In light of the massive liability facing public utilities from California’s myriad of forest fires, the Governor is proposing new legislation that will reform wildfire liability law.  Meanwhile, an innovative financing strategy is being implemented by a public benefit company seeking to stop wildfires before they start.

The Carr Fire in Northern California has burned nearly 160,000 acres and claimed seven lives.  While the ignition of the Carr Fire has been attributed to sparks from the rim of a trailer contacting the road after a tire went flat, some of California’s largest blazes, including the Redwood Fire (Mendocino County) and Atlas Fire (Napa County), have been attributed to public utilities.  In light of this growing exposure, Governor Jerry Brown has proposed changes to the laws under which public utilities may be held liable for starting wildfires, known as inverse condemnation.  Inverse condemnation allows public utilities to be held liable for property damage without a finding that the utility was negligent in maintaining its equipment.  Under the Governor’s proposed changes, utilities would be liable only when they fail to maintain their equipment and this failure is found to cause a fire.  However, in cases where the utility followed all the proper procedures and maintenance, courts would be allowed to balance the public benefit of the utility’s services against the harm caused by the fire, which could reduce the damages paid by the utilities.  The Governor is advocating for the changes because he believes that public utilities will be forced into bankruptcy if they continue to be held liable for the full damages of wildfires.  CalFire recently released a report finding that PG&E was the cause of several recent fires for which it could be liable in damages reaching over $10 billion.

The revision of wildfire liability laws is one way to address the costs of fires, but a public benefit company has launched its first pilot project to proactively address the problem in Northern California.  The company, called Blue Forest Conservation, is seeking to address forest management through an innovative financial mechanism called a Forest Resilience Bond (FRB).  The FRB uses private capital to fund forest management and restoration activities that create healthier, thinner forests, which include forest thinning, meadow restoration, prescribed burns, and invasive plant management.  These activities reduce fire risk, protect water quality, and can increase water supply by creating more open space for snowpack to accumulate.  Water and electric utilities receive these benefits and pay a contractual amount based on the success of the project back to the investors.  The Yuba County Water Agency (YCWA) recently agreed to contribute $1.5 million to a $4.6 million pilot project to study the impacts of forest management in the Yuba watershed.  The forest management and restoration activities will be implemented by the U.S. Forest Service and National Forest Foundation in partnership with YCWA and Blue Forest Conservation, among others.  The FRB is an innovative financial mechanism designed to head-off the intense fires that have threatened, among other things, the viability of public utilities.

For additional information please contact Kristian Corby at kcorby@somachlaw.com.

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