Pacific Gas & Electric filed for bankruptcy six years ago after it was found responsible for sparking a series of devastating wildfires, including one that devastated the town of Paradise and killed more than 100 people.

Wall Street investors have lost confidence and ratings agencies are threatening to downgrade California investor-owned utilities, prompting lawmakers to propose an innovative solution: creating a $21 billion wildfire fund to be split equally between shareholders and utility customers.

Now, after two major wildfires in and around Los Angeles destroyed thousands of homes and killed at least two dozen people, the state's wildfire fund is opening up if another utility company is found responsible for starting the blazes. will face its first major test.

Even the lawmaker who spearheaded legislation to create a wildfire fund isn’t sure his efforts to mitigate risks to utilities — allowing them to continue operating in states where wildfire risk is prone to escalating — are enough.

“This is the most profound test the fund could ever face,” said Christopher Holden, a former Democratic congressman who sponsored the bill to create the fund. "This is new territory," said Holden, who lives in Pasadena and had to evacuate during the Eaton fire.

“When we drafted this bill, this was new territory — and now, just five years later, we’re going through another.”

If investigators determine that utility companies caused the Eaton or Paradise fires, it could send shockwaves through the utility industry and the broader insurance market.

Mark Toney, executive director of TURN, a utility reform network, said the scope of the fires in Los Angeles County raises serious questions about the fund's ability to cover insurance liabilities. Even if the fund is able to provide relief for utility company fires, it's uncertain whether it will cover future fires.

"Will this fund work properly?" Tony said. “Who pays in the end?”

The cause of the fire has not yet been determined.

Investigators are focusing on the area around the Southern California Edison transmission tower in Eaton Canyon after the Eaton Fire killed at least 17 people and damaged about 7,000 buildings in Pasadena and Altadena.

Edison denies fault for Eaton fire. In a statement to The Times, the company said its wildfire mitigation efforts have reduced the risk of catastrophic fires by 85% to 90% compared to pre-2018 risks.

The Los Angeles Department of Water and Power, the municipal utility that operates in Pacific Palisades, said it did not choose to participate in the wildfire fund because it would be too costly for its customers. If a large municipal utility company is held responsible for the Palisades fire, the city of Los Angeles could face significant financial costs.

But sources familiar with the investigation told The Times the fire, which started in the Skull Rock area north of Sunset Boulevard, appears to be of human origin. Officials are investigating whether a small fire that may have been started by New Year's Eve fireworks reignited on Jan. 7.

If a utility company is found to have started a major fire in Los Angeles, the state's entire insurance landscape, not just California's wildfire funds, may need to be recalibrated, said Michael Vara, an energy and climate scholar at Stanford University.

“The big question is what is the availability and affordability of insurance overall?” said Vara, who served on the California Catastrophe Commission, the fund’s watchdog agency. “I think California will face greater challenges than it has in the past few years because it will not be easy for its major insurance companies and other entities to access these global reinsurance markets that fund post-catastrophe losses.”

Under California law, utility companies are strictly liable for all fire-related damage to real property, including homes.

The wildfire fund is a new model in which the state’s three largest owner-operated utilities — Pacific Gas & Electric, San Diego Gas & Electric and Southern California Edison — contribute into a fund that they can tap into if they qualify. The fund determined their equipment caused the fire. When that happens, they're on the hook for the first $1 billion in losses. After that, the wildfire fund will be disbursed.

"If wildfire funds didn't exist today, Edison could be in real trouble," Vara said. “We may see something similar to what happened with PG&E after the Camp Fire.”

At the time, Vara said, utilities were required to adhere to strict liability standards: If electrical equipment was found to have caused a fire, they were held liable.

Now, if Edison ends up being held responsible, the company can seek funding from wildfire funds, Vara said.

"This is very important to ensure that the victims are rehabilitated, at least for the damage to their property," he said.

Vara said that while it's too early to estimate the damage from the Eaton fire, the average home value in the area is about $1.3 million and thousands of buildings have been destroyed. He said the cost could reach $10 billion.

If officials find that Edison caused the fire but acted responsibly, the fund's $21 billion could be depleted in half, Vara said.

