there was hardening and and yet something still happened, Where does that leave us? So I wanna get back to this measurable thing because it seems like a reasonable request to me.

But there's some scientific analysis come where do you see it coming from?

Currently, it's coming through different areas. So CAL FIRE, for example, upstates their maps frequently. The commission has its high threat fire maps that include overlaying where utility infrastructure is. As we look with greater understanding of the impacts of the wildland urban interface, Again, that's more of a CAL FIRE or local fire agency driven assessment. It's a blend of looking at the probability of an ignition.

And some of that data we're getting for the utilities, we can also see historically where there's been undergrounding, where there's been covered conductor, where there's been fast trip, or EPSS. Where those measures are coming in, are we seeing the same incidence of lines down, outages, under what conditions are those ignitions still happening or not happening. It's definitely a lagging indicator. So we don't necessarily see all that till we've been through five, ten years of weather and storms in conditions to see how well it holds up.

But we do know where undergrounding has been done, covered conductor has been done.

And we can see that those activities do lead to a very significant reduction in the ignition. And then the second part of the equation comes in really with entities with fire modeling experience of what are the consequences if there is a spark that doesn't get extinguished fairly quickly and then does it lead to a major wildfire.

And that's where some of the other measures talked about in the SB 254 report come in of when we look at how do we have community household resilience, other things along those lines.

Right. To reduce the risk. I mean, we're all talking about risk today. And but I and one more question, if I may, of our our friends from LADWP. And thank you very much for your handout.

And by the way, thank you all for for being here today. And we're walking a fine line here. This is not gonna be an easy task to use your word. What was it? What's the name of this panel?

Examining trade offs.

Trade offs. There you go. Fine line with trade offs. But I did have one quick question because you you were kind enough to give us a pathway one and pathway two. Are you advocating for both of those or one or the other?

In other words, get rid of the inverse stuff and do these three things or do them all.

Yeah. I I think eliminating inverse sounds like a a simple thing to do, but it's actually obviously very, very challenging. And it nevertheless still would would result in litigation, right, in some some manner. So I think what we're suggesting is perhaps you start with eliminating inverse, and then over time, you could implement pathway two. Right?

Understanding pathway one is a very big lift. Let's say if you were unable to achieve pathway one, then we think at minimum, pathway two needs to be implemented. And we feel like those three pillars have to come about together. They're they're they mutually support one another. So that's what we're proposing.

Got it. Okay. Alright. Here's to fine lines. Thank you, madam chair.

Thank you. Assembly member Calderon.

Yes. Thank you, madam chair. And I wanna thank you for convening this hearing today, this excellent panelist. Both panels really, really helpful information. I have a question for mister Smith.

A few of the panelists have talked about audits. Can you explain or clarify the audit process for us?

Sure. I'd be happy to. Well, first, there there's a series of lots of oversight of our activities at the CPC. First, all costs that we we are reviewed, audited, and scrutinized by regulators through public and stakeholder processes that conduct regular and thorough audits, including by the state auditor. To the extent there's, allegations that there was reprioritization of wildfire related funds, there's actually a statute that prohibits us from, diverting wildfire spending.

So I I think there's there's our our activities are audited both before we spend money, and we're agreed on what are the right things to spend money on. And then afterwards, they're audited not only to determine whether we spent the money we said we did, but that it went to the right places and was on the right activities and that we achieved we acted prudently in incurring those costs.

So there's very extensive oversight of our activities, including audits that have not indicated that we've failed to spend wildfire funds.

Okay. And who does those audits?

There are audits periodically done every annually by Office of Energy Infrastructure Safety around our performance of our wildfire mitigation plans. They do both field audits of our work to the adequacy of the work we're doing as well as on our spend of these activities, and those occur on an ongoing basis.

Thank you.

Assemblymember Rogers.

Thanks, madam chair. Shockingly, I've got quite a few questions. And then also one of our colleagues asked that I ask a couple questions on her behalf as well. So I think I wanna start and pick up that thread a little bit because we've heard cited multiple times in this committee and in previous committees about the 2,500,000,000 that is unaccounted for in wildfire mitigation spending. Can you address that at all?

Sure. I can. That that's that's not an accurate characterization of it, at all. So what the audit looked at was where we spent money on wildfire mitigation in the over a given time period. We we did we spent money above and beyond what was authorized in our general rate case as, like, here mentioned, mister doctor Skinner mentioned.

You know, general rate cases where we define our regular spend, but in the late nineteen tens we were twenty tens, we were dealing with extreme wildfire conditions, and we were out going out and doing a lot more work and rapidly hardening, doing vegetation management, and the like. That meant that we spent more money than we were authorized to spend in our GRC. That included us taking some money that we were spending on non wildfire related activities and dedicating those to wildfire risk mitigation.

So what we actually did was spend more than we were authorized to spend on wildfire mitigation. That audit report simply looked at where what work did you not do that was not related to wildfires over that time, and those are activities that are not spelled out that we're required to do.

They're groups of funds and activities that were planned in our general rate case that we, ultimately needed to spend more money on wildfire risk mitigation. So, that's not accurate characterization to say that it can't be accounted for. The money was spent, and it was spent on wildfire risk mitigation.

That's really helpful, and I appreciate that. Did then the additional amount that you spent, did you get recompensated for that in the next general rate case?

That is actually went one? There's actually it's not through the general rate case. It's through through those are those costs are recorded in a memorandum account, which then the utilities have to go and apply for cost recovery at the CPC for those. That goes through a public stakeholder process with intervener intervention and and CPC administrative law judge looks at those issues and decides whether and how much of those costs should be passed on to customers.

And so we go through that process, you know, on an annual basis or as necessary to ensure that those costs are accounted for and were spent prudently.

I I appreciate the reframe, on what that 2,500,000,000 number that we keep hearing is. I think that it's helpful. And at the end of the day, that's still potentially being passed on to ratepayers.

That is correct. But, again, there's oversight of that spend to ensure that it's being spent to reduce risk, and it's been on activities and on costs that are prudently occurred. So there is oversight active oversight of those activities, again, before any of those costs are passed on to ratepayers.

Gotcha. I think I'll ask some of my colleagues questions really fast. Going to mister Welch.

I think one of the things that you've heard kind of broadly across this discussion is that many of the trade offs that you are suggesting, we understand the difficult choices. Many of us are gonna be asking the question about what are our ratepayers, what are our taxpayers getting in exchange for these changes in the system. And I think you've already heard from the first panel to now that one of the fundamental questions is going to be about accountability.

And I think the question from my colleague is, does your report make any recommendations to create deterrences for wrongdoing? And specifically, she cites PG&E being found criminally liable for 84 felonies, SoCal Edison's equipment being found to be the cause of multiple fires.

