Sunita SomvanshiWhen a power line sparks a wildfire that destroys your home, someone has to pay for it. California is in the middle of a major fight over who that someone should be. The state’s governor, lawmakers, electric companies, and insurance firms are divided over how wildfire costs should be allocated.
Right now, California law says utilities like PG&E, Southern California Edison, and San Diego Gas & Electric can be held strictly responsible for damages if their equipment causes a wildfire, even if the utility wasn’t careless. This rule is called inverse condemnation. When a wildfire hits, homeowners get insurance payouts from their insurance companies. Then those insurers can turn around and sue the utility to get their money back. That recovery process is called subrogation, and it’s central to how wildfire costs currently get sorted out.
Governor Newsom wants to change this. His proposal would cap or restrict how much insurance companies can recover from utilities. The administration argues that reducing utilities’ liability exposure would help limit financial pressure on utilities and reduce the risk of higher electricity costs.
But here’s the catch. If insurers can’t recover money from utilities, they face financial losses. Insurers and consumer advocates have warned that limiting their ability to recover wildfire losses could increase pressure on an already strained California insurance market.
The Eaton Fire that started in January 2025 sparked this latest political fight. The fire killed 19 people and destroyed 9,419 structures with another 1,076 damaged. Nine firefighters were injured. Those numbers show why this debate matters—these aren’t theoretical fires. These are real events destroying real homes and taking real lives.
California created the $21 billion Wildfire Fund in 2019 under AB 1054 as part of a broader response to the financial risks exposed by the state’s catastrophic wildfires and PG&E’s bankruptcy. The fund has specific limits and processes. It’s not unlimited money. The real question now is whether the fund should cover more costs, or whether utilities should carry more of the burden.
In Sacramento, lawmakers are divided. Legislators have also debated restrictions on the sale of wildfire claims to third parties, including financial firms. Cities and counties want to recover the full replacement cost when municipal buildings burn. The administration initially proposed limiting them to depreciated value, which would be much less. After pushback from fire departments and local government associations, the governor’s office signaled it might budge on that point.
California’s legislative session ends August 31. This needs to be decided soon. As of late August, no final bill text has been released. Negotiations are still happening. Lawmakers will be voting on proposals, with final language still evolving.
This matters beyond California. Other states watch what California does. That could shift wildfire costs across the country depending on California’s approach.
What remains unknown is whether reducing utility liability would actually lower electricity bills. The administration says it would prevent rate hikes. This is the central unresolved question: does cost savings for one customer base end up as cost increases for another?
