State's residents paying high price for wildfires

In October 2017, a dry windstorm swept across Northern California, exposing weaknesses in the state's electric grid on a staggering scale. Trees toppled onto power lines, and utility poles broke in half. Sparks landed on tinder-dry landscapes and exploded into deadly blazes that leveled thousands of homes. Most of the destruction occurred in just one night.

California immediately opened its coffers, spending record amounts on firefighting and fire prevention. Insurance companies paid out nearly $12 billion in 2017 -- the state's most expensive year for wildfires on record. Pushed by California officials, Pacific Gas and Electric Co. dramatically ramped up spending to prevent more power-line-sparked fires.

Seven years later, as another fire season arrives, Californians across the state are paying the price for wildfires -- in rising bills that have stirred deep anger.

On a per-person basis, the costs are eye-popping.

Some residents report jumps of $10,000 or more in annual insurance premiums. An analysis by S&P Global found that private home insurance rates in California soared 43.7% from 2018 to 2023. And further jumps appear imminent: Just this past week, State Farm -- the state's largest home insurer, which has cited wildfire risk as a key reason for dropping tens of thousands of California policies -- asked regulators for permission to raise rates by 30% on average for its remaining homeowner customers.

When it comes to electricity, PG&E customers are collectively paying billions of dollars to prevent wildfires. Between 2020 and 2026, customers will have spent the equivalent of about $1,500 per person in the company's jurisdiction, according to a Chronicle analysis of data from the California Public Utilities Commission's Public Advocates Office. PG&E rates have soared 128% in the past decade. Electricity now costs more in California than any other state, except for Hawaii.

"The costs are everywhere," said Alice Hill, senior fellow for climate change policy at the Council on Foreign Relations and chair of the California Department of Insurance's climate working group. The cost of wildfires, Hill said, is now embedded in nearly everything Californians pay for, from health care to food products to home construction.

California taxpayers are also shouldering massive increases in state spending. Cal Fire, the state's firefighting agency, has spent more than $30 billion on battling and preventing wildfires since 2017. That's about $750 per California resident and reflects a budget that has grown 72% in that time.

These services -- insurance, electricity, firefighting -- are crucial. But the costs are making an already expensive state even less affordable, including for those who live far from wildfire zones.

"It's squeezing Californians, especially low-income Californians," said Senate President Pro Tem Mike McGuire, whose North Coast district has been burned and menaced by major wildfires year after year.

Right now, the state is careening into another wildfire season, in which a series of early-season blazes has charred nearly 118,149 acres -- more than five times the recent average for this time of year. Continuing to contend with this challenge means that the costs Californians face -- compounded by inflation for construction materials and other basic items -- may only increase.

PG&E expects it will take much more money to meet its fire-prevention goals. The Public Advocates Office estimates it could cost PG&E $30 billion to bury 10,000 miles of power lines in the riskiest areas for wildfires, which the utility intends to do. That represents about $1,875 per person in PG&E's jurisdiction -- and to date, the utility has billed customers for only a fragment of that work. Insurance companies, meanwhile, are expected to seek significant rate increases -- as State Farm just did -- to keep up with projected risks and costs. And that's if they remain in the state; some have stopped writing policies in risky areas or altogether.

In a future guided by climate change and severe weather events, "We're going to make trade-offs between affordability and reliability and safety," said Michael Wara, a Stanford University professor and member of the state's Catastrophic Wildfire Cost and Recovery Commission. "And the trade-offs are big."

An escalating insurance crisis

Dorothy Murphey has lived in Lafayette for four decades and has never seen a wildfire.

And yet last year, she found herself sharing the panic of tens of thousands of Californians after her insurance company left the state. Now Murphey, like so many others, has found herself paying hundreds of dollars more per year for insurance than she expected.

As a retired claims adjuster, Murphey never expected having problems finding insurance for her single-family home sandwiched between a four-lane thoroughfare and a residential neighborhood, even though it is near tree-studded hills. But as she began the process of searching for a new policy, all she heard was no, no, no.

"It's kind of a crazy situation they put on us," Murphey said. "We have a fire hydrant outside our house -- you can't get much better than that."

Insurers are rapidly cutting back in California, and wildfire risk has been a galvanizing factor. Some, like Murphey's former insurer, AmGUARD Insurance Co., have abandoned California entirely. Others, like State Farm and Allstate, have stopped writing new policies. Still others are dropping older homes that are costly to replace in the event of catastrophe, or are pulling back from big cities where they feel they have too much risk in one area.