What in your report examines the trade off from a rate payer, taxpayer, and I know we make a lot of distinctions here between the two. Really, there's not much of a distinction in my mind on that. What trade offs are you contemplating in the report between accountability for wrongdoing and for negligence versus reduction in liability?

There's a lot embedded in that question. When you when you look at all of the options and the the structure of the pathways, I'm gonna start actually with pathway one, which is risk reduction. The third strategy there is focused on utility investment in infrastructure safety.

AB 1054 in 2019 that created the Wildfire Fund, created the Office of Energy Infrastructure Safety, focused attention on the need to make more targeted risk reducing investments knowing that those are at the expense of rate payers.

So when you first start thinking about the balance between the interest of rate payers and the accountability of the utilities, you have to acknowledge that rate payers, all of us as rate payers, bear the cost of the risk reduction investments that are made in those systems.

So we wanted to include in the first part of the the first pathway a focus on ensuring that as we ask rate payers or as the state and the CPUC asks rate payers to invest policyholder money in risk reduction, that we do it in a way that is is sensitive to a threshold analysis.

You know, we could, we could in theory spend all of our rate payer money, all of my money as a rate payer on trying to zero out the risk. And the utility companies may embrace that and say, if you want us to spend the money, we will.

But one of our recommendations is to establish a standard that allows for balancing between the rate payers' funding of risk reduction and just how much risk is being reduced. The conclusion, so the feedback that we got from stakeholders is that, you know, affordability from a rate payer standpoint is actually potentially harmed if you overspend on risk reduction.

Now that's sort of the first part of of accountability, but it's only the first part. But there is not just a a limitless amount of rate payer money that can be spent to chase down that last bit of of residual risk. So there may be some reasonable residual risk that can be tolerated by the state, that is too too expensive from a rate payer standpoint to eliminate.

Accountability doesn't stop there. So the trade off elements between rate payer interests and survivor interests is really embedded in pathway, in a number of the options in pathway two. Some of which are not necessarily, well, may bump into each other inherently.

We're engaged in a set of of trade offs and balances that need to be looked at by the legislature. The, an an example, perhaps, is is the fast pay option. And at the risk of oversimplifying the fast pay, then the genesis of that was to think about other kind of systems that we have in California like the workers' comp system. Every employer has to have workers' comp insurance.

And the way that you control costs is you set up a fixed schedule of what are reasonable and adequate recoveries for someone who gets injured and what kind of additional benefits they should draw if they are injured in an industrial accident. That type of a system creates predictability, in theory lower cost, reduces the litigation friction, and speeds recovery, and is based on getting people back to work. Data analog became part of of that trade off.

The but we acknowledge that that alone as a solution doesn't necessarily address the need for aligning incentives and having that system produce the best corporate behavior on, well, not just corporate behavior, but the best behavior on behalf of a utility company that's operating inherently dangerous equipment.

There's no sort of short glib answer to how those, how you balance against the rate payer interest both on the on the side of the investments that they, that we all fund for safety, whether it's a POU or an IOU. Rate payers ultimately are paying for the creation of safe infrastructure.

And then on the liability side, there, you know, there is an acknowledgment and focus in the report and in each of the options that touch on the utilities on the then those trade offs. And so we don't, in the report, come to any definitive conclusion about how you strike that balance.

But we do identify and try to identify clearly that each option does involve its own different balancing equation between accountability, recovery, and affordability, and achieving other other goals. There is there's no really short, simple response to that other than the fact that we, in the report, tried to grapple with all of those issues and identify the trade offs that necessarily come from employing any of those options.

Just to add, just jump in real quick. It's just, you know, that's you can make the sort of simple conceptual argument that, you know, more liability means more care, you know. But I just think it's important to point out, as was raised in the panel here, that you got to apply it to the situation we're in. And we're in a, you know, situation with really highly regulated utilities.

And so you have to ask about what those deterrents effects are given that we have the CPUC oversight and the various layers of oversight that we have. And then also that other tools CPUC has itself, such as issuing fines that can be used.

And so when you're thinking of the trade off between deterrence and let's just say changing liability, you know, really need to think about, you know, this particular situation. And given the regulatory structure we have, what the what the impact would be.

Yeah. I get that. I guess a retort that I hear frequently talking to my constituents is if the CPUC's policymaking is geared at preventing bankruptcy from an IOU, then how much can we actually expect them to hold people accountable for wrongdoing?

And I think both of you are actually the two that one of the questions that I have should be geared towards, which is this report talks about really difficult trade offs. I appreciate starting conversations in different areas about things that have been third rails to touch.

But at its core around this question of accountability is that you have a monopoly that has been created with the trade off for the public being a duty to serve. They get a protected monopoly status. Yes, they have regulations, and the public gets a duty to serve. At what point in this discussion do we actually have a chance to discuss if the duty to serve is not existent?

And what I mean by that is not just that you don't have lines that are going, but that the trade off for the public is I might have my house burned down, and I have no choice, no, from a capitalism perspective, no competition to try to drive better behavior. And any enforcement tools that we are told that we have may put them into bankruptcy, which is heads I win, tails I lose. Right?

For the for the constituent, it's the same thing that they are the ones that are impacted, not shareholders ultimately. So did you in your report contemplate trade offs around the very existence of the structure of the monopoly and how you could introduce competition as a form of driving at additional accountability and protections for rate payers and for constituents?

Let me, let me try to answer it this way. We tried very hard to stay within the scope of Public Utility Code section 719C, which laid out the 10 topics. Not called out in there was a the very challenging question that you have just posed. Which is how does the duty, the utility company's duty to serve all constituents wherever they are, even if they're in areas that moving infrastructure to will increase the risk of ignitions.

That, fortunately, was not a topic that was called out in, and so we didn't look at the question of whether the state should undertake a more fundamental threshold analysis of, I guess, what you would call the utility compact, which is you get the monopoly, but you have to serve every person no matter where they are and what the cost is of getting electricity and services to them.

Mr. Rogers, can I comment on your question?

Yep. Please.

So the notion that we're pitting rate payers versus survivors is the very problem with the report. There is no distinction between rate payers and survivors, And it's not, and it's a false dichotomy to pit those two against each other to say that there's a sum zero gain between rate payers paying for a for profit company's responsibility to not start wildfires.

That's insane. It is a for profit company's responsibility to not spend to not start wildfires. And a place that we can start is with the $7 billion in profits that were just made in 2025. Imagine taking $7 billion and putting it towards vegetation management, aging infrastructure, LiDAR enforcement.

The tech to prevent these wildfires is relatively extremely low. I can rattle off 10 to 15 wildfires started by IOUs in the last 11 years, and they will all have about the same three or four causes. This is not a matter of ability to do it. This is not a matter that this is an, this is some sort of unknowable problem.

