California Governor Gavin Newsom signed SB 254 on September 19, 2025. The bill, authored by state Senator Josh Becker, is a broad energy affordability package. Its most consequential provision for utility investors is the creation of an $18 billion continuation account within the state's Wildfire Fund, the mechanism that pays eligible wildfire claims against the state's investor-owned utilities.
According to the Assembly floor analysis and the senator's office, the continuation account will be funded equally by utility shareholders and ratepayers. The existing non-bypassable charge on customer bills that supports the fund will be extended through 2045. The law also requires utilities to finance $6 billion of wildfire safety capital investments through securitization, a form of low-cost debt backed by a dedicated customer charge, rather than through traditional rate base, which carries a higher return.
Why the fund needed more money
The Wildfire Fund was created in 2019 under AB 1054, after the 2017 and 2018 wildfires drove PG&E into bankruptcy. It was capitalized with about $21 billion, roughly half from utility shareholders and half from a customer charge, and was designed to pay claims above a threshold for utilities that hold a valid safety certification. It also introduced a more favorable standard for utilities seeking to recover wildfire costs from customers, under which their conduct is presumed prudent unless serious doubt is raised.
The January 2025 Eaton fire in Los Angeles County exposed the limits of that design. The fire killed 19 people and destroyed thousands of structures, and Southern California Edison has said its equipment may have been associated with the ignition. Estimates of potential claims ran into tens of billions of dollars, raising concern that a single fire could exhaust most of the fund. Rating agencies warned that the uncertainty was weighing on the credit of California's utilities.
SB 254 responds by adding a second layer of capacity. The bill also provides interim financing arrangements for certain claims from 2025 wildfires.
Who pays
The split of the $18 billion between shareholders and customers was the most contentious element of the debate. Consumer advocates argued that customers already pay some of the highest electricity rates in the continental United States and should not bear further wildfire costs. Utilities argued that without additional fund capacity, their cost of capital would rise, which would also feed into rates.
The final structure follows the 50-50 principle of the original fund. Extending the customer charge through 2045 spreads the customer contribution over two decades.
Other provisions
Beyond the Wildfire Fund, SB 254 includes measures aimed at reducing electricity costs. The securitization requirement for $6 billion of wildfire safety spending is expected to lower the cost to customers compared with including that spending in rate base, because securitized bonds carry lower interest rates and no equity return.
The bill also directs a study of alternatives to the current liability framework, including inverse condemnation, under which utilities can be held liable for property damage caused by their equipment regardless of negligence. Changes to inverse condemnation have been sought by utilities for years and opposed by insurers and fire victims' groups.
The governor also signed an executive order directing state agencies to consider further reforms to wildfire liability and the fund.
Market reaction
Shares of Edison International and PG&E rose as the bill advanced through the legislature in September, reflecting reduced uncertainty about the fund's capacity. Rating agencies have said the legislation is supportive of credit, though they continue to watch the outcome of Eaton fire investigations and claims.
For bondholders, the continuation account reduces the risk that a utility would face uncovered claims large enough to threaten its solvency. For shareholders, the contribution to the continuation account is a cost, but one the market appears to view as preferable to the alternative of an exhausted fund.
What it means for customers
For customers of PG&E, SCE and San Diego Gas & Electric, the immediate effect is the extension of the existing Wildfire Fund charge for an additional period. Over the longer term, the law's sponsors argue that securitization and other measures will reduce bills relative to what they otherwise would have been. Electricity affordability has become a central political issue in California, with residential rates having risen substantially over the past decade, driven by wildfire mitigation, transmission, distribution and public purpose program costs.
How the fund works in practice
When a covered utility faces wildfire claims above a threshold, it can draw on the fund to pay them. The fund then reviews whether the utility acted prudently. If the utility is found imprudent, it must reimburse the fund up to a cap linked to the size of its transmission and distribution equity rate base, which limits the maximum hit to shareholders from any single fire. If the utility is found prudent, the claims paid by the fund are not reimbursed. This structure was designed to give investors more certainty about worst-case exposure while preserving an incentive for safe operation.
Utilities must maintain an annual safety certification from the state's Office of Energy Infrastructure Safety to remain eligible. The certification depends on an approved wildfire mitigation plan and on meeting governance requirements, including board-level safety oversight and executive compensation tied to safety performance.
Lessons for other states
Wildfire liability is now a significant issue for utilities across the western United States. Utah, Idaho, Montana, Wyoming and other states have passed laws in recent years to limit utility liability or create safe harbors for utilities that follow approved wildfire mitigation plans. Oregon has considered similar measures after large verdicts against PacifiCorp related to the 2020 Labor Day fires. Hawaii agreed a global settlement of claims from the 2023 Maui fires that included contributions from Hawaiian Electric.
California's approach differs in that it combines a fund with a liability standard that remains strict. Other states are watching whether the fund model can absorb losses at the scale of the Eaton fire.
What to watch
The release of the official cause report for the Eaton fire, the progress of litigation against SCE, and the study of alternative liability frameworks required by the law are the main developments to follow. The autumn Santa Ana wind season, which typically peaks between October and January, will test utility shutoff practices and the risk of new large fires.