Utilities seek permanent cap on wildfire costs for shareholders

California’s largest investor-owned utilities are asking the state for a permanent legal cap on what shareholders pay when they are found responsible for catastrophic wildfires. The proposal would limit the financial exposure of company owners, potentially leaving customers to cover the remaining costs through higher monthly electricity rates.

The push for this legislation is happening while a criminal investigation continues into Southern California Edison’s role in the Eaton fire, which burned through Altadena last year. According to slides presented by a Pacific Gas & Electric executive to state senators, the utilities want a permanent ceiling on corporate liability for fires where they are found to have acted negligently or imprudently.

The timeline for these legal protections began in early 2025. That is when videos surfaced showing bright flashes from Edison’s transmission lines shortly before the Eaton fire ignited. A government investigation released in August concluded that the fire started when an out-of-service transmission line, unused since 1971, was briefly reenergized during high winds. The resulting sparks landed in dried brush, killing 19 people and destroying a wide section of Altadena.

Under the current 2019 law known as Assembly Bill 1054, shareholder liability is capped at 20 percent of each utility’s transmission and distribution equity rate base. For Edison, that cap is currently set at $4.3 billion. For Pacific Gas & Electric, the limit is $5.1 billion, and for San Diego Gas & Electric, it is $1.5 billion. The utilities want this limit to remain in place indefinitely. Currently, the cap ends when the state wildfire fund and an additional $18 billion reserve created last year are depleted.

Utility executives argue that shielding shareholders from massive fire costs is necessary to maintain credit ratings. They say lower credit ratings force companies to pay higher interest rates on borrowing, a cost that eventually passes to customers. Pedro Pizarro, chief executive of Edison International, told Wall Street analysts last week that it is in customers’ interest to have legislative action in 2026. He also stated that executives believe the utility acted prudently before the Eaton fire.

Consumer advocates and some lawmakers disagree. They argue that the proposal weakens accountability, especially since the companies continue to report profits and pay dividends. Jamie Court, president of Consumer Watchdog, said that if ratepayers are forced to pay the majority of the costs for fires caused by utilities, there is no incentive for those companies to take safety seriously. Mark Toney, executive director of the Utilities Reform Network, called the idea of permanently capping shareholder liabilities completely unacceptable.

State Sen. Sasha Renée Pérez sent a letter to the California Public Utilities Commission on Sunday, noting that both companies are paying millions in dividends while complaining about financial weakness from wildfire risk. She wrote that the Legislature must not be pressured to roll back financial accountability through threats to withhold investments needed to serve communities. PG&E recently sent letters to thousands of customers saying their projects could be delayed next year as the company defers $2 billion in spending.

The utilities are now asking Governor Gavin Newsom to call a special legislative session to debate how to reduce their fire risks. This follows an earlier attempt where a bill with the protections the companies wanted died after the Assembly declined to vote on it. Edison International recently disclosed that the Los Angeles County district attorney is investigating whether the company should be criminally charged for its actions leading up to the Eaton fire.

An investment firm published a report last month claiming there was evidence that Edison acted with conscious and willful disregard for the rights and safety of others. That finding would make shareholders liable for all Eaton fire costs, which are estimated in the tens of billions of dollars. Pizarro dismissed the report and the criminal investigation during a call with investors, saying he does not see a basis for felony liability.

If the utilities commission determines that Edison acted imprudently, the company’s shareholders would pay the $4.3 billion cap under current law. The remaining costs would be added to customer bills. If the commission agrees the company acted prudently, the full cost of the fire would be covered by the $21 billion state wildfire fund. The final determination will depend on the ongoing regulatory and criminal reviews of the events that led to the disaster.