The plaintiff's attorneys have actually been proving what has been causing these wildfires in court for the past almost two decades now if you go back to 2007, and it's the same thing over and over and over again. It's aging infrastructure, it's failure to perform adequate and effective PSPS, it's vegetation management, it's recloser sending thousands of volts of electricity into dry brush after a conductor has fallen to the ground.

It's the same things over and over and over again. And until you disincentivize them from creating wildfires and incentivize them from preventing wildfires, this state will never ever get out of a situation where IOUs are constantly causing wildfires. It is the ignition that has to be prevented.

It is the start that has to be prevented. Having an orphaned, high voltage tower with improper grounding when it was already called out and ignored is beyond negligent conduct. And so pitting rate payers against themselves as wildfire victims who are getting hit twice.

I promise you, 100% of my clients are rate payers. So the real answer is don't let the IOUs pass on wildfire mitigation to rate payers. The shareholders should pay for it. And right now, there are shareholder profits in the multibillions of dollars, and we're sitting here arguing about rearranging the chairs in the Titanic.

That, this, the lack of foundation in the SB 254 report is replete with a misunderstanding of how these fires are started, how they can be prevented, and the rights of victims. So I just wanna comment on that that I think that response is wholly inadequate.

I appreciate that. I've got two more quick ones, Madam Chair.

Go for it.

So the first, and I don't... Mr. Neal, I know you're non presentation only, but you're technical. When I view this problem, I see kind of four distinct paths, and there's probably probably more. You've got the wildfire survivors, the general public, the IOUs, and insurance obviously plays a role in that.

And we heard from some of the previous testimony about how difficult it is to start the recovery process for folks when they don't have money. And I know part of the discussion here, part of the trade off is can, would be some of these choices shifting the liability burden off of the IOUs and onto the insurance companies and onto the the ratepayers and the taxpayers.

Specifically, I want to ask you about the content issue where you have folks who are paying every single month for covering the contents of their home. They go through a disaster, and suddenly they have to prove every single expenditure, every single thing that they had in their home that they didn't have to prove before they were paying for a certain level of coverage.

So when we talk about recommendations in the report on how to move money faster, I know Ben Allen had a bill last year that was signed into law that allows people to be paid out for the contents of their home without having to itemize it, but at 60% of what their policy actually said. So they have to give up 40% of what they've been paying for month over month to be able to move faster.

So you avoid some, the insurance industry avoids some scrutiny in the report over this, but for me, that's absolutely linked to how do we get money in the pockets of survivors to allow them to start the process of rebuilding and to start to resettle in a community post a disaster. So I wanted to make sure while you're at the panel, I know not a presentation only, if you have a response to that at all.

What I'll say is from a modeling perspective, the first thing we undertook was to estimate the total size of the losses that occurred, both property losses, contents losses.

Yeah. I'm asking specifically about if I say I am covering $200,000 worth of content in my home. You say, okay. You're gonna pay $50 a month for that. I say, okay. I'm paying $50 a month. You didn't make me prove I had 200,000 that I needed to cover. Instead, when I need that payout, you say, now prove to me that you weren't paying too much the whole time.

I'm gonna from... I'm not the insurance representative. I am I'm the modeling, the catastrophic financing

My apologies. I asked the wrong person then.

Yeah. Yeah. Tom, I don't know if you wanna...

I have to confess. I may have lost the thread of your question. But if, you started by talking about some of the options in the report that contemplate trading or modification of subrogation as an example where...

Your report contemplates that some of this can be expedited. Some of the payouts for wildfire survivors, that the sooner folks get paid out, the more you can prevent cascade impact of costs for rebuilding. You talk about the insurance subrogation. You talk about the cost that it has for folks to actually have their insurance claims settled.

This is a very specific pot of money that every single person who goes through a wildfire has to deal with, and there's a role for their attorneys in that process to make sure that they actually get paid out. But it is the process itself is designed in a way that is difficult for them to get those contents paid out, which is preventing the rebuild.

I actually I will at least step in a little bit here. Because I am from the insurance industry, so I need to be on in the work stream report, I did not represent the insurance section. I did catastrophic modeling. But I will say, there's two things that I then I'll respond to that. Is that I don't think that this is an either or necessarily to have a fast paced system and how it integrates with insurance.

I will say that, insurance is not uncommon to have a proof of loss. Insurance is an indemnity product that is there to make sure that you don't recover more than you originally had. And you and you are very right that when I you go to buy insurance, you don't go and catalog every single thing in your home to say, do I have this much contents? Or and even if you did, six months later, you might change the amount of of contents that you have.

You might make significant upgrades. And so and put a lot more money into the contents of your home. And so it's not something that is feasible to track at all times the exact value of contents. I'm an insurance professional. I don't know the exact value of my own contents of my home I'd have. And so I would say that from a fast pay perspective, it does make sense that you do want to be able to accelerate payments.

Insurance is frequently a faster way that people recover than those that do not have insurance, particularly if they're waiting for the determination of whether or not it was utility caused wildfire before you can even begin to try to recover money from from the utilities or from the Wildfire Fund.

And so I do believe that a fast paced system could be and could be enable for a faster payment that and then you can still have insurance require proof of loss. You don't necessarily have to have an either or or a waiving of your rights under your insurance to be fully indemnified if there's a fast paced system in the wildfire context.

I appreciate that, and I think that that's the concern that I have in some of these recommendations is that the trade off seems to be people don't get what they're owe, and they sign away the ability to get that in exchange for getting it faster. And especially when we see some of the recommendations around attorneys, and it is it is steep, some of these attorneys.

I think in Santa Rosa, I think it was 21% of our overall settlement was for the attorneys, which was low compared to many other folks. One, we were having to make the trade off on how fast were we going to get a payout. And then two, you're dealing with people who have lost everything, and they've had to become their own contractor. They've had to become their own attorney, their own insurance agent.

They don't have the capacity oftentimes, and the system is designed in a way to remove what they even their compensation should be and should help them to rebuild. So that's what I'm particularly sensitive to in the report as it is not focused enough, barely at all on the recommendations impact on the individuals who are trying to recover, that the trade offs seem to always end up with screwing those people. And you're welcome to respond.

Well, that certainly is not what was intended by any of the recommendations. And in fact, survivor interests were very much centered. The fast pay, one way to look at the fast pay option, first, the report itself does not articulate exactly how you should build a compensation system, a fast pay system to make it adequate.

The utility companies, when they have done this, have looked to people like Ken Feinberg, people who have administered large fund allocations and reimbursements. And so the basic contemplation is that you would authorize the creation of a system that would then engage with survivors and lawyers and figure out how to get to a schedule of benefits that would be adequate.

That would do a little bit of a trade off between knowing as early as possible what your recovery assets are that are available to you, insurance plus some additional benefits under a fast pay system, and allow consumers to make choices, potentially make choices between knowing early what they, what their recovery can be.

