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California Wildfire Fund
- 1. © Centers forBetter Insurance, LLC 2020 Version 1.0 Centers for Better Insurance (CBI) is an independent organization focused on supporting the insurance industry to optimize the value it delivers to all stakeholders (including policyholders, employees and society at large). CBI does so by making available unbiased analysis and insights about key regulatory issues facing the industry for use by insurance professionals, regulators and policymakers. THE MATERIAL AS WELL AS ANY OTHER INFORMATION PROVIDED BY CBI IS PROVIDED ON AN "AS IS" AND "AS AVAILABLE" BASIS. CBI does not guarantee the accuracy or completeness of this material or any other information and may add, remove, discontinue, change, improve, or update this material or any other information without notice. Under no circumstances shall CBI be liable for any loss, damage, liability or expense claimed to result from use of this material or any other information. Centers for Better Insurance Policyholders Employees Shareholders Society Supporting value creation for all stakeholders through beneficial purpose, sound governance and effective controls www.betterins.org An Overview California Wildfire Fund CBI
- 2. © Centers forBetter Insurance, LLC 2020 Version 1.0 2www.betterins.org Centers for Better Insurance Policyholders Employees Shareholders Society California Wildfire Fund Overview Large Investor Owned Utilities Wildfire mitigation plans Safety Certificate Determines prudence of utility’s actions in causing a wildfire – a safety certificate creates a presumption of prudence Determines cause of a wildfire Homeowners insurance settlement Liability and subrogation claims Payment of liability and subrogation claims 1 Funding 2 Risk Reduction 3 Claim Settlements To the extent PUC finds imprudence, the utility must reimburse the fund subject to a cap Cap only applies if the utility has a safety certificate Includes $5 billion shareholder funded risk mitigation Subrogation claims brought by insurance companies are steered toward a 40 cents on the dollar settlement (or less)
- 3. © Centers forBetter Insurance, LLC 2020 Version 1.0 3www.betterins.org Centers for Better Insurance Policyholders Employees Shareholders Society California Wildfire Fund Financing the Wildfire Fund Wildfire Fund $7.8 billion initial funding $21 billion claim paying capacity Utility Initial Contribution Annual Contribution San Diego Gas & Electric Company $322.5 million $12.9 million Southern California Edison $2362.5 million $94.5 million Pacific Gas & Electric Company $4815 million $192.6 million Total $7.5 billion $300 million California's 3 investor owned utilities will pay a total of $10.5 billion into the fund over 10 years The three utilities’ 11.5 million customers will pay at least $10.5 billion over 15 years $900 million annual surcharges on electricity users The Wildfire Fund can: • Transfer risk through the purchase private reinsurance • Pledge customer surcharges to secure revenue bonds The California Department of Water Resources issued bonds secured by these assessments to provide initial capitalization of the fund. California Earthquake Authority California Catastrophe Response Council • Governor • Treasurer • Insurance Commissioner • Secretary of Natural Resources Agency • 3 members of the public appointed by the Governor • 1 member appointed by the Senate Committee on Rules • 1 member appointed by the Speak of the Assembly Appoints and oversees the Wildfire Fund Administrator • CEA serves as interim Administrator of the Fund • Permanent administrator to be selected (which may be the CEA)
- 4. © Centers forBetter Insurance, LLC 2020 Version 1.0 4www.betterins.org Centers for Better Insurance Policyholders Employees Shareholders Society California Wildfire Fund Payouts from the Wildfire Fund To the extent the Public Utilities Commission finds the utility acted in a just and reasonable (“prudent”) manner with respect to the wildfire, the utility has no obligation to reimburse the Wildfire Fund. To the extent the utility is found not prudent, it must reimburse the Wildfire Fund subject to a cap. The cap on reimbursements would not apply if: • The administrator determines that the utility’s actions or inactions that resulted in the wildfire constituted conscious or willful disregard of the rights and safety of others; or • The electrical corporation failed to maintain a valid safety certification. Annual Aggregate Retention $1 billion or amount of required insurance, if greater Payment of Eligible Wildfire Claims The fund pays the cost of third party claims against a participating utility for damages from a wildfire caused by the utility (as determined by CAL FIRE). Approval of Third-Party Settlements • The Wildfire Fund Administrator reviews and approves settlements with third parties • Absent exceptional circumstances, the settlement of subrogation claims for 40% or less of the total claimed value is automatically approved • The settlement of subrogation claims for more than 40% must be justified based on reasonable business judgement of the utility or the specific facts and circumstances • Final judgements (i.e., final court awards) are not subject to approval A utility applies to the Public Utilities Commission for cost recovery from ratepayers for “just and reasonable” amounts it paid in connection with a wildfire. A valid safety certificate creates a presumption of reasonableness. Cost recovery is not applicable to reimbursements from the Wildfire Fund.
