A patchwork of wildfire mitigation and liability frameworks across western US states is producing material differences in credit risk and insurance exposure for investor-owned utilities, according to a new commentary by Morningstar DBRS. The credit rating agency found that regulatory frameworks reducing cost recovery uncertainty are credit supportive, while those that leave liability outcomes ambiguous expose utilities to uncapped financial risk.
The stakes are substantial. The 2018 Camp Fire, caused by the failure of a utility's electrical transmission equipment in California, destroyed more than 18,000 structures and produced approximately $16.5 billion in estimated economic and insured losses. It killed 85 people and became the catalyst for utility wildfire planning reform across the western United States, Morningstar DBRS said.
California's response produced two foundational laws: Senate Bill 901 in 2018 and Assembly Bill 1054 in 2019. Together, they created a legally binding wildfire mitigation plan framework, regulatory oversight through the state's Office of Energy Infrastructure Safety, and a $21 billion wildfire fund. In September 2025, California expanded that backstop through Senate Bill 254, which added an $18 billion continuation account.
Morningstar DBRS described California as the most mature jurisdiction for wildfire liability protection. The agency noted that California's constitution allows for inverse condemnation, under which utilities can be held liable for wildfire damage even if they followed all applicable rules. Other western states have since adopted their own wildfire mitigation planning requirements, with Arizona, Idaho, Montana, Oregon, and Washington among those requiring utilities to submit plans for regulatory review.
Morningstar DBRS said there is no unified approach across states on how to attribute wildfire liability to utilities, and that distinction carries direct implications for how insurers and risk managers assess utility counterparty exposure.
Arizona's 2025 law mandates wildfire mitigation plan submissions every two years and establishes liability frameworks, legal safe harbor protections, and standards of care for utilities operating under approved plans. Morningstar DBRS said the framework is modestly supportive of utility credit quality because it reduces uncertainty around future wildfire liabilities.
Idaho offers stronger protection. The Idaho Wildfire Standard of Care Act gives utilities a presumption that they acted without negligence if they reasonably implemented an approved plan. Colorado's framework grants the Public Utility Commission broad discretion but provides less liability protection and more uncertainty around cost recovery, Morningstar DBRS said.
Washington requires utilities to submit wildfire mitigation plans but has not adopted a broad statutory presumption of non-negligence based on plan approval alone. North Dakota's framework creates a rebuttable presumption of reasonable care. It provides neither complete immunity nor safe harbor protections; utilities remain exposed to lawsuits where plaintiffs prove negligence.
The insurance industry has raised concerns about how weak liability frameworks affect the broader market. The National Association of Mutual Insurance Companies warned North Dakota lawmakers in March 2025 that reduced utility liability would transfer wildfire costs to insurers. It said that transfer would ultimately reach homeowners through higher premiums or reduced coverage.
Morningstar DBRS said wildfire-related liabilities can weaken utility credit metrics, generate legal claims, increase debt capital requirements, and strain cash flow and liquidity. Where a utility operates in a high fire-threat area without sufficient legislative or regulatory protection, the agency said it may apply additional negative notches to its credit assessment to address uncapped risk.
The consequences of unclear liability standards extend to the courts. An Oregon appeals court in April 2026 overturned a $1 billion wildfire verdict against PacifiCorp after finding a flawed jury instruction, returning causation questions to individual fire-by-fire proceedings. The ruling illustrated how the absence of clear statutory standards can leave insurers, utilities, and claimants facing protracted and unpredictable litigation.
Near-term capital spending is expected to rise as utilities work to meet wildfire mitigation plan mandates, Morningstar DBRS said. In the longer term, jurisdictions with clear liability frameworks and cost recovery mechanisms are expected to support more stable utility cash flows and credit metrics.