And see what the alternative would look like waiting three or or four or more years to figure out what what the recovery is. And going through this extended period of time where, candidly, they're a little bit in suspended animation when they think about trying to get their home back and help their community recover. Those are, those are trade offs.

And that particular option just draws light to that so that you as a body can think about that as a trade off. I'll say, anecdotally, when you look internationally at recovery, catastrophe recovery, some jurisdictions have have decided it's better to get people in a position as quickly as possible to know what their recovery resources are so they can make a decision.

Sometimes that decision is they're gonna sell their property, let someone else, rebuild that and move on, or they'll know that they can, they can be part of a community recovery. The sooner they know, the faster the community as a whole recovers. And those are, those are challenging trade offs.

And the inclusion of that particular option there is really just to allow for this kind of a conversation, this kind of an analysis. And let individual survivors understand that they do have potential options that not that aren't just about money, but also are about a more precious commodity, which is time and community recovery.

No. I appreciate that. And I think part of what I was trying to highlight in the first panel is that you do already have that trade off for survivors. That oftentimes you have people, as you said, you know, call it purgatory. Where they don't know how expensive it's going to be to rebuild their home given the change in the economic climate for the area as they're doing the assessment.

Which then prevents them from being able to settle with their insurance company that then they have to jump through a bunch of hoops with to get a number, and then to be able to figure out what their shortfall is going to be to be able to seek additional legal options for compensation. And that's something that's very difficult for a community to move forward from. You're caught in the chicken and the egg there.

Yeah. I couldn't agree more. Which is one of the reasons why the report also went into detail about the chronic under insurance phenomenon that happens with catastrophes because surge, what we refer to in the business as surge demand is real.

And the incidence or the frequency of insurance not being adequate to help you recover your home is extraordinarily common. The cost of rebuilding goes up in a catastrophe, and many, many insureds find themselves under insured to an extent that they were not expecting.

And so we included discussions of under insurance and recommendations about how to create more informed consumers so that they can understand some of the trade offs between how much premium they pay and how much exposure they're taking on to themselves, given the limits of their insurance, the cover a limit, because it's after catastrophes, cover a limits are are frequently inadequate to to cover reconstruction costs.

I agree. I agree, which is why to bring it back to where I started, the trade off between faster but less is an anti consumer, anti fire victim trade off. That especially, and I when I was talking about the content coverage, the trade off that you get 60 percent and you don't have to go through this long process means that you're giving up 40% when you're likely already underinsured just to get the process working for you. And that's not a, that's not a trade off that I think I'm willing to support.

I agree. But make make no doubt, or to be clear, the option here of a fast pay wasn't take less. It's take an amount that is, like, a workers comp schedule is determined through robust interaction and awareness of what the needs are at the time for community recovery. So it's not presented as a trade off. Like, you have to take less. You just know what benefits you're gonna get earlier in the process without having having that delay.

Alright. Then my last question, I swear, Chair, is around the the first pathway that was mentioned here around inverse condemnation. And did you contemplate the difference that an impact in changing inverse condemnation would have on a municipal utility versus an IOU?

How could you see that playing out from a a liability standpoint? What remedies would a local city, for instance, have without inverse condemnation to get compensation? How would you walk through that with some of our local government stakeholders?

First off, inverse condemnation is a constitutional principle. It's a takings principle. And so my understanding is it would apply equally whether the utility that caused the ignition was municipally owned or investor owned. The constitution does not make a distinction. The difference is where are the resources available to pay.

So if a municipally owned utility ignites a fire and they're liable under Article 1, Section 19 of the constitution under inverse for all the property loss, then that's a liability born by the taxpayers that own that municipality. But they'll they'll still get sued under inverse.

They'll be strictly liable for the property damage irrespective of whether they were prudent operators or not. Their exposure to non economic losses that are that are not property based would I think depend on prudency and negligence in operating the system.

But it would, inverse reform is agnostic to municipal versus investor owned. With respect to investor owned right now, there's additional sources of revenue, available to an investor owned utility that isn't strictly the taxpayers. And there may be others who on the panel who could comment more specifically about that.

I think the question, and I appreciate the answer. I think the question is if you have to do a constitutional amendment to go down that pathway anyway, you could craft it in a way that you wanted to with distinctions. But it sounds like you have not had those conversations about possible differences that could could occur.

No. We didn't. We put inverse reform there as a continuing discussion if you go all the way back to SB, the SB 901 commission through now. Inverse is there as a constitutional principle. Changing it is hard. It may not dramatically change the economic outcome after a utility caused wildfire, but it's there as an option for that has been called out in prior similar initiatives to this one for consideration to see if it's suitable for that kind of a trade off discussion.

And last one from my colleague. Did you consider any equity caps, CEO compensation caps for the IOUs? And then kinda bring it back to a question that I had in the first panel. Specifically tied to things or dividend payouts, any of those types of market mechanisms when an IOU has not either settled or has adequately compensated folks, whatever that that metric ends up being measurable, whatever we define measurable as.

The report includes under the first pathway and under strategy 1.3, which is continuing to prioritize electric utility safety and accountability. Option three, or 1.3.4. I'm sorry. 1.3.3, which is to establish a standard a statutory minimum safety weighting in electric utility executive compensation. So that was a call out to and a recommendation and an option to really provide weight on that. And that process, I think, would get to those kind of incentive alignments.

I appreciate that. Thank you.

Yeah. Okay. Thank you. Alright. Thank you. I've got a number of questions. I wanna ask a couple, and then I'm happy to turn it back to Assembly Member Papan, and I'll continue. But actually, before I dive in, I kinda wanna share, I guess, my context both for this conversation and as we continue to dig into this report and potential legislative action.

And I guess I'll start by saying, I think, similar to Mr., is it Mr. Fiske, the point that you made, I think we need to remind ourselves that these, we're talking about it's all the same people, whether we're talking about survivors or we're talking about California rate payers, California insurance policyholders, California taxpayers. Ultimately, it's all of us.

And so this conversation in my mind is not going to be about what's good for the IOUs, what's good for the attorneys, what's good for the insurance companies. It's about what is good for Californians. And so I think the two questions that I have as we enter that conversation is, number one, is there a way for us to ensure that victims are compensated, but in a way that we are able to lower system costs?

And I'm gonna refer back to Mr. Abrams' graphic here that he shared with us that shows that there's potentially some opportunity to rationalize some of this and create system savings so that we ensure we've got the money to make victims whole. So that's kinda my first big question.

The number the two, the second question is, is there an opportunity for us to shift how we socialize some of these costs? Not just to rearrange the deck chairs on the Titanic, but because it ends up being more fair or it ends up incentivizing right behavior in ways that the current construct does not. And so, like, those are my two big questions.