At the same time, insurers are charging more. In the first half of 2024 alone, the state's five largest home insurers, representing more than half the total market, all increased their prices. State Farm and Travelers, which together insure a quarter of California homeowners, have raised their average rates by double digits.

Wildfires are not the only issue for insurers. Inflation in building costs and the rising cost of reinsurance, which means insurance for insurance companies, have also put financial pressure on carriers. Some companies have also had poor stock market returns, according to Carmen Balber, executive director of the consumer advocacy group Consumer Watchdog.

But the wildfires of recent years were a turning point. In 2017 and 2018, state records show, insurance companies collectively paid out more than $24 billion in claims related to wildfires -- burned businesses and homes, buildings tainted by heavy smoke and destroyed cars.

Some of those costs have been reimbursed -- for example, PG&E paid insurance carriers about $11 billion to partially cover claims for wildfires during those two years. Since then, insurance companies have continued to pay billions for wildfires, but have not suffered such a devastating year since.

Still, annual insurance premiums, which had been stagnant for more than a decade, immediately began to rise following the 2017 wildfires, and by 2021 had jumped by an estimated $395 to just over $1,400, according to data from the National Association of Insurance Commissioners. No official data is available for the past two years. But a Chronicle analysis of data submitted to the state found the average homeowner in 2024 pays a little over $2,000 annually for home insurance with the state's top 10 largest companies.

Many Californians are being forced to the FAIR Plan -- a state-created wildfire insurer for those who cannot find insurance elsewhere -- at exorbitant cost. The FAIR Plan does not disclose its average premium, but many homeowners report paying thousands of dollars a year more for a policy that covers only fire.

Victoria Roach, the FAIR Plan's president, said during a state hearing in April that the plan, despite being designed as the insurer of last resort, is in reality "quickly moving to be the first resort for a lot of people" and has become "one of the largest writers in the state right now in terms of new business coming in."

As of March, about 35% of FAIR Plan policyholders don't live in fire-prone areas, a FAIR Plan spokesperson said -- a reflection of how difficult it is for Californians to find insurance regardless of their location.

Soaring PG&E bills

PG&E -- a massive utility company that provides service for about 1 in 20 Americans -- has dramatically increased its spending on wildfire prevention since its power lines caused devastating fires in 2017 and 2018. The company spent about $5.5 billion between 2018 and 2023 on clearing trees and brush away from power lines -- about six times more than it had spent in the seven years leading up to the 2017 fires.

Wildfires are a central issue driving up electricity prices. Inflation plus steep investments to expand electric capacity as the state transitions away from fossil fuel energy sources are also significant factors.

For typical residential customers, PG&E bills rose by more than $400 annually this year compared with 2023, an unprecedented and abrupt jump. PG&E CEO Patti Poppe, in an interview with the Chronicle, said that much of that increase can be attributed to fire prevention and state mandates the company is obligated to follow.

Whereas wildfire programs represented about 0.5% of the company's budget in 2019, the figure rose to 18.5% in 2021, the year of the massive, PG&E-caused Dixie Fire.

Currently, in a hypothetical $100 PG&E bill, about $10 goes directly to trimming trees and other hazardous vegetation around PG&E power lines. An additional $6 funds other wildfire prevention programs like planned and automatic outages when potentially dangerous conditions threaten to snap power lines.

About $10 of that hypothetical $100 utility bill goes to shareholders, a return authorized by the state so that investor-owned utilities can remain attractive investments. Some of that money, too, has gone toward wildfire prevention, since shareholders can either reinvest that revenue in the company or use it to pay investor dividends.

Shareholders have also been required to cover wildfire costs in ways that won't raise rates for customers. For wildfires in 2015, 2017, 2018 and 2019, for example, shareholders paid about $25 billion to cover property losses and other claims from wildfires sparked by the company's equipment, an amount negotiated when major wildfires led PG&E to seek bankruptcy protection.

Poppe acknowledged her company's wildfire-prevention spending is driving utility bills higher. She said her teams are trying to reduce other business costs because they must continue the wildfire-prevention spending for "the safety and wellbeing of our communities statewide."

She insisted the costs are worth it. Poppe said she expects that future bill increases won't be as dramatic and hew more closely to the rate of inflation.

"We know we've reduced the risk," Poppe said.

An expensive future

Costly as wildfires are now for Californians, the future may be even more expensive.

