California’s catch-22: Who should pay when utilities’ power lines cause wildfires?

The timing could not have been better — or worse.

The findings from a long-awaited investigation into the origins of a deadly Southern California wildfire were released Tuesday, pinning it on an electrical arc from a Southern California Edison transmission tower.

Simultaneously, Gov. Gavin Newsom’s administration was asking legislators to limit the financial liability of SoCal Edison and other investor-owned utilities when their equipment ignites wildfires, which have become an inescapable fact of Californians’ lives.

The report dealt with the Eaton Fire, one of several that swept through the Los Angeles area in January 2025, driven by hot winter winds known as Santa Anas. Once ignited, it quickly engulfed communities in the foothills of the San Gabriel Mountains, particularly Altadena, charring more than 14,000 acres, destroying more than 9,000 homes and other buildings and claiming at least 19 lives. It took firefighters 24 days to fully extinguish it.

“After 18 months of thorough review of all evidence, alongside retained electrical and metallurgical experts, the investigation concluded that the cause of the wildfire conflagration was due to the electrical arcing events that took place on the out-of-service Southern California Edison tower,” the Los Angeles County Fire Department wrote in the condensed report it produced along with Cal Fire.

The electrical arc not only ignited the Eaton Fire, it also launched a predictable sequence of finger-pointing and legal maneuvering over insurance payouts to fire victims and efforts by their insurers to shift the financial onus onto the utility and its stockholders.

It was predictable because similar scenarios had erupted during other fire disasters, such as the 2018 Camp Fire that destroyed the Butte County town of Paradise, caused by a faulty Pacific Gas and Electric transmission line.

Even before the 2025 Southern California fires erupted, the Camp Fire and other major wildfires had generated a circular political debate over how billions of dollars in damages should be apportioned.

It’s a difficult issue because PG&E, SoCal Edison and San Diego Gas and Electric, the state’s three major power suppliers, are not like other corporations. They are state-regulated monopolies providing vital services and deriving income from millions of customers.

The state has an obligation to protect the utilities’ profits so they can continue to be viable in the bond and stock markets. Thus, whatever financial burden they incur from wildfires will inevitably fall on customers, who already pay power rates that are among the nation’s highest.

The special status of investor-owned utilities underlies the current political debate in the Capitol in which Newsom, whose governorship will end in a few months, wants the Legislature to limit their liability and protect their financial viability.

Although nothing’s in print, it’s apparent that Newsom wants the Legislature to limit fire victims’ compensation for pain and suffering, to eliminate or reduce the ability of insurers to recover their payouts to victims from utilities, and to cap the fees of lawyers who pursue lawsuits on behalf of victims.

Understandably, insurers, lawyers and organizations of fire victims are strongly opposed. They have been waging a public campaign against the relief Newsom seeks, while the utilities are campaigning for it.

As horrendous as California’s wildfires may be, the conventional rules of imposing liability and spreading the cost just doesn’t work when utilities are state-regulated and state-protected.

It’s a zero-sum game and cries out for a macro approach, such as an umbrella insurance policy for the entire state, covering not only fires but other calamities that threaten California, such as earthquakes. It would build on the relatively new fund financed 50-50 by the three utilities and their customers that was created after the Northern California wildfires.

Playing reactive small ball doesn’t work. It’s time to step up to a much bigger game.