Edison’s CEO Pitches His Plan For Eaton Fire Survivors

Okay. Thanks for having me.

I don't know if any of us will ever be able to wrap our heads around the magnitude of this, Kate. My wife and I have been here for 37 years. She grew up in Southern California. We met in college and then I chased her here for grad school at Caltech. We've been here for 37 years in this community. We know so many people who've been impacted. As you said, we've had 17 Edison team members who lost their homes in the Eaton Fire, two who lost their homes in the Palisades Fire. The Caltech community where my wife works – I was on the board there until recently – over 300 folks lost their homes between Caltech and JPL. I don't know that we can wrap our heads around this, but I want to make sure that as a company we are doing the right thing for our community. We're learning from this and we're helping the community move forward faster.

Here's why, Kate. We've said already in our financial disclosures that there is concerning circumstantial evidence. There's no other clear probable cause. The investigations continue, but typically these complex formal investigations can take 12 to 18 months. Meanwhile, you have thousands of folks who have been impacted. Many have already filed lawsuits against Southern California Edison. So typically with litigation, it doesn't make much sense to go through the time and expense of jury trials. So we often see if we can find a meeting place in terms of settlements. Because of all that, we've already said there's a probable loss here. The probable loss will be covered by billions of dollars of customer-funded self-insurance. Beyond that, it would tap the state's wildfire fund, funded half by customers and half by shareholders of the investor-owned utilities in the state. If we do this well and in a way that attracts more of the folks who've been impacted, that's going to help lower the cost for them. It means fewer months in a rental place, less exposure to cost increases from inflation, materials, and labor costs. Hopefully it also means lower legal costs. You take those costs out of the system for them, and you also take those costs out of the system for the customers who are funding half of the wildfire fund that's going to pay for this ultimately. Above all, we're helping people rebuild their homes and rebuild their lives faster. Those people include, hopefully, the 17 Edison team members who lost their homes. It's a total of, I think, over 60 Edison team members who are in properties eligible for the program. It includes many people we know, our neighbors. Like you said, Kate, this is my community. I want to be able to walk into the supermarket and look a neighbor in the eye. They might agree or disagree with what we're doing, but I want to be able to look them in the eye knowing that our company is trying to do the right thing.

Correct. Fully voluntary all the way to the end. You don't have to make any commitment to participate. You can go through the initial process. The first track is what we call the fast pay process. Once somebody has a substantially complete application, we will provide an offer within 90 days or less. If the individual accepts that offer, once it's notarized and signed, they will have their proceeds within 30 days or less. They might not agree with that fast pay offer. They might think that there is more detail that they needed to provide that was not called for with this initial process. It's a model-based process designed to be fast. We think it'll help many or most, but it won't help everybody. So there's a subsequent detailed review option which could take as long as nine months, but that would allow impacted folks to provide more information to make a different case that might go beyond the model. Again, up to nine months, and if they accept the offer, their proceeds come within 30 days. My simple message, as I've done town halls in the community in person and virtually, has been: check it out. There's no obligation. Just check it out. By the way, you can check it out with assistance from an attorney if you choose. You don't need an attorney. Check it out on your own. Just check it out. If you use an attorney, we'll give you a 10% premium on the net claims portion. We've been pleased to see some early participation.

Absolutely. This is meant to be a complete settlement of liabilities. Individuals or businesses are eligible. They could have already filed a lawsuit and participate in this program. They could decide to file a lawsuit in parallel with it. They don't have to stop any of that. Again, check it out. They can go through the process and decide at the very end. If you accept the offer, this is a full settlement. Yes, we're asking folks in signing up for an offer to then waive any future rights because it's meant to bring finality and certainty to both sides. I should also say, Kate, that we didn't design this in isolation by ourselves. In fact, our initial ideas for what this would look like were very different from what we ended up putting out there. Two big sources of help in that: first, we engaged the architects of the 9/11 compensation fund and a number of other funds, Ken Feinberg and Camille Biros. They are the real experts at this, and they gave us great advice and turned us around in a number of places on how to design this with the goal of maximizing participation. The second source of input was the community. In September, we put out a draft form of the program, knowing that we didn't have it all right, but we wanted to move quickly, particularly being mindful that under current federal law, proceeds from a settlement become taxable after the end of the year. We wanted to get something out as quickly as possible to see if we could get as many victims as possible to go through the process before this becomes taxable. We put out those draft materials in September, opened it up to the community. We held something like a dozen different workshops open to the community members separately. Ken and Camille held their own sessions with plaintiffs' attorneys with no Edison. We received over a thousand distinct pieces of input, and out of that we made over 50 changes between the initial draft and the final form we published in October. I want to say thank you to everybody who participated because you helped shape this program and make it better.