Home insurance rates are poised to soar whether or not devastating wildfires once again rip into neighborhoods. The state's Department of Insurance is pursuing a set of reforms called the Sustainable Insurance Strategy, set to take effect by December, that would make it easier for insurers to raise rates. Gov. Gavin Newsom, too, is backing legislation that would require regulators to process rate increase requests faster. The overall goal is to stop more insurers from leaving the state, but painful price hikes are likely. State Farm's rate increase request this past week -- 30% for homeowners, 52% for renters and 36% for condo owners -- would, if approved, saddle several million Californians with hundreds or thousands of dollars more in annual payments.

Energy costs, too, could keep going up in the event of more utility-caused wildfires.

PG&E has only begun charging customers for a fraction of the $30 billion estimated cost to bury 10,000 miles of power lines in the riskiest areas for fire. Currently, only about $0.005 of that hypothetical $100 bill goes toward undergrounding.

While some forested communities are clamoring to be placed on PG&E's priority list for future undergrounding, ratepayer advocates are pushing back on the strategy out of concern that utility bills are increasingly unaffordable. (PG&E customers owed $669 million in unpaid bills as of February.) These groups have urged the California Public Utilities Commission to limit PG&E's spending. One way would be for state regulators to require PG&E to put more resources toward covering bare wires -- another fire prevention tool with an estimated cost of only $800,000 per mile, compared with the current undergrounding costs of $3.3 million per mile.

Another catastrophic wildfire blamed on PG&E could also increase bills.

However, the Legislature in 2019 set out to shield customers from dramatic rate increases after utility-caused wildfires and to keep essential energy companies afloat by creating the California Wildfire Fund. Customers and shareholders of the state's three investor utilities each contribute about $10.5 billion over time to establish the fund, which is a pool of money managed by the state to help utilities pay for wildfire liabilities when they are responsible.

And then there are other types of costs that don't show up in a utility or insurance bill.

PG&E has said one of its best strategies for preventing wildfires is shutting down electricity, either in advance of risky weather or when sensors detect problems. But left without power, residents and businesses lose work hours and revenue and often must pay to replace an entire refrigerator of spoiled food. Partly due to these shutoffs, the number of minutes its customers have gone without electricity has increased by 120% since 2013, according to PG&E -- though the utility believes that technology introduced in the past few years is helping to narrow the scope of fire-prevention outages.

With fire risk top of mind, homeowners are also paying hundreds or thousands of dollars to clear vegetation or, at the behest of increasingly demanding insurers, replace roofs or upgrade electrical wiring.

And then there are the costs of California's effort to slow global climate change -- and hence reduce wildfire risk -- in the first place. Newsom in 2022 said the state will spend $54.3 billion to tackle problems like drought, extreme heat and air pollution that are exacerbated by rising temperatures, though lean budget years with lower-than-forecast tax revenues have led the state to reduce that commitment by about 17%.

Newsom promised that the investments would eventually save Californians money and lower energy bills, but in the near term, bills are rising.

Insurance companies can raise premiums in areas they deem at greater risk for fire. But state law requires that utilities like PG&E charge the same rates for electricity and natural gas to all residential customers, regardless of whether they live in fire-prone hills or urban neighborhoods.

Urban and rural California are inextricably linked when it comes to the electric grid, said Kate Gordon, CEO of California Forward, a Sacramento-based nonprofit focused on sustainable growth. Power generation facilities -- natural gas plants, hydropower facilities, utility-scale solar fields and nuclear plants -- are mostly in the state's rural areas. These areas bear increased fire risk from transmission lines overhead carrying electrons to the state's suburbs and cities, and they experience more frequent power outages.

"We do all have a responsibility to pay for the infrastructure that supports us all living in California," Gordon said.

For homeowners like Murphey, relief can't come fast enough. After finally finding coverage through a smaller insurer, she now pays $2,300 a year -- about 50% more than she did before.

At 81 and long retired, she has no desire to leave Lafayette, a peaceful city of about 25,000 where she can get to San Francisco in an hour's drive. But if she loses that insurance, or can't afford it, she fears she may be forced to leave the state altogether.

"I was born and raised in Oakland. I'm a California girl. That's hard to leave. That's a hard decision to make," she said.

"I think the normal homeowner really does not know what to do."

Reach Julie Johnson: [email protected]; Twitter: @juliejohnson, Reach Megan Fan Munce: [email protected]