Damage claims from the Eaton wildfire in Altadena could wipe out the $21-billion fund California created to shield utilities and their customers from the cost of wildfires sparked by electric lines, according to newly released state documents.

Investigators are seeking to determine whether Southern California Edison’s equipment sparked the Jan. 7 inferno, which killed 19 people and destroyed 9,000 homes. If Edison is found responsible, “the resulting claims may be substantial enough to fully exhaust the Fund,” state officials who administer the wildfire fund wrote in a draft annual report to the Legislature.

The seven-member state Catastrophe Response Council, which oversees the fund, is scheduled to meet Thursday to discuss how potential damage claims from the Eaton fire could affect it.

Concerns are already emerging that, should Edison be found liable, it would have little incentive to keep damage claims from becoming excessive since the utility itself would be spared from covering most of the costs.

“Are we impressing on the utilities that they need to settle claims with diligence?” wrote one of the council members, according to meeting materials released ahead of Thursday’s meeting. “Since the claims they settle are just passed on to us, they don’t have much incentive to keep claims low.”

Asked for comment on that statement, Edison spokeswoman Kathleen Dunleavy said that officials “need to be wise and cautious about how this money is spent.”

“We agree that the wildfire fund should go to those directly affected by wildfires,” she said.

The council member who raised the concern wasn’t identified by name.

Wade Crowfoot, California’s secretary of Natural Resources, holds one of the nine council seats. His spokesman, Tony Andersen, said Crowfoot is “engaged very closely” on the wildfire fund issue, but had no additional comment at this time.

Other council members include Gov. Gavin Newsom, other state leaders and their appointees.

According to the state documents, the insured property losses alone could amount to as much as $15.2 billion, according to materials released ahead of a Thursday meeting.

That amount does not include uninsured losses or damages beyond those to property, such as wrongful-death claims. An earlier study by UCLA estimated losses from the fire at $24 billion to $45 billion.

Newsom and legislative leaders are now talking about how to shore up the fund. The Times reported last month that one option under discussion behind closed doors is to have electricity customers pay billions of dollars more into the fund.

Newsom and lawmakers created the wildfire fund in 2019, saying it was needed to protect the state’s three biggest for-profit utilities from bankruptcy if their equipment sparked a catastrophic fire. Newsom said at the time that the legislation, known as Assembly Bill 1054, would “move our state toward a safer, affordable and reliable energy future.”

Six years later, however, utilities’ electricity lines continue to be a top cause of wildfires in California. And in 2024, the state had the second highest electric rates in the country after Hawaii.

Edison said in April that a leading theory of the cause of the Eaton fire is that one of its decades-old transmission lines, last used in 1971, somehow became reenergized and sparked the fire. The investigation into the cause of the fire is continuing.

Already lawyers have filed dozens of lawsuits against Edison on behalf of families who lost their homes, nearby residents who say they were harmed by toxins in the smoke and governments that lost buildings and equipment.

Under the 2019 law, Edison would be allowed to settle those lawsuits. Then the state fund would reimburse the company for all or most of those costs.

The Palisades fire, which also ignited Jan. 7, isn’t covered by the wildfire fund because Pacific Palisades is served by the Los Angeles Department of Water and Power, a municipal utility.

Newsom’s staff didn’t respond to questions about how the fund’s life could be extended and whether he believed AB 1054 should be amended so that excessive settlements or attorney fees aren’t allowed to deplete the fund.

One idea being debated is to have the 30 million Californians served by Edison, Pacific Gas & Electric, and San Diego Gas & Electric pay billions of dollars more into the fund. That plan could involve extending a monthly surcharge of about $3 on electricity bills beyond its planned expiration in 2035.

Workers inspect and prepare for the process of removing a Southern California Edison tower in Pasadena in May 2025.

(William Liang / For The Times)

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Officials at the California Earthquake Authority, which serves as administrator of the wildfire fund, say they are also worried that attorney fees could eat up a large portion of the money.

Attorneys can receive 30% to 40% of the victim settlements, according to a 2024 study. An additional 10% to 15% can go to lawyers defending the utility from fire claims, the study said. That means as much as 50% of settlement amounts could go to legal fees, the paper said.

The consolidated lawsuit against Edison in Los Angeles County Superior Court lists more than 50 law firms involved in the litigation.

Officials at the Earthquake Authority say the Legislature may have to change the 2019 law to limit attorney fees or give priority to some settlements over others.

For example, Wall Street hedge funds have been offering to buy claims that insurance companies have against Edison. The funds are gambling that they can get more from the state’s wildfire fund in the future than they are paying insurers for the claims now.

Council members discussed in May whether AB 1054 should be amended so that claims from Californians who lost their homes be given precedence over those owned by Wall Street investors trying to profit from the fire.