USA – CALIFORNIA Trends and Developments Contributed by: Nora Sheriff, Gwenneth O’Hara and Samir Hafez, Buchalter LLP
Buchalter LLP 425 Market Street Suite 2900 San Francisco CA 94105 USA
Tel: +1 415 227 0900 Fax: +1 415 227 0770 Email: nsheriff@buchalter.com Web: www.buchalter.com
The notable trends and developments for power generation, transmission and distribution in Califor- nia are reform and continued transition on multiple levels. Against the backdrop of needed reform for the state’s approaches to wildfires and skyrocketing ener- gy costs, these sectors are transitioning to regional markets, more structured generation procurement to meet rapidly growing load, and improvements to interconnections. SB 254 and the Enhancing California’s Resiliency to Natural Catastrophes Following the January 2025 wildfires in Los Ange- les, the legislature passed Senate Bill (SB) 254. SB 254 directed the California Earthquake Authority, as Administrator of the Wildfire Fund, to consider new models to mitigate damage from natural catastrophes, accelerate recovery and improve the state’s resilien- cy. The statute required assessment of how to fairly apportion financial burdens across utilities, insurers, ratepayers, governments, and property owners. The study was also to identify alternative structures that could complement or replace the existing Wildfire Fund while maintaining access to affordable energy and insurance. The SB 254 Report, released in April 2026, concludes that California’s current wildfire, utility, and insurance framework is structurally unsustainable; without pro- active change, high electricity costs will continue to rise, utility finances may become unstable, and per- formance of disaster recovery systems will worsen. Systemic misalignment, where electric utilities – and ultimately ratepayers – bear a disparate share of the
cost burden for catastrophic wildfire losses, must be corrected. Climate change, fuel accumulation, and increased development in fire-prone areas lead to bigger and more frequent wildfire events, putting unprecedented strain on the state’s risk manage- ment systems. The report highlights that incremental modifications are not enough; rather, a co-ordinated restructuring of risk reduction, financial systems, and public policy is needed. Fundamentally, electric utility wildfire liability reform is critical. Electric utilities face strict liability for wildfire damages under inverse condemnation, meaning they are responsible for losses regardless of fault, despite minimal control over the circumstances that influence if a fire grows into a catastrophic wildfire. This financial exposure carries the risk of tens of billions of dollars in liability from a single event. The report notes that California has already seen significant financial con- sequences, including utility credit deterioration and bankruptcy. The ratepayer impact is substantial and increasing, and wildfire costs have contributed to rate increas- es that significantly outpace inflation. These costs include both grid hardening investments and wildfire liability recovery mechanisms, both projected to grow given the capital-intensive nature of the grid improve- ments, adding to broader affordability challenges. Critically, the report flags that, at present, there is no set end date for wildfire-related cost recovery, so upward pressure on rates is expected to continue if structural reform is not undertaken.
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