And I guess I just wanna ask one thing before I pass it to Ms. Papan and bring it back. So Mr. Dixon, kind of with the, again, the victims, the survivors front and center, of every dollar in wildfire settlement, how much actually reaches the survivor? Do you have an estimate for that?

No. I can say that for their settlements, so the money they receive, the victims receive, then, you know, then there's the 25 to 35% of the attorney's fees. Now if you wanna talk about the whole system of how much of the whole system, all the money that includes the utility defense cost, ensure includes the insurer payments to their attorneys to choose subrogation claims.

Yeah. I think of the I have to sort of put that together in my head right now. So I'm not, I don't, I'm not sure I wanna say say it verbally, but it's I don't know. It's it's in the neighborhood of, you know, a third at least. I mean, a third or 40% at least in the in that range, I would say.

A third or 40% that's going to victims or survivors?

Of the total system cost, what percent of it is going to attorneys overall? Okay. Or it's for... I shouldn't say attorney, for litigation related costs. Now that doesn't mean that under our current system, those aren't warranted because that's the way our system set up.

But I think the issue that you're raising is, can we find a system that doesn't entail that, doesn't need that level of legal support? And you know, that was one of the advantages, I think, of the fast pay proposal. Let's try to, let's try to create a mechanism where you don't need that level of of legal support to sort of achieve the the compensation.

So I mean, I think that's the goal I think you're getting at. Let's try to, let's try to construct a system that where we don't need to have that level of of support. Either by changing subrogation type system or by changing through a fast pay system or or something like that. But I guess to answer your question, it is significant, the amount of money that's going to...

Okay. Let's not make so... Your estimate, and I know you'll get back to us with your thorough analysis. But the estimate is, you know, of every dollar that's getting put into the system, say, 60 to 65 cents is actually making it to survivors. So, Mr. Fiske, when you were offering your opening comments, you spoke about the work that you have done in prosecuting some of these cases.

And I guess what I'm trying to understand is that this is a very unique system. So the existence of inverse condemnation means that if a utility piece of equipment is involved, they are liable. So I guess I don't understand why is, why do we need a system where then 35 to 40 cents of every dollar is going to legal support when in the constitution, there's nothing to prove. They're liable.

Because they fight. They fight. They fight. They fight. They obfuscate, they defend, they redirect, they put up smoke and mirrors everywhere. I wanna know how many CEOs and CFOs in the aftermath of an investor owned utility said, yes, that's our problem. We did that. That's our infrastructure. Zero. So there's a lot of talk about, you know, contingency fees, but the attorneys are the ones that are bringing the case to bear.

First, the survivors started with zero. We're only taking contingency of what we get for them, and we're doing it without getting paid. And we're putting forward millions of dollars in collective costs that are advanced in the process of proving the case when they're defending the case for two years on liability, three years on liability.

And then after they finally say, okay, we're gonna go into a mediation and we're not gonna talk about liability, they're gonna fight you and nickel and dime you on every single square foot. They're gonna argue about whether or not that person really had that GTO.

They're gonna argue not whether or not you really had those civil war coins. They're gonna fight you tooth and nail every time. If you're interested in the delay in the system, talk to the IOUs. They have extremely smart, extremely talented, extremely well funded defense attorneys.

They're the ones... Well, let's talk about the defense attorneys cost to all of this. Where's the chart and the pie chart for all of the big law firms that have received tens and tens and tens of millions of dollars or more defending these cases?

You weren't on the pie chart either. Nobody was on the pie chart.

But what I'm, what I'm saying is it's it hurts my ears to think that the contingency lawyers or the plaintiff's lawyers are being the ones blamed for the delay. Come to court. I invite, I invite... Okay. I just invite everybody to come to court. Come into the JCCP where the Eaton Fire is being litigated and listen to what the defense attorneys are doing. Every step of the way, they fight.

But what I heard, what I hear you say, and maybe I misunderstood this. What I hear you say is actually given inverse, we shouldn't need to have 35 to 40% of the funds getting paid to someone other than than survivors. The reason in your in your view that's happening is because of the litigiousness of the defense attorneys.

First of all, I, in my experience, I totally disagree that it's 35 to 40%. I just don't see that. I just don't see that. When we've represented public entity... Right now, I'm representing Los Angeles County, the City of Pasadena, Pasadena Unified School District, Sierra, City of Sierra Madre, it's 15%. It's 15%. It's not 35, 40%.

So I'm not sure where those estimates are coming from. In my experience, that's not the case. If the IOU were to admit liability within a certain amount of time frame, and they were to stop fighting the replacement cost to rebuild, as Ms. Chen said, back to where we were before the fire occurred, there would likely be a natural reduction in the market of the attorneys fees that it takes to prove these cases.

Okay. So you probably wouldn't need you certainly wouldn't need 40%. I don't know anybody that charges that on on a contingency case. I really truly don't. But you you you could naturally reduce the amount of attorney's fees, time, cost, energy, fight that it would take if the IOUs took responsibility as good citizens in California earlier in the in the system and in the process.

And, chair, if if I can add, having sat on the other side of the table from this, discussions in closed session, a lot of the time was for instance, we as a city came in with a number that we thought the damage was, and then the utility came in with what they thought the damage was. And then it took an adjudication and the judge to determine which one was the correct number.

Got it. Alright. And then I know Assemblymember Papan had a question.

Thank you, madam chair. This might dovetail on while we're talking about incentivizing and disincentivizing, you get prejudgment interest?

Under under inverse condemnation, you get the amount to replace the property. You get prejudgment interest. You get costs, and you get attorney's fees. But let me talk about that. That is what is legally available under the law, but that is not what actually happens in a cell in a wildfire settlement.

What actually happens in a wildfire settlement is a compromised value that is so far below that that wildfires of victims are already not getting what they're legally entitled to.

That may be. But what I'm what I'm suggesting is perhaps that's something we tweak along the way. So if prejudgment interest is allowed, maybe that element goes up depending upon whether or not, as you say, an IOU doesn't wanna settle with you. The longer it takes, the higher the interest rate goes up. I'm just while we're talking about trying to change the equation and look for incentives, that might be one thing.

That's why I was coming out of my seat when you were talking. Thank you, madam chair.

Thank you. Assembly member, Kalra.

Thank you. And first of all, that's a good idea. Finding incentives to resolve things sooner as opposed to delay and delay. And and just on the point of inverse condemnation, look, you know, the the fact that we have this in inverse combination and still to the chair's point, like, you know, it still gets you know, it should be an open and shut type situation, but it's not because it's fought and everything is fought tooth and nail.

But the reason why the inverse condemnation in part is there is because we've given this monopoly to these investor owned utilities, and that was part of the trade off is that we are gonna take full responsibility, and we will take the liability for this.