“Five years into the fund, one fire is worth half of the fund,” said Vara, a former California wildfire commissioner and member of the California Disaster Response Council, the oversight body for California’s wildfire fund.

The problem is compounded by the fact that the wildfire fund has raised only $14 billion so far because utilities can't immediately count on ratepayers to pay their fair share of the $21 billion.

"If you're an investor in PG&E or Edison, you might be looking at this and thinking, 'Well, I thought the fund was big enough. Maybe now I'm not so sure. The fund exists to provide confidence. If the fund If it’s not big enough, confidence will go down.”

The California Department of Forestry and Fire Protection (Cal Fire) will lead the investigation into the cause of the fire.

The California Public Utilities Commission then determines whether the utility's conduct was reasonable or unreasonable, and if so, to what extent.

Vara said the fund must be paid back if the utility is found to have failed to exercise caution. However, the amount it pays depends on the size of its reimbursement relative to its rate base.

Edison International Chief Executive Pedro Pizarro told Bloomberg Television that state regulations allow the company's holder liability to be capped at $3.9 billion.

"The cap is there because if Edison pays back the fund, that's basically the electric customer paying back the fund," Vara said. "Edison would go to the California Public Utilities Commission and say, 'We need this money to pay our electric bills.' "

The fund also has to pay wrongful death charges, but that's a separate claim, Vara said.

"You have to show negligence, which may actually be difficult to prove because Edison's actions may have been reasonable, but the fire was still caused by their equipment," Vara said. "Edison has a lot of reasons to claim that its actions were reasonable, in the sense that it spent a lot of money trying to reduce risk and there was an agency that was overseeing all of that and approving and monitoring compliance with its plan ”

Still, even if wildfire funds bail out Edison, it could have serious consequences for Edison and other utility companies. If most of the wildfire fund's $21 billion is depleted, it could affect the market's view of the fund, negatively impact utility companies' credit scores and jeopardize investor-owned utilities, which cover about 80% of California. customers) are in disarray. .

Shares of Edison International, the utility's parent company, were up less than 1% on Tuesday afternoon at $57.27, having fallen more than 24% in the week since the fire broke out. This means the company's market capitalization fell by more than $7 billion.

"If the (utility) market collapses, then we have a catastrophic situation," Holden said. "We have to secure the market for the future."

Last fall, state regulators criticized Southern California Edison for lagging behind in inspecting transmission lines in areas with high risk for wildfires.

Utility safety officials also said in a report that the company's visual inspections of its transmission line connections sometimes failed to detect dangerous problems.

"We don't see any signs of electrical anomalies in the telemetry," Edison International CEO Pedro Pizarro said Monday on Bloomberg TV. "Typically when there's a fire in infrastructure, you see voltage drops. ." We didn't see that in the study."

Pizarro said Edison shut down distribution lines but not transmission lines when the Eaton Fire began, before it broke out in a canyon near Altadena. “Transmission lines are bigger and stronger,” he said, “so they can operate safely at higher wind speeds.”

Some of California's most destructive wildfires over the past few decades have been caused by aging electrical equipment. The 2018 Camp Fire was caused by a 100-year-old high-voltage transmission tower. The 2019 Kincade Fire was caused by a line built half a century ago. It may be the case, Vara said, that California's older utility infrastructure, even if inspected, may not be up to the job.

“A lot of the transmission systems in California are pretty old,” Vara said. “The pulse of construction activity that gave rise to the system we have, and the last major activity was when Pat Brown was governor... If that tower fails and causes a ground fault, at some point we need to ask ourselves. …..Maybe we shouldn’t rely on old infrastructure?”

In an era when hurricane-force winds can spark wildfires that sweep across vast swaths of land, Tony questions whether it makes sense for utility companies to be responsible for the fate of every home. He said wildfires are started not only by defective utilities but also by lightning, arson and even legal fireworks, and then exacerbated by poor development and insufficient clearing of vegetation and landscaping.

"It's a mistake to just isolate utilities," Tony said. "It's time for a new paradigm. Utilities may not be big enough in terms of rebuilding costs."