- 5. © Centers forBetter Insurance, LLC 2020 Version 1.0 5www.betterins.org Centers for Better Insurance Policyholders Employees Shareholders Society California Wildfire Fund Wildfire Safety • Oversees and enforces the utility compliance with wildfire safety • Develops performance metrics to achieve maximum feasible risk reduction (i.e., capable of being accomplished in a successful manner within a reasonable period of time, taking into account economic, environmental, legal, social, and technological factors) for the wildfire mitigation plan and evaluate and audit each utility’s compliance with the plan • Consults with the Office of Emergency Services regarding management and response to utility public safety power shutoff events • Supports efforts to assess and analyze fire weather data and other atmospheric conditions that could lead to catastrophic wildfires and to reduce the likelihood and severity of wildfire • Provides recommendations to the commission to address the dynamic risk of climate change and to mitigate wildfire risk. • 7-member board selected from industry experts, academics, and persons with labor and workforce safety experience • Makes recommendations to the Wildfire Safety Division / Office of Energy Infrastructure Safety related to wildfire safety and mitigation performance metrics • Makes recommendations related to the content of wildfire mitigation plans • Provide other advice and recommendations related to wildfire safety as requested by the Wildfire Safety Division / Office of Energy Infrastructure Safety including the scope and process for assessing the safety culture of an electrical corporation Wildfire Safety Division Wildfire Safety Advisory Board Office of Energy Infrastructure Safety July 1, 2021Public Utilities Commission Natural Resources Agency Transition
- 6. © Centers forBetter Insurance, LLC 2020 Version 1.0 6www.betterins.org Centers for Better Insurance Policyholders Employees Shareholders Society California Wildfire Fund Wildfire Mitigation Plans Each utility is required to submit an annual wildfire mitigation plan to the Wildfire Safety Division / Office of Energy Infrastructure Safety including: • Allocation of responsibilities for executing the plan • The objectives of the plan • A description of preventive strategies and programs to minimize the risk of its electrical lines and equipment causing catastrophic wildfires, including consideration of dynamic climate change risks • A description of the metrics the utility plans to use to evaluate the plan’s performance and the assumptions that underlie the use of those metrics • A discussion of how the application of previously identified metrics to previous plan performances has informed the plan • Protocols for disabling reclosers and deenergizing portions of the electrical distribution system that consider the associated impacts on public safety, as well as protocols related to mitigating the public safety impacts of those protocols, including impacts on critical first responders and on health and communication infrastructure • Appropriate and feasible procedures for notifying a customer who may be impacted by the deenergizing of electrical lines • Plans for vegetation management • Plans for inspections of the electrical corporation’s electrical infrastructure • A list that identifies, describes, and prioritizes all wildfire risks, and drivers for those risks • A description of how the plan accounts for the wildfire risk identified in the electrical corporation’s Risk Assessment Mitigation Phase filing • A description of the actions the electrical corporation will take to ensure its system will achieve the highest level of safety, reliability, and resiliency, and to ensure that its system is prepared for a major event, including hardening and modernizing its infrastructure with improved engineering, system design, standards, equipment, and facilities, such as undergrounding, insulation of distribution wires, and pole replacement • A showing that the utility has an adequate sized and trained workforce to promptly restore service after a major event • Identification of any geographic area in the electrical corporation’s service territory that is a higher wildfire threat than is currently identified in a commission fire threat map • A methodology for identifying and presenting enterprise-wide safety risk and wildfire-related risk • A description of how the plan is consistent with the electrical corporation’s disaster and emergency preparedness plan including plans to prepare for, and to restore service after, a wildfire and plans for community outreach and public awareness before, during, and after a wildfire • A statement of how the electrical corporation will restore service after a wildfire • Protocols for compliance with requirements adopted by the commission regarding activities to support customers during and after a wildfire, outage reporting, support for low-income customers, billing adjustments, deposit waivers, extended payment plans, suspension of disconnection and nonpayment fees, repair processing and timing, access to utility representatives, and emergency communications • A description of the processes and procedures the electrical corporation will use to monitor and audit the implementation of the plan, identify any deficiencies in the plan or the plan’s implementation and correct those deficiencies, monitor and audit the effectiveness of electrical line and equipment inspections, including inspections performed by contractors, carried out under the plan and other applicable statutes and commission rules
- 7. © Centers forBetter Insurance, LLC 2020 Version 1.0 7www.betterins.org Centers for Better Insurance Policyholders Employees Shareholders Society California Wildfire Fund 2020 Approved Wildfire Mitigation Plans The first $5 billion expended on fire risk mitigation capital expenditures included in these plans cannot be passed on to ratepayers.
- 8. © Centers forBetter Insurance, LLC 2020 Version 1.0 8www.betterins.org Centers for Better Insurance Policyholders Employees Shareholders Society California Wildfire Fund Safety Certification The Public Utilities Commission may issue a safety certification to a utility if the utility: Safety Culture • Maintains an approved wildfire mitigation plan. • Agreed to implement the findings of its most recent safety culture assessment Board-Led Safety Governance • Established a safety committee of its board of directors • Established board-of-director-level reporting to the commission on safety issues Safety Aligned Executive Compensation • Established an executive incentive compensation structure approved by the Wildfire Safety Division / Office of Energy Infrastructure Safety that • Promotes safety as a priority • Ensures public safety and utility financial stability through use of performance metrics over incentive compensation • Established a compensation structure for any new or amended contracts for executive officers with: • Strict limits on guaranteed cash compensation, with the primary portion of the executive officers’ compensation based on achievement of objective performance metric • No guaranteed monetary incentives in the compensation structure • A long-term structure that provides a significant portion of compensation, which may take the form of grants of the electrical corporation’s stock, based on the electrical corporation’s long-term performance and value held or deferred for a period of at least three years • Minimization or elimination of indirect or ancillary compensation that is not aligned with shareholder and taxpayer interest in the utility