In exchange, we get to make wild profits off of this system that's otherwise a public good. And so I just wanna caution us from delving into the inverse condemnation aspect of this. And as as a general proposition, focusing so much on the access to justice piece, which is what the plaintiff's attorneys are offering to the victims and speeding up making victims whole, however we get there.

It's it's because I think ultimately that's that's the piece that I believe policymakers are the most interested in, concerned about, is we want our constituents, those that are suffering, we want we want them to be made whole as soon as we possibly can. And so if they're whether it's incentives to settle sooner, what have you, is one thing.

But I think that I would just caution us from being pulled away in this other direction to talk about policies that are in place and have been in place for a very long time, good policies that were created with everyone at the table, to now say somehow that those policies shouldn't be there, which is only gonna lead to even further delay and further litigation than we already have.

Can I ask a somewhat follow-up question? And several several of you, both of our witnesses in the the prior panel talked about the importance of aligning incentives. And that's a a theme that has come out in this committee on on numerous topics. So interested in anyone's perspective. What does that mean in practice?

What are some practical things that you think we could do to better align incentives in order to achieve the right outcomes, whether that means a more wildfire resilient system or a quicker recovery for the community. Anyone? Anyone? Go for it.

Sure. Thank you. I think that's one of the important takeaways. We're talking about trade offs here today. And as a utility, we make we're a highly regulated entity.

We make trade offs with our regulator every day that's balancing affordability and the extent to which we need to make investments in wildfire hardening, wildfire risk resilience, clean energy, a host of other public benefits that we're trying to accomplish. And I think one of the takeaways we've taken from the report is at some level, another dollar spent on utility equipment could be better spent and have deliver a larger return on investment for California as a whole.

In particular, I think about wildfire home hardening, community hardening, wildfire treatment of fuels. There is a lot of work in that area that can be done more efficiently and lead to better outcomes for the state as a whole so that when an ignition unfortunately may happen, whatever the cause, that the spread is not so bad. The destruction is not so bad.

And if we can reduce the cost of a wildfire, I think that goes to your point earlier about shrinking the cost. The best way we can do that is to, well, first of all, not have fires, but second of all, reduce the extent of them and the destruction that's causing them when they if they do occur.

And the other perspectives, how do we indeed actually align incentives?

I I just wanna mention one more thing maybe I have before. I don't think it's I I don't think there's a moral equivalent between a middle income family, low income family, mister and missus Jones, mister and missus Rodriguez dollar, and a shareholder dollar. And so one of the major problems I had with the CEA report is that it's it's it's lacking a morality that there are real people trying to make it. Their rates are high. Their home has been burned down.

Their public entity has been destroyed in the process. And now we're giving enormous profits to a for profit corporation. The dollar that goes to the for profit corporation is not the moral equivalent of the dollar that's going to the family. And so if we're going to align Californians, the way we should align them is by taking for profit net profits and putting them towards vegetation management. Take net profits and putting them towards sea hooks that fail on a 15 stack insulator in the Camp Fire.

Taking net profits and making sure PSPSs are better. And there is evidence of this that when you do impose liability, standards do get better. SDG and E did it. SDG and E did a much better job than SCE or PG and E in the aftermath of the two thousand seven fire. They replaced 2,500 poles with steel poles.

They had a better meteorological system. They did better PSPS, and they haven't prevented a major mega wildfire since 2007. That's twenty years ago. This tech is very, very low. So the alignment for Californians is taking the net profits that are going out of state to BlackRock and putting them into the communities where there are poles with woodpecker holes scattered throughout the pole.

I I drive up and down the roads. There's PG and E poles at 20 degrees, tilted to the side. There's trees laying on top of poles. There's lines without conductors. This is all low tech.

We've known this stuff for decades. So the best way to align Californians is to take those net profits and put it towards those mitigation measures.

Thank you. Alright. Mister alright. Mister Valero, I wanna ask a cup you a couple questions. So I'm looking at your thank you for providing us with this kind of frame for the way that LADWP is thinking about a path forward.

And I think it is super important to note that as some folks in testimony noted, POUs have not had the same experience as IOUs. I think as we are seeing, the climate become drier, hotter hot become hotter, the, you know, winds become windier. I think you and other POUs across the state understand that you too are going to be grappling with these disasters. So appreciate you being here and being part of this conversation.

Can you just I wanna ask a couple of questions about the, kind of your proposal or how you're thinking about this.

So say more about, I think you said it's it's the equivalent of three point one point one, But under the liability cap backstop pillar, when you say state administered utility liability program, what does that what does that mean? Is that like a fast pay is do you mean fast pay program? What is that?

In terms of kind of that liability cap backstop and what we associate with three point one point one is is really a a state sponsored insurance mechanism for for a utility. And so that would exist as a as a backstop for kind of a tail risk associated with catastrophic wildfire. And that would be layered above whatever property insurance we typically get, whatever wildfire insurance we get from the private market.

There would this be this state backed wildfire insurance layer that would that would exist kind of at the top that would allow for us to price the risks associated maybe with your service territory. You would pay premiums.

You would have to retain a deductible in in co pay. But that's kind of the thought in terms of managing sort of this tail risk that that exists.

Got it. Alright. And then the second pillar is targeted damages reform and modifications to subrogation. When you were talking about that, you talked about a need in your view to set limits on non economic damages. Can you talk a little bit more about that?

Yeah. And and to be clear, right, we're in this world, we're really kind of looking for when utility is non negligent. We're we're acting reasonable, allowing some caps for for punitive non economic damages because we are acting reasonable in that in that case. And, you know, there was some information in the CA study that suggested that if if you reduce or install some caps in this area, then the the overall wildfire level in terms of some of these backstops could could be reduced.

So it would shrink the pie that exists on in some of these backstops.

And, mister Jackson, how how much of again, that 38, I think you said, billion dollars, how much is non economic damages? And can you tell us a little bit give us a flavor for what non economic damages in include?

Right. So non economic damages cover things such as, you know, when you evacuate from a disaster zone, the, you know, the the pain so the the the trauma that's associated with that, that can be long long term, includes that and includes also, for example, issues related to, you know, the irreplaceable losses of of items that personal items.

It includes things such as the inconvenience and issues involved with adapting to a new community that you, you know, wouldn't had to done had to do otherwise and and other factors. So there's, and actually the COC, CAOC has, you know, a nice, overview of what the different components of of non economic damages are and that they see in their in their practice, in their submission for the SB 254 report. And so so then so that's what non economic damages are for.

And there's a number of states that have adopted caps on non economic damages. Some states and some more recently, some don't allow non economic damages in in utility cost wildfires. Others have caps. I think Utah has a cap of a 100 or a $150,000 per per per person on non economic damages. So there has been precedence for other states to adopt non economic damages.

