The escalating cost of wildfires now adds $41 to the average monthly power bill for residential customers of California’s largest utility, according to a government report.
The report calls for a systemic overhaul of how the state responds to conflagrations as climate change-driven disasters threaten its economy.
That surcharge accounts for 19% of the average Pacific Gas & Electric Corp. bill, and along with spiking homeowners’ insurance premiums, is another way Californians are paying the price for more destructive and frequent wildfires.
Those impacts are lowering home values and local tax bases, and destabilizing mortgage and insurance markets, according to the study.
“Wildfire risk is not just an occasional catastrophe, but a recurring cost embedded in the state’s economy,” said the report issued this week by the California Earthquake Authority, a quasi-public agency that manages a $21 billion wildfire insurance fund to pay claims against utilities.
While Californians may be aware of the economic toll of wildfires on communities, the report offers a rare glimpse at how their effects show up in individual bills. As climate-related damages become more prevalent, economists expect them to fuel consumer prices, a phenomenon they call “climateflation.”
Without action, according to the report, wildfire-driven inflation of Californians’ electricity and insurance bills will inexorably rise.
Residents already pay some of the nation’s highest electricity rates, which increased 37% between 2020 and 2025. Those rates include surcharges that regulators permit utilities to pass on to customers to recoup the billions of dollars in liabilities utilities incur for starting wildfires and the cost of preventive measures to avoid future blazes.
Wildfire-related charges now account for 17% of monthly charges from Southern California Edison and 14% from San Diego Gas & Electric, the state’s two other big investor-owned power providers, according to the report.
The report’s far-reaching recommendations to stabilize the insurance market and lower costs include establishing a state-sponsored wildfire home insurer to relieve private insurance companies of liability for catastrophes.
It also calls for ending utilities’ liability for inadvertently starting fires and creating new programs to help property owners protect their homes and rebuild after conflagrations. Right now, utilities can be on the hook for billions of dollars in damages from a wildfire if their equipment is involved in igniting it.
The proposals are likely to prove controversial among insurers, utilities and consumer advocates alike over who ultimately pays for wildfire damages.
Earthquake authority spokesperson Ben Deci said in an email that the recommendations were meant to be “an unflinching look at the landscape of policy options available to California — each with real trade-offs that deserve honest debate.”
Wildfire-related costs also put California’s climate goals at risk, according to the report.
“When you raise electricity prices, that makes the cost of electrifying your car or your space heating or your water heating higher, so that’s going to slow progress on electrification,” said Meredith Fowlie, an economist at the University of California at Berkeley, who was not involved with the report.
Nancy Watkins, a principal and actuary with consulting firm Milliman in San Francisco, said one of the report’s most important recommendations is statewide coordination of efforts to reduce wildfire threats through home hardening and removing flammable materials around buildings. “We have communities that are unacceptably vulnerable to fire, and we haven’t done enough to change that,” she said.
Since 2017, a series of destructive wildfires has cost tens of billions of dollars, including last year’s Los Angeles firestorms. California’s largest utilities have also struggled to adapt, as have insurers, some of which have fled the market. That’s forced hundreds of thousands of homeowners to obtain coverage from the FAIR Plan, the state’s insurer of last resort for properties in high-risk wildfire areas.
In the wake of the Los Angeles disaster, legislation signed by Governor Gavin Newsom last September required the earthquake authority to consult with state agencies and recommend a new model to rebalance how risks are borne by entities such as the utility wildfire fund and the cash-strapped FAIR Plan, which is now insuring homes even in low-risk urban neighborhoods as private insurers restrict coverage.
The report’s proposed $25 billion state-chartered replacement for the FAIR Plan would become the insurer of first resort, assuming the responsibility and risk of providing catastrophic wildfire coverage for all homeowners. That would allow private insurers to continue writing other coverage policies for homes in high-risk fire areas. It wouldn’t necessarily lower homeowner premiums, the report’s authors wrote, but would stabilize the market and make insurance more widely available.
Eliminating utilities’ liability for downed power lines or other equipment that start wildfires, unless negligence was involved, could lower customers’ power bills by removing surcharges for insurance settlements. But such a change would require amending California’s constitution, which would be politically challenging.
Woody writes for Bloomberg.
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