Relevant Document:Agenda
Southern California Edison’s general auditor said this afternoon that wildfire subrogation claims have in the past been settled at “historical levels” of “around 50%,” speaking at a meeting of the governor's Commission on Catastrophic Wildfire Cost and Recovery. Today marked the commission’s third meeting to discuss, as described by Commission Chair Carla Peterman, the commission’s directive to provide “recommendations about how to fairly allocate wildfire costs.” The
prior meeting was held on March 14.
Today’s meeting included three panels, relating to insurance solutions for the California homeowners insurance market, utility risk financing options and community needs regarding wildfire damages.
Members of the utility risk financing panel discussed different means of transferring risk, including catastrophe bonds, recovery bonds, cooperative risk pools and other models.
The SCE executive, David Heller, that utility’s vice president of enterprise risk management and general auditor, discussed financing options currently in use or being evaluated by the company. Heller said that catastrophe bonds are complex and noted that they “typically have regional diversity,” which would not be the case for California wildfire liability bonds.
Turning to a discussion of a possible wildfire fund, Heller first noted that a wildfire fund should not be considered a substitute for the ability for utilities to recover wildfire costs. Heller indicated that Southern California Edison had undertaken “preliminary modeling” regarding what a wildfire fund might require. Among other assumptions regarding initial contribution requirements and maximum annual liability amounts,
Heller noted that the model assumes that wildfire claims are settled “over five years” and that subrogation claims are settled “at historical levels” which he said “are around 50%.”
Carolyn Kousky, executive director of the Wharton Risk Management and Decision Processes Center at the University of Pennsylvania, said there is “very little interest” in the market now for catastrophe bonds, given the potential for full loss of principal. Kousky said that as far as she knew, previous issuances by PG&E and Sempra Energy are the only catastrophe bonds ever issued. Kousky co-authored a paper in February, “
Financing Third Party Wildfire Damages: Options for California’s Electric Utilities.”
Steve Fleishman, managing director of Wolfe Research, who noted that he has covered California utilities for 28 years, said that wildfire risk today, combined with inverse condemnation and the uncertainty around the timing of recovery, creates too much downside risk in California utilities. Utility investors, he noted, generally seek moderate upside with limited downside. He sid the current “framework is untenable.”
“Why do investors own stock? They think the situation is so untenable that it’ll get fixed,” Fleishman said, adding that recent comments by Gov. Gavin Newsom had encouraged such views.
A video recording of the meeting will be available in the coming days on the California Office of Planning and Research website,
HERE.