As far as the breakdown of the payments to injured parties for non economic damages, You know, all we have to estimate that is is based on the demands that the plaintiffs make to the utilities when, you know, when in the mediation process, the plaintiffs will make a demand for property damage, non economic damages, additional living expenses. And so those are those are itemized. And and, you know, you can look at the certain percentage breakdown of those.

But, you know, in the end, there's a settlement, and the settlement doesn't say this is for non economic. This is for that.

So we have sort of rough data. But in the the settlement to injured parties and, you know, defer to some extent to injured parties, the data that's available that we were able to collect on this was that, you know, 40% was for property damages based on the demands, you know, 20% for non economics, 20% for additional living expenses, and then there's pre judgment interests and an attorney's fees.

So those are your those are sort of the rough a rough, you know, orders of magnitude that's in that's involved in that. You know, the non economic damages are very hard to to quantify. And, you know, in the end, if it ever got to trial, it would be what the jury determined, you know, non economic damages are.

That that would be the kind of, in the end, the the benchmark for that. And and you can think of what's going on in these settlements as as projecting. If it did go to trial, what would we get? You know, that kind of thing. So that's when we're talking about full versus fair.

In the end, you know, that's the the sort of benchmark for non economic damages is what, you know, what would happen if the the case, you know, was fully adjudicated and and and gone through. So I hope that gives you some Okay.

You know, rough rough detail. Helpful. Thank you. Alright. And I interrupted I interrupted you.

Mister Valero, I keep wanting to just call you Fernando. Not very professional. Mister Valero. Okay. Talk us through column three.

So increased customer access through state supported residential insurance concept.

Yeah. So the the thought here is if in some ways, you're you're changing some of the damages that are available to to victims, etcetera, then you really need to buoy in other areas access to residential home insurance. And for those that are underinsured or or don't have insurance. So this would be a a state backed residential homeowner insurance availability, similar to what the CEA provides for earthquake insurance. Or you could have a situation I think this was outlined in the CA report.

You have it where the insurers would actually provide this, and then the state would provide reinsurance to the insurance company. So either option, we we were in favor of. And all to say about this is I think the CA report outline 60 some odd different options. By no means is this the silver bullet, but it was our attempt to try to crystallize what might be a good option on a go forward basis.

Thank you. And it's it's super helpful. Thank you. Appreciate that. Let me see. Can let me ask another question. I don't remember who mentioned this. Someone asked about the role of or mentioned the role of hedge funds and private equity. I think maybe it was you, mister Fisk, but you were talking about it, I think, in the context of the IOUs. When we were digging into some of these issues in the aftermath of the Palisades and Eaton fires, there was a lot of concern that we were seeing lots of hedge funds and private equity firms actually buying up claims.

Is that is that happening? And because I think back to sort of the pie, like, we gotta make sure the pie is going to make victims whole. We can't have a bunch of, you know, random folks kinda taking slices of the pie. So I think a lot of us were very concerned with reports that we were seeing this kind of turned into an industry that was being backed by hedge funds and private equity.

It is happening. And in my opinion, it has no place in California, and it it should not occur.

So what do we need to do to stop that?

Well, I would I would wanna consult with my COC legislative experts, but but I think of I think a bill, if I can say that word, I think a bill that would prohibit the buying of claims and sharing I think there already are bills. I think I mentioned four bills, and some of them addressed this. But the buying of claims, I don't think is appropriate, personally.

I also don't think that, there should be, hedge funds or private equity investing in a way that could, in any way, influence the claim. And I do think CAOC has presented at least one or two of those four or five bills that I mentioned that do that.

But to the extent, you know, I get unsolicited emails all the time, and I just ignore them. And they tell me what percentage of the claim that they would pay me. And I just put them in my delete box. I don't think they have any they should not have a role in our civil system civil justice system.

Great. Everyone was nodding. So this is one

Yeah. Here we go.

One area of agreement. Good. Good. Alright. Any additional questions? We're making we're making progress. Thank you, mister Kalra, miss miss Papan. Alright. Any additional questions? Alright.

Well, actually, with that in mind, lightning round, because I think you also said that IOU should only be able to socialize its cost if they've demonstrated that they've met the highest safe high safety standards. Does everyone agree with that? Yes? Yes?

I mean, it is a complicate complicated there are trade offs. Right? I mean, because, you know, you don't want them to do everything that incredibly expensive because there's other places you could spend those dollars better. So

So def it's what defines having met the highest safety standards.

Yes. It's like Yes. Doing an appropriate social cost benefit analysis. Is is that is that where you should spend that dollar versus in a community or a a home home place? Right?

Alright. I have one last question. I know it's been been a long hearing, and I think you all have many of you have appeared at multiple hearings in the last twenty four hours. So thank you. A question, I don't know that you contemplated it in the report, but but perhaps you did.

Should we be treating things differently if we're talking about a utility caused wildfire where the utility was indeed negligent versus a utility caused wildfire where they did everything right, and there was that mylar balloon or the squirrel that just ate a wire. Should we have a different approach and a different framework for those two different situations? Perhaps, Tommy, you start.

I'll just call out one distinction, which is that inverse applies to property damage. So even in those non fault based results, they remain liable for property damage. But if there is no sign of negligent and negligence and and the cause is quite clearly not attributable to their prudent management, then all of the non economics would not typically be covered. Now that may be there still may be litigation alleging that they should have foreseen that that balloons would fly into the lines.

But but there is that distinction between utility or clearly prudent, but fires that are ignited nonetheless and and those that are arising from more challenging circumstances that that do involve inappropriate substandard behavior by the by the utilities.

May I comment on that?

Yes.

I'm I'm not familiar with the legal theory where the balloon flies into the utility and inverse applies. So so I think there's a lot of misunderstanding around inverse. So inverse condemnation comes from the notion.

Inverse applies if any piece of utility equipment was involved in ignition of any wildfire under any circumstances.

I think that's the misunderstanding.

I do not think so. I know I'm not a lawyer, but that much that much I know. And Tom is right next to you and also going,

Well, I am a lawyer, and I litigate this in case, and I've read all the case law. It's the intended use and design. The intended use and design of the infrastructure has to cause the fire. The intended use and design. So let's say, for example, let's be even more ridiculous than a, a a Mylar balloon.

Let's say a rocket ship careens out of control and lands into the tower. If it's not the intended use and design that causes the fire, then inverse does not apply. So you first have to have the intended use and design. And we went through this in 2018, and we went through this in 2019. I was here for almost every week during the legislative sessions of those two years, and we did a lot of education around inverse condemnation.

And so, first, I just wanna lay that down. I don't I don't think it's as when we go to prove inverse condemnation, we are still proving causation. The lawyers still have to hire the experts that say, this is how it happened. This is exactly what happened. It's the it's the lack of the grounding.

It's the fact that they did not they did not they knew that there was a tree right they have imminent domain powers. Okay? Let's start there. That's where this all comes from. The state has given investor owned utilities eminent domain powers.

