With three of California’s largest-ever wildfires currently burning across the state, the city of Santa Rosa is still working to rebuild eight months after last year’s devastating Wine Country fires. In Santa Rosa alone, 3,000 homes were destroyed along with two fire stations, the city water system, parks and roads.
The city is applying for federal disaster aid and putting a sales tax increase on the November ballot that would last six years and raise $9 million. It also filed a lawsuit last month against Pacific Gas & Electric (PG&E), whose power lines and other equipment sparked 16 of the fires that burned 245,000 acres in eight counties in Northern California last October, killing 44 people.
“Everything is fire related these days,” said Mayor Chris Coursey, as he wearily recounted efforts to recover the losses, including an estimated $1.2 million in lost property taxes and $1.1 million in sales taxes from the current fiscal year.
What’s happening in Santa Rosa is playing out in other communities as Californians struggle with who should pay for the escalating financial cost from one of its biggest climate risks.
Climate change has set the stage for the dramatic increase in wildfires across the West, with rising temperatures, shrinking snowpack, more frequent and intense droughts combining to dry out forests and grasslands, providing fuel for raging fires.
Wildfire season is now essentially year-round in the state and 2017 featured the state’s largest-ever fire, the Thomas fire, which scorched more than 281,000 acres in Southern California last December, according to CalFire. Already this year, it’s been surpassed by the Mendocino Complex fire and more than 800,000 acres have burned across the state. Sixteen of the 20 largest wildfires in California have taken place since 1999.
Historically, insurance companies, utilities and taxpayers have shared the bulk of the expenses of wildfire damage, though not in equal measures.
With the damage piling up, fierce fights have broken out in courtrooms and in the state capitol to try to shift the financial burden. A novel strategy emerged over the past year as eight cities and counties sued oil and gas companies for money to pay for the impacts of climate change, from sea level rise and flooding to wildfires.
California leads the country in the number of municipal climate lawsuits against fossil fuel companies, such as Chevron, Exxon Mobil and Shell, but holding the companies accountable for climate impacts has been a tough road so far. In June, a federal judge dismissed the lawsuits from San Francisco and Oakland, ruling that the five fossil fuel defendants shouldn’t be held accountable for a global problem created by so many people. While San Francisco and Oakland appeal the ruling, six other cities and counties are working through their cases in state court.
California lawmakers have been trying to wrestle with the problem, currently brokering legislation that they hope will help utilities, who are spooked by the increasing intensity of wildfires and the resulting greater liabilities.
PG&E is facing roughly 270 lawsuits from the Wine Country fires and took a charge of $2.5 billion during the second quarter alone to account for anticipated losses from the claims, said the company, which has $840 million in insurance coverage for those fires. That amount doesn’t include all of the potential claims from insurance companies that will try to recoup their payout for home and business policies.
The October fires generated about $10 billion in insured losses for homes, businesses and cars, and a set of massive blazes in Southern California last December added an additional $1.8 billion, according to a tally released by the California Department of Insurance.
State lawmakers face a deadline of Aug. 31 to vote on several bills related to fire costs, including a controversial proposal by Gov. Jerry Brown that calls for changing how courts apply a constitutional doctrine called inverse condemnation.
Utilities say the doctrine creates “essentially unlimited liabilities” because it compels them to settle lawsuits regardless of fault. Inverse condemnation holds that utilities could be liable even if they weren’t negligent. That means power companies will have to compensate property owners when the companies’ equipment caused a fire, even if they had followed safety rules.
Brown’s proposal would eliminate that strict liability and require the courts to consider whether a utility followed safety rules and other factors that contributed to a fire, such as high winds. The courts also need to weigh the public benefits of electricity transmission against the harm caused to private property.
The proposal would also increase the maximum fine for each safety violation from $50,000 to $100,000, prohibit electric companies from passing on the fines to their customers via rate hikes, and require the utilities to submit an annual plan to improve fire safety.
“The impact of this change will be felt by insurance companies and in some cases by property owners. They can still sue, but it will cost them more because the burden on the plaintiffs will be higher,” said Sean Hecht, co-executive director of the Emmet Institute on Climate Change and the Environment at UCLA School of Law.
Brown is concerned that the ballooning fire costs will lower the utilities’ credit scores and make it difficult for them to borrow money and invest in better equipment and services. He believes that would ultimately cost taxpayers more money to keep the electric grid in good health.
“The increasingly destructive and costly wildfires and natural disasters have the potential to undermine the system, leaving our energy sector in a state of weakness at a time when it should be making even greater investments in safety,” Brown wrote in a letter to the legislature to lobby for his proposal.
PG&E describes the plan as a “constructive first step” but wants further limits on its fire liabilities. Critics, including some lawmakers, fire victims, and local government officials said the proposal dilutes the incentive for utilities to invest in strong fire prevention measures. San Diego Gas & Electric, for example, replaced wooden poles with steel ones, hired meteorologists, and paid for firefighting aircraft after it faced more than 2,500 lawsuits and paid $2.4 billion in settlements for its role in three fires in 2007 that burned 1,738 homes and killed 2 people.
“These are companies that have monopoly in the market, guaranteed rates of return and the ability to take your property through eminent domain,” said Mark Sektnan, vice president of Property Casualty Insurers Association of America, an industry group that opposes Brown’s proposal. “That’s why they have the liability standard to ensure they protect your property. If they take it, then they have to pay for it.”
The insurance group supports another bill, AB 33, that would allow PG&E to use state-issued bonds to pay for claims from the October fires that are not covered by its liability insurance, excluding fines and other penalties.
Supporters say using state bonds would lower the cost of borrowing money, making it a cheaper option for PG&E customers. Opponents see the bill as yet another attempt to get taxpayers to bail out the company.
The outcome of these two bills could move the debate into courtrooms and take years to resolve. Wildfires, in the meantime, wait for no one.