Absolutely. The initial eligibility was based on something called damage maps that CalFire produces of impacted properties. The program is eligible for both residential and commercial businesses. We have all the eligibility criteria on the website, comedirectclaims.com. The initial number was just upwards of 12,000 eligible properties. One of the really big pieces of input we got, probably the most substantial change, was that the damage map we had used simply did not cover enough homes that may not have had any direct fire damage but had smoke and ash damage. So we added around 5,500 to 5,600 more properties with likely smoke and ash damage, bringing the total eligible properties to over 18,250.

It's both homeowners and renters, long-term tenants in eligible properties. It does not include short-term rentals, but it does include long-term through your typical renters. It includes various kinds of damages: full loss of a home or a business property, partial damage, smoke and ash damage. For commercial entities, it includes some of the business interruption damages. It includes economic damages as well as non-economic damages. You'll see on the website the various categories that are covered. It also includes a premium for participating in the program. This premium would not be available through normal litigation. It's an incentive to participate through this program, but also recognition that it is model-based. It may not include everything that somebody thinks should be included. By providing this extra premium, it can also cover some of those costs as well as costs not allowed for recovery in litigation under California law. One example is care for pets, specific categories there that typically haven't been supported by the courts. Providing that extra premium... as an example, we provided several scenarios on the website of kinds of example victims and what the payouts might be. One that sticks at the top of my mind is a 1500 square foot residential home owned by the folks living there, two adults, two children, and I think it had one attached structure like a garage or an ADU. In that case, the model produces a recovery of just over $2 million. In this example, we're also assuming that home was insured with a million-dollar policy. That will be netted out. The net proceeds they would receive would be just over a million dollars, including that $200,000 direct claims premium. The reason insurance gets netted out is that ultimately the California Earthquake Authority, which is the administrator of the wildfire fund from which most of these amounts will come, after we exceed our billion-dollar insurance, wants to make sure there aren't double payments flowing out. The problem with double payments would be that it would use up the fund more quickly, which has been funded half by customers, and that would leave less there to help folks with their net needs after insurance.

So probably. It depends on how the lawsuit is structured. You're taking me beyond... I know we're not lawyers. PhD, not a lawyer here. In general, I think you also see often in lawsuits that the lawsuit then expands and the insurance carrier is involved in the middle, and that all being figured out in the settlement. For the purposes of this program, a lot of the design basis was: let's create something straightforward and fast so we can help people move a lot more quickly than through litigation. They still have the litigation option, and we respect that.

That's not true. I would call them many sizes to fit most, but we know that it won't fit everybody. We know that there are properties that are not eligible today because these properties might be outside of the design basis of the assumptions for the model. We understand that there will be cases where unfortunately litigation may end up being the only avenue. We are looking, based on the feedback we've gotten in the most recent town halls. I had a couple people come up to me and explain their situation. They were maybe in a pocket of homes that experienced significant damage but that was outside of the area that we had drawn. So I have asked our team to go back and see if there are additional pockets of eligibility that we should be picking up to try and help as many people as possible within the parameters that this model can cover. But again, it's not going to fit everybody, but we think it has multiple sizes there to fit many or maybe even most.

No. No. And that's another benefit of just deducting the entire claim amount. We recognize that that still leaves the homeowner, renter, or business in that dialogue, sometimes debate, with their insurance carrier. But again, in order to construct something that was applicable across as many cases as possible and that didn't have the possibility of double counting or double payment, which would then mean that the California Earthquake Authority would not be able to support it, it was just more straightforward to be outside of the insurance picture. We net out the entire policy. The insured person works through with their insurance carrier. This program is then providing everything net of that or in addition to that insurance policy. We're trying to do our part here. We also expect insurance companies to do their part and to honor their obligations to victims under insurance policies fairly. We encourage the insurance community to do their part.

