Facing soaring premiums and unable to find a suitable third-party insurance policy, NV Energy is now asking state energy regulators to approve a $500 million wildfire self-insurance policy to protect it in case its equipment sparks a blaze.

It is the first time the utility, Nevada’s largest electric utility, has ever made such a request. But it’s not the first time a Western electric utility has taken steps to self-insure amid struggles to find adequate wildfire insurance stemming from the growing size and severity of wildfires across the nation and successful lawsuits against utility companies for their role in sparking some of the blazes. 

Between 2016 and 2020, it is estimated utility infrastructure caused nearly one-fifth of all wildfires. Major utilities found responsible for some of them, such as California’s PG&E, were forced to file for bankruptcy after being unable to pay for damages caused by the fires, an outcome NV Energy is looking to avoid. 

A self-insurance policy — in this case, NV Energy collecting funds from ratepayers to cover potential losses instead of purchasing traditional insurance from a third party — would aid the utility in case one of those fires was sparked by its equipment, the utility told state energy regulators in its request last week. The policy would supplement commercial wildfire liability currently carried by the company, bringing its total coverage to roughly $1 billion and in line with wildfire coverage major utilities such as those in California are carrying. 

While NV Energy spokesperson Meghin Delaney would not confirm whether wildfires have ever been sparked by the utility’s infrastructure, NV Energy is making efforts to reduce the threat of wildfire in the state including hardening grid infrastructure in fire-prone areas and proactively turning off power when wildfire conditions are ripe. But the reality of a growing threat from wildfire remains. 

Between 2000 and 2018, fires burned 9.5 million acres in Nevada, more than twice the 4.5 million acres burned between 1980 and 1999. Nationwide, the average acreage that burns annually has increased since the turn of the century, doubling to more than 7 million acres. Destructive wildfires now burn year-round, as evidenced by the wildfires tearing through Southern California.

“Insurance is a product that has to be in place because you never know the day the event is going to occur,” NV Energy CEO Doug Cannon told energy regulators. “The event could occur the day after the insurance is put in place or it could occur 10 years down the road — in either case, having sufficient wildfire liability insurance is in the best interest of customers and the companies.”

NV Energy has proposed recovering the cost to fund the self-insurance policy from its ratepayers over 10 years starting in October, pending approval from state regulators. 

If approved as proposed, the average Northern Nevada residential customer will see their bill increase by about $2.40 per month starting in October, while an average Southern Nevada residential customer will see an increase of about $0.50 per month. That difference accounts for the increased wildfire danger in Northern Nevada — of the nine service areas the utility provides power to marked as “extreme” or “elevated” danger due to wildfire, all but one are in Northern Nevada. 

The risk of catastrophic wildfires

Nathan Pollak, a consultant who helps state governments and utilities quantify the risk of wildfires, has studied the possibility of catastrophic wildfires occurring in Nevada over the next two decades. Providing testimony on behalf of NV Energy to state energy regulators, Pollak estimated there “is a significant risk” of a catastrophic wildfire occurring in the state that could cause property losses exceeding $2 billion.

In the insurance industry, a catastrophic loss is defined as resulting in at least $25 million in direct costs or resulting in significant injury or loss of life, according to Pollak. Super-catastrophic events magