California Department of Water Resources Wildfire Fund Revenue Bonds

Issuer Overview

California Department of Water Resources Wildfire Fund Revenue Bonds

Issuer Type: State / Province

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Background and History

Assembly Bill 1054 (Ch. 79, Stats. 2019) was enacted in July 2019 to address the increased risk of catastrophic wildfires in California caused by electric utility equipment and electric utilities’ exposure to wildfire-related financial liability, which created increased cost to ratepayers.  The establishment of a Wildfire Fund under AB 1054 (the “Wildfire Fund”) was intended to provide a source of funds to facilitate prompt payment of eligible damage claims arising from wildfires caused by electric utility equipment of large electrical corporations and to support the creditworthiness of electrical corporations, thereby allowing them access to capital at a lower cost for investment in safe, clean and reliable power at a reasonable cost.  The Wildfire Fund was established by the California Legislature to be a mechanism to assist electrical corporations in managing the financial effects of wildfires in their Service Areas using mechanisms that are more cost effective than traditional insurance.  Assembly Bill 1513 (Ch. 396, Stats. 2019) (“AB 1513”) subsequently modified AB 1054 (AB 1054, as modified by AB 1513, is referred to herein as (“AB 1054”) and a companion bill to AB 1054, AB 111 (Ch. 81, Stats. 2019) (“AB 111”), was also enacted. 

AB 111 established certain entities to implement and administer certain provisions of AB 1054 related to wildfire safety requirements, including the performance of the electrical corporations (including the IOUs (defined below)) with respect thereto and a wildfire fund administrator to manage and administer the Wildfire Fund (the “Wildfire Fund Administrator”).  AB 111 established the Wildfire Safety Division within the CPUC to oversee and monitor investor owned utilities compliance with certain wildfire safety requirements.  AB 111 also established a California Wildfire Safety Advisory Board to advise the Wildfire Safety Division.  In addition, AB 111 established the Office of Energy Infrastructure Safety, which will be the successor to the Wildfire Safety Division as of July 1, 2021.  Finally, AB 111, established the California Catastrophe Response Council (the “CCRC”) to appoint the Wildfire Fund Administrator, and thereafter to oversee the operation, management, and administration of the Wildfire Fund by the Wildfire Fund Administrator.  On April 23, 2020, the CCRC appointed the California Earthquake Authority (“CEA”) as the Wildfire Fund Administrator in accordance with AB 111.  Prior to such appointment the CEA acted as the interim Wildfire Administrator pursuant to AB 111.

The Wildfire Fund functions as an insurance fund for electrical corporations that abide by certain state safety requirements.  It is expected to be funded by initial and annual contributions by electrical corporations, the initial loan to the Wildfire Fund from the State’s Surplus Money Investment Fund, by transfer to the Wildfire Fund of Wildfire Nonbypassable Charge Revenues not required to cover Program Related Costs in accordance with the Act and the Indenture.  Consistent with the Act, the State may consider issuing revenue bonds in the future.  The issuance by DWR of Bonds, is limited by the Act to $10,500,000,000 in aggregate principal.  The IOUs have provided initial contributions of $7.5 billion and are required to provide annual contributions of $300 million through calendar year 2035. The Wildfire Fund is not a fund in the State Treasury and is not a borrowable resource to the State’s General Fund.  In addition, the Wildfire Fund is not a source of repayment of Bonds or other Program Related Costs.

Vinay Narjit Singh Behl, Manager, Division of Fiscal Services