Yes. Mister Kalra already explained that to us.

Yes. Eminent domain powers allow the investor owned utilities to place these Poles, place these lines, place these towers wherever, basically, they want to, and then they have to pay compensation on the imminent domain side. If the intended use and design of the structure causes the wildfire, then they're liable under inverse condemnation. They could, in addition to that, in the in the operation of the intended use and design, be additionally negligent or, in some cases, criminally liable?

So there's three different layers, but we still have to prove causation, which takes an enormous amount of work from the expert's perspective.

I'll give you a for example, mister Abrams, I'm always impressed when I hear him speak as as well as miss Chen. He had a very unique experience in the b PG&E bankruptcy. And, in fact, that fire that he was in was the Tubbs fire. And in that fire, there was actually a finding by the Cal Fire report that said it's an inconclusive.

So the lawyers in ironically, in that fire had to prove that there was, PG&E liability due to the, intended use and design.

So the notion that, you know, that there's no limit whatsoever on the liability, I I don't necessarily agree with. So that's one. Two, I was commenting to some others before I joined this panel that the largest thing that I think was missed, because I was I met with a lot of legislators in 2,018 and a lot in 2019 when AB 1054 was being crafted.

And the sentiment was that there was always going to be A Balancing for the Reimbursement of the Reimbursement, that AB 1054 was intended to allow the CPUC to review the conduct and require the utilities to repay when they've been negligent. So to answer your question, what I would do is I would lift the cap of SCE having to pay back the $4,000,000,000.

Because if all they have to pay back the $4,000,000,000, then the presupposition in the CEA report that the Eden Fire is going to exhaust the AB 1054 fund is much more true than it is if it wasn't capped because then SCE would have to use its profits to pay back the ten fifty four fund, and it could last longer.

There was a discussion among the legislatures that this fund was going to last be required to pay back the fund when they got reimbursed from the fund if they've been non if they've been negligent or non prudent imprudent. So that that history has been lost somewhere in this that that the original design of the fund needs to go back and forth.

Mister Fisk. Both mister Kalra and I were here. So Yeah. Yes. We do remember the history.

And I guess I would say I would pause it to you. I don't think you're wrong, but that's not the only reason the fund has been depleted. Every single every single bit of math that went into the calculation of the durability of the fund has proven to be wrong from an attorney's fees to subrogation to utility repayments to the cost of these fires overall. So I I think it's just important

But to answer your question, I would lift that cap to answer your question.

That was actually not my question. My question literally was, should we be treating was should to you and everyone was, should we treat these situations differently if a utility is found to be negligent versus found to have done everything right? That was my question.

I'd be happy to answer your question,

Just yes or no? Because I can't handle another lecture.

No. The answer is yes. They should be treated the same. Should also be there should be uniform response no matter the cause of a fire. The survivor should experience an improved outcome in any of those cases.

There are ways to hold utilities accountable outside of the immediate response in the aftermath of a fire, and those are available. But I think the response from a community to all Californians, they should know that there's a response available for them to get communities back quickly following a fire regardless of cause, regardless of

So if yes. We should treat them differently. Alright. Anyone else wanna offer me a yes or no answer?

Oh, sorry. You treat it the same? Yes. Okay. The same or different?

I would just buoy off of what he said. I I would agree. We should treat them different.

Okay. Alright. Well, thank you. Seeing no other questions from committee members, I think that we are ready to thank you all very much for your time and participation, your work on on this report, your work on this issue. Look forward to continued, conversation as we try to navigate, I think, the challenge that is, both enormous but incredibly important for the Californians that we all represent.

So with that, thank you so much, and we're gonna go ahead and open it up for public comment. If you'd like to participate in public comment, please come to the microphone at this time.

Hi. Good evening. Yes. I guess it is good evening. It was good afternoon, but here we are. Chris Rose on behalf of NRDC Action Fund. Madam chair, thank you to you and your staff for this robust discussion. It's very helpful and needed. As doctor Skinner stated in his testimony, approximately 20% of California's electricity bills goes to wildfire related costs. Those costs discourage electrification and regressively fall on low income households.

We ask for a wildfire funding solution that prevents future utility bankruptcy and stabilizes insurance markets not through the electric bills, but through a more durable and equitable funding source. Thank you very much.

Thank you.

Good evening, madam chair and remaining members of the committee. Amanda Walsh with the Orange County Business Council. OCBC agrees with the CEA report and asks that the legislature take action. California wildfire crisis is no longer just an environmental issue. In fact, it's an economic and affordability crisis impacting families, workers, small businesses, and entire communities across the state.

And right now, fire vic wildfire victims can wait years for compensation with legal fees and outside speculators taking a significant share of their recovery dollars. And at the same time, insurance instability is making it harder for Californians and businesses to recover, yet alone invest. The wildfire victims first fund is about restoring stability through prevention, affordable, and comprehensive insurance coverage and faster fair compensation for its victims.

And for the business community, that means faster building, reopening businesses, restore jobs, local restoring local economies, prevention, insurance, stability, and recovery forms all of the essentials to protecting California's long term economic future and ensuring wildfire victims come first. Thank you. Thank you.

Good evening. Julia Levin with Avaya Energy Association of California. We agree with many of the findings in this report. In particular, the need for much more integrated and cross sector approach, the need for more prevention, including vegetation removal and using that vegetation to build a bio a circular bioeconomy, and the need for increased energy reliability. Unfortunately, the California Public Utilities Commission ignores routinely virtually all of these recommendations, including the advice of its sister agencies.

Cal EPA, the California Natural Resources Agency, Cal Fire, Department of Conservation, local fire districts, 40 rural counties, water agencies, and more. All of whom are in support of a bioenergy program that would require bioenergy procurement using forest waste and other vegetation removed for wildfire mitigation, that program is required by state law. The PUC ended it December 31, ignoring state law, ignoring its sister agencies, and the needs of local governments and fire protection districts. And their excuse was it's too expensive.

Totally ignoring the fact that prevention is far more cost effective than the cost of wildfires themselves.

But more importantly, ignoring this legislature's five laws involving this program. The PUC has ignored all five laws and all these other recommendations. So to get to a more integrated cross sector approach, to get to more prevention, to get to more energy reliability, the PUC needs to be here at the table, and they need to be held accountable.

Any problem you attribute to the utilities, the investor owned utilities, should end with the phrase and the PUC, because the PUC is the one ultimately that should be holding the investor owned utilities to account, and they're not doing enough in any of these respects. Thank you.

Thank you.

Alright. Good evening, madam chair and member. Derek Dolfie on behalf of the California Municipal Utilities Association. Appreciate the discussion today. As you well know, our members are community owned, not for profit electric utilities that are locally governed and held directly accountable by the customers that they serve, and we do not have shareholders or investors.