USA – CALIFORNIA Law and Practice Contributed by: Nora Sheriff, Gwenneth O’Hara, Samir Hafez, Antonio Carrejo and Timothy Lee, Buchalter LLP
1.8 Unique Aspects of the Power Industry California’s power industry presents several unique aspects, shaped largely by the state’s ambitious poli-
the report spans insurance, utilities, land use, and mitigation policy, a central through‑line is the rapidly increasing burden on electric utility ratepayers. The Report cautions that failing to act will come at a sig- nificant cost, and will materially worsen affordability, reliability, and clean‑energy outcomes. SB 254 directed the State to evaluate how Califor- nia mitigates catastrophe risk, finances recovery, and allocates associated costs across utilities, ratepayers, insurers, survivors, and the public. The Report adopts a deliberately holistic framework, recognising that wildfire risk and recovery outcomes are shaped by the interaction of utility infrastructure, insurance markets, land‑use decisions, and community preparedness. It highlights inverse condemnation, the utility regulatory compact, and AB 1054’s Wildfire Fund as stabilising but ultimately stopgap measures, noting that recent fires – especially the January 2025 Los Angeles wild- fires – have exposed structural weaknesses that were not resolved by prior reforms. The Report concludes that California is confronting a growing and interconnected natural catastrophe risk that cannot be effectively managed through incremen- tal adjustments to existing systems. It underscores that different policy pathways operate on different time horizons and involve tradeoffs, and that no single approach is sufficient on its own. Instead, it calls for co-ordinated action across risk reduction, cost alloca- tion, and catastrophe financing, combined with ongo- ing monitoring of outcomes, to improve affordability, accelerate recovery, and support California’s energy and climate objectives over time.
cies and geographical challenges. Ambitious Decarbonisation Goals
California has set ambitious renewable energy and decarbonisation goals, including a legal mandate to reach carbon neutrality by 2045, and interim targets of 90% clean electricity by 2035 and 95% by 2040. These goals have contributed to the state’s significant year- on-year deployment of renewable energy resources, particularly utility-scale and distributed solar. In 2024, for the first time ever, California achieved 100% clean energy in the CAISO service area every three out of five days, as the CAISO system reached 100% renew- able electricity for a period of the day on 219 different days. This rapid decarbonisation transition has also contributed to the state’s unique and complex chal- lenges related to grid stability, resource adequacy, electric affordability and the integration of intermit- tent resources. Wildfire Risks and Resilience Efforts The escalating threat of catastrophic wildfires caused by utility infrastructure poses persistent challenges surrounding utilities’ legal obligations and operational costs. State policy and regulatory responses to these challenges include the creation of a state-administered Wildfire Fund, mandates for extensive grid hardening (eg, undergrounding, advanced monitoring technol- ogy, enhanced vegetation management), and the deployment of public safety power shutoffs (PSPS) during high-risk conditions. AB 1054 established the California Wildfire Fund, making way for socialising the costs of paying for catastrophic wildfire liabilities. Under the doctrine of inverse condemnation, Califor- nia law uniquely holds IOUs strictly liable for damages from wildfires caused by utility infrastructure, regard- less of negligence. Senate Bill 254 Study Report The SB 254 Study Report, prepared by the Califor- nia Earthquake Authority, provides a comprehen- sive assessment of California’s growing exposure to catastrophic wildfires and other natural disasters, the financial systems used to manage those risks, and policy pathways to improve long‑term resiliency. While
2. Market Structure, Supply and Pricing 2.1 The Wholesale Electricity Market
CAISO manages the wholesale electricity market for about 80% of the state’s load, and operates the Western Energy Imbalance Market (WEIM), which is a voluntary real-time market that extends beyond Cali- fornia’s borders. The remaining roughly 20% of the state’s load is managed by other entities, including POUs and some federal power agencies that operate their own systems.
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