Wildfire Risk and Utility Valuation: The PacifiCorp Case Study

The Western U.S. utility sector is at a crossroads. Climate change is amplifying wildfire risks, regulatory frameworks are evolving to address liability, and investors are grappling with the long-term viability of companies like PacifiCorp. As the utility seeks to recover $1.7 billion in wildfire-related costs through rate hikes and regulatory approvals, its struggles reflect a broader industry-wide reckoning with climate-driven liabilities. This analysis examines PacifiCorp’s financial and regulatory challenges, contextualizes them within regional trends, and evaluates the implications for utility valuation in an era of escalating wildfire risks.

PacifiCorp’s Wildfire Liabilities: A Financial and Regulatory Quagmire

PacifiCorp, a subsidiary of Berkshire Hathaway, has become a focal point for the intersection of climate risk, utility accountability, and financial sustainability. In 2025, the utility requested permission from the California Public Utilities Commission (CPUC) to establish a Wildfire Expense Memorandum Account (WEMA) to track $1.7 billion in wildfire-related costs, including liabilities from the 2020 Labor Day Fires and the 2022 McKinney Fire [1]. This move is part of a broader strategy to shift costs to ratepayers through transmission rate increases, with proposed hikes of 32% in 2023 and 45% in 2024 [1].

However, these proposals have faced fierce opposition. The Bonneville Power Administration, Powerex Corp., and the Utah Associated Municipal Power Systems argue that PacifiCorp has not proven the prudence of these costs or justified the recovery of future liabilities [1]. Meanwhile, a federal judge recently dismissed a negligence claim in the U.S. government’s lawsuit against PacifiCorp over the Archie Creek Fire, ruling that the government failed to connect the utility’s maintenance practices to the fire’s ignition [2]. Despite this legal reprieve, PacifiCorp’s financial health remains precarious. As of Q1 2025, the company has incurred $2.75 billion in wildfire liabilities, with $1.37 billion already paid in settlements [3]. Moody’s has downgraded PacifiCorp’s credit rating, citing its inability to prioritize debt repayment amid rising litigation costs [3].

Broader Trends: Climate, Regulation, and Financial Resilience

PacifiCorp’s challenges are emblematic of a systemic crisis facing Western U.S. utilities. Climate projections indicate that wildfires will become more frequent and intense through 2050, with land consumed by fires expected to increase by 2–6 times [4]. Utilities are responding with mitigation strategies such as vegetation management, grid hardening, and AI-powered detection systems [5]. However, these measures come at a steep cost. For example, Hawaiian Electric Co. Inc. plans to invest $300 million in grid resilience to reduce wildfire risks [1], while Oregon’s 2020 Labor Day Fires alone cost PacifiCorp an estimated $2.7 billion [3].

Regulatory frameworks are also shifting. States like California, Oregon, and Washington now require utilities to submit annual wildfire mitigation plans, while others, including Idaho and Hawaii, have established liability funds to shield utilities from bankruptcy-inducing lawsuits [6]. These laws aim to balance accountability with financial stability, but critics argue they shift costs to ratepayers and underinsure victims [6]. For instance, Oregon regulators rejected PacifiCorp’s proposal to cap noneconomic damages in wildfire cases, citing concerns over utility solvency [5].

Utility Valuation in a Climate-Driven Era

The financial implications for utilities are profound. Nearly 100 U.S. utilities have faced credit downgrades since 2020 due to wildfire liabilities, with Southern California Edison (SCE) and Pacific Gas & Electric (PG&E) serving as cautionary tales [7]. PG&E’s 2018 bankruptcy, driven by $30 billion in wildfire-related liabilities, highlighted the risks of deferred infrastructure maintenance and inadequate risk management [8]. Today, SCE’s earnings have declined as wildfire costs eat into profits, with core earnings dropping to $0.97 per share in Q2 2025 from $1.23 in the prior year [7].

PacifiCorp’s valuation challenges are compounded by its reliance on ratepayer surcharges and regulatory approvals. While the utility has proposed a multistate wildfire risk pool to share future liabilities, such plans remain untested [3]. In contrast, utilities like Hawaiian Electric have leveraged state-funded trust funds (e.g., the Maui Wildfires Settlement Trust Fund) to manage liabilities without relying solely on ratepayers [1]. These divergent strategies underscore the importance of regulatory innovation in preserving utility creditworthiness.

Long-Term Viability: Lessons and Outlook

The long-term viability of Western U.S. utilities hinges on three factors: 1) the ability to secure regulatory approval for cost recovery mechanisms, 2) the adoption of scalable mitigation strategies, and 3) the development of robust liability frameworks. For PacifiCorp, the path forward is uncertain. Its ongoing legal battles and credit downgrades signal a high-risk profile, while its reliance on rate hikes could strain customer relationships and regulatory goodwill.

Investors must also consider the broader industry context. Utilities in states with proactive wildfire policies—such as California’s AB 1054 and Oregon’s wildfire safety certification laws—have seen improved credit ratings and financial stability [6]. Conversely, utilities in regions with fragmented regulatory approaches face greater volatility. The insurance market, too, is adapting, with the Excess & Surplus (E&S) segment developing specialized products to address wildfire risks [7].

Conclusion

PacifiCorp’s case study illustrates the existential challenges facing Western U.S. utilities in a climate-driven liability era. While regulatory and technological innovations offer pathways to resilience, the financial and reputational risks remain acute. For investors, the key takeaway is clear: utility valuations are increasingly tied to climate preparedness, regulatory agility, and the ability to balance stakeholder interests. As wildfires become a defining risk of the 21st century, the sector’s long-term viability will depend on its capacity to adapt—or face the consequences.

Source:
[1] New wildfire liability, mitigation laws in effect across Western US, [https://www.spglobal.com/market-intelligence/en/news-insights/research/2025/08/new-wildfire-liability-mitigation-laws-in-effect-across-western-us]
[2] Judge narrows US wildfire lawsuit against Berkshire's PacifiCorp, [https://www.reuters.com/sustainability/boards-policy-regulation/judge-narrows-us-wildfire-lawsuit-against-berkshires-pacificorp-2025-08-26/]
[3] PacifiCorp involved in bills in Oregon, western states limiting utility wildfire liability damages, [https://washingtonstatestandard.com/2025/03/31/pacificorp-involved-in-bills-in-oregon-western-states-limiting-utility-wildfire-liability-damages/]
[4] The next shockers for Americans will be climate change events, [https://rinj.press/fpm-2025/june/the-next-shockers-for-americans-will-be-climate-change-events/]
[5] PacifiCorp Case Highlights Wildfire Cost-Allocation Considerations with Multistate Jurisdiction, [https://www.newsdata.com/california_energy_markets/regulation_status/pacificorp-case-highlights-wildfire-cost-allocation-considerations-with-multistate-jurisdiction/article_5517645d-aa93-4e08-aa69-d991ba6d8b3b.html]
[6] Fault Lines: California Utilities and the Wildfire Economy, [https://casi.stanford.edu/news/fault-lines-california-utilities-and-wildfire-economy-0]
[7] Edison International Reports Second-Quarter 2025 Results, [https://www.stocktitan.net/news/EIX/edison-international-reports-second-quarter-2025-xo5htq5bpcae.html]
[8] Out of Control: The Impact of Wildfires on our Power Sector, [https://www.energypolicy.columbia.edu/publications/out-control-impact-wildfires-our-power-sector-and-environment/]