Right. Again, there are several scenarios on the website, around a half a dozen: a homeowner, a renter, a business, so individuals can get a sense of 'hey, this case looks more like my situation.' That might give me a ballpark sense. Part of the feedback we got from the community was, 'I sure would be nice if we had a calculator that can estimate what it's going to be upfront.' Because of what you just asked about, there are multiple factors that go into the model. I'll talk about this in a second. That's why we haven't found a way to provide a quick estimator that would be sufficiently accurate to actually help folks. One of the good things we're seeing so far is that with the claims that have been submitted, the average time to fill out the form has been around an hour. So it's not a big investment of time to participate and check it out. Okay, factors that go into the model. The underlying engine was developed by a company called Compass Lexecon. They have this broad model that ultimately looks at pre-fire versus post-fire values of properties. Inside that, it's looking at location, square feet, etcetera. Particulars around what was that property, what attributes did it have, how large was it, in what location, and developing an estimate based on that. They had a standard model at Compass Lexecon. We asked them to open the hood and tune the engine, as it were, or tune the electric motors because we liked electric vehicles better, so it could be more customized for the Altadena and surrounding communities. Since we asked them to tune it, I was concerned about whether the community would be concerned about how it was tuned and if it was done fairly. So we then engaged the RAND Corporation. Many of your listeners will recognize them. They're based in Santa Monica. They're globally recognized, almost like an academic institution, and very independent. Southern California Edison did pay them for their time but guaranteed they could do their work fully independently. Their job was to go in and validate the approach that Compass Lexecon took and look at the results. What they determined – paraphrasing a little bit, their report is available in public – they concluded that it's a very good statistical model. It works as well as any model might be expected to work in this kind of case. Like any statistical model, it works well across a large number of cases but not for all cases. In fact, they concluded that the overall model tends to overcompensate properties that had lower pre-fire values on the lower end and tends to undercompensate properties that were on the upper end of pre-fire values. That's why it's so important in our view to not just have this fast pay 90-day process based exclusively on the model, but also have the detailed review option. If someone on the lower end is getting overcompensated, they're done and it probably makes sense to take that offer. If they're on the other side where they think they may have been undercompensated, they have the ability to go into the longer detailed review process. Our intent has been to provide fair compensation so that people don't think that by doing this they are leaving behind a lot of value they might get in litigation. That's been our intent.

Some are. And look, I'm super open here. We recognize – we read the news, we read the comments, we read the newspaper articles. I talked earlier about trying to do the right thing for the community. I need to look my neighbors in the eye and say, 'We've done everything we can to do right by you.' I hope that insurance companies will also do the right thing and honor their obligations fairly. Similarly, I expect that plaintiffs' attorneys will follow the ethical rules for the law and counsel their clients on what may be best for them. I recognize this approach may not work for everybody. But at a minimum, there's no cost. Check it out. If you use an attorney, as I mentioned earlier, you'll even get a 10% premium on your net claims to help support your attorney fees. I also hope that if someone is using an attorney and the fast pay process worked for them, that will require very little work on the attorney's part. I sure hope that attorney is not going to turn around and charge 30 or 40% fees.

That's one of the main drivers in our wanting to set up this program, especially the fast-pay portion, to do our part in trying to get people the compensation much more quickly than they otherwise would through litigation. I should also point out, Kate, that since you brought up Paradise, there are some really important differences between that situation and this one. In the case of the Camp Fire, the litigation process was intertwined with the PG&E bankruptcy. A trust fund was set up as part of the bankruptcy plan of reorganization, and that had a preset amount of funding that capped the amounts that could go to victims. Very different situation here. First, we have the benefit of state law AB 1054, passed in 2019. That law did three important things: it set up the requirements for wildfire mitigation plans for investor utilities so we can continue to make our communities safer with all the work we're doing to harden the grid and other measures. Second, it established the wildfire fund we've talked about. Third, the fund, funded half by customers and half by shareholders, was set up to be nominally a 21 billion dollar fund. It's paid out some claims for the King Fire and Dixie Fire in PG&E's area. But even after that, and because there have been investment gains in the fund, the California Earthquake Authority estimates there is a $22 billion capacity remaining in the fund for the Eaton Fire.

We don't know yet. What we've said in our financial disclosures is that we don't have the ability to estimate what it could be. One caveat as you look at some of those numbers: some of those may include amounts that are impacts to the broad economy, but typically you wouldn't see those recovered through litigation or settlements.

Yeah. So that's correct. It's a line that was out of service from around 1971, if I recall correctly. We have, or SCE has, something like 465 miles of idle lines currently across the system. The first question you probably ask is why? The reason is that when a line is not needed at that point, there are a couple of choices. You can either dismantle it immediately or you can save it for potential future use. Sometimes you might have reuse of the actual equipment itself. Sometimes you need the equipment to sit there dormant, idle, still inspected – it's not abandoned – but that allows the company to preserve easement rights, legal rights to have that line there if it's on land that is not SCE's owned line land. In this case, there was a parallel line that was connected right there. I was explaining why there are idle lines. By the way, this line had a sister line that sat idle for decades and then about 10 years ago was reused. Some of the towers from 1924 were in great shape and they were reused for the Tehachapi transmission system that today imports about 4,500 megawatts of renewables from Tehachapi. This line sits there idle. It was grounded at both ends, and it has an energized transmission line, or a set of lines, about 50 or 60 feet away. There's something called induction. I want to take you back to your junior year high school physics class. Induction is essentially the way your phone can charge from a wireless charger. You don't have any electrical connection, but what's happening is that you have a magnetic field. When you have current flowing through a piece of wire, there's an associated electromagnetic field. If that magnetic field is moving, oscillating, like alternating current does, and you have a piece of metal sitting in the field, that constant movement of the magnetic field lines induces electrons to move, to flow in the adjacent piece of wire. End of physics.

It's not jumping. Think of it as you're in that field, and the fact that you have a piece of metal there means you'll have electrons moving. This is a known physical quality. That's why that line was grounded at both ends, so that if electrons started moving, they would find a path to ground. By the way, there's no standard in the industry for this. We're aware of at least one or two utilities that have idle lines that are not grounded. Edison had a policy of grounding at both ends to prevent an accident from induction if that were to happen. Now, what happened on January 7th – this is behind our hypothesis about this idle line issue. There was a fault, a spike on the transmission system, about 5 to 12 miles away from this idle line. A fault. Remember, you had up to 100 mph winds, maybe 60 to 70 mph at the moment. We don't know what caused that fault. It could have been material blowing into the lines, could have been something else. In any case, it was a voltage spike. We have protective equipment in our system such that if there's a spike that goes over a certain amount, it will de-energize the lines to protect the equipment. It's like the GFCI outlet in your bathroom with the little pop-out switch. If you have your hair dryer and it falls in the sink, that button will pop out and turn off the circuit. This is analogous. That voltage spike was not large enough to trip the protective equipment, so it didn't present a safety issue for the rest of the energized transmission system. The voltage spike was seen across the entire transmission network, not just at Edison, but I think all across the West, and it triggered a voltage spike on the other transmission line that was connected and adjacent to the idle line. The hypothesis is that when that voltage spike went through, it increased the amount of induction on the idle line. Then perhaps something went wrong with the grounds attached to that idle line, leading somehow, we don't know how, to creating a spark on the equipment. What we do know is there is video of fire starting around one of these transmission towers. There's a lot of focus on the equipment on that tower, but we have not been able to conclude what the mechanism could have been. Again, we're saying: look, we recognize all the circumstantial evidence. We don't see another probable cause. We're moving forward, setting up this wildfire recovery compensation program, and we are just going to move ahead with helping the community recover from this.

Actually, there were some distribution lines, lower voltage lines, that were de-energized nearby. Let me take a minute to explain how public safety power shutoffs work. They are meant to reduce wildfire risk, but we recognize they create other risks: traffic lights are out, power is out to homes that need it. There are lots of other risks. We have protocols that we review with our regulators around when and how to take public safety power shutoffs. They are based on modeling the risk of ignition and the risk of consequence from that ignition in any given area. Distribution lines are the lower voltage lines you might see going adjacent to people's houses. They are lighter lines, so they face higher risk at a given wind speed than a transmission line. Those are heavier and spread much more widely apart. The criteria for de-energizing transmission lines are higher than for distribution lines. That night, there were distribution lines that triggered the need for de-energization. They were taken out, but those transmission lines had not hit their threshold criteria despite the 100 mile an hour winds. At the time of ignition, we did not have 100 mph winds yet, and I don't think those were fully forecast. The winds that were forecast and being experienced in real time were not sufficient to trigger the de-energization of the transmission lines. What's interesting here, Kate, again, is that there's risk on both sides. You've seen the articles, and I understand them. I appreciate the real pain that people feel. There's the question: what if we had had more de-energization – could you have prevented this incident? On the other side, every year we go through and review our wildfire mitigation practices. SCE files a revised wildfire mitigation plan annually. In addition to that normal annual process, after this horrible, heartbreaking catastrophe in our neighborhood, we set up a whole other standalone team to go through and look at everything around wildfire mitigation: what our models look like, what the public safety power shutoff criteria are, how we should be looking at grounding idle lines.

We're always looking at how we can improve and how we learn. Those lines all get inspected annually, and as issues arise, they get corrected. Let me acknowledge: I wish we could be perfect. We could never be perfect. We only have 13,500 team members covering 50,000 square miles of territory. Just one metric: we have 750,000 transformers alone. It's not an excuse, but I want to explain to your listeners the reality that the expectation for regulated utilities across the country is that safety has to come first. We are heavily regulated, but mistakes will happen. Things will get overlooked. We look at how our processes are prudent, and that means recognizing that because mistakes can happen when you have human beings – we haven't all been replaced by AI bots – because mistakes can happen, we have quality control processes. We have checks on all of that. We'll do samples: was this line inspected correctly? If it was not, what happened? How do we fix the process? That's prudency. To your question, 465 miles of idle lines spread out across a couple of hundred plus circuits. They are in place because that is a better value proposition ultimately for the customer in terms of delaying removal cost. If we can preserve the ability to build a line in a specific location by maintaining an idle line in place, by keeping those permits active, we're going to be saving customers a lot of money if we can reuse those lines or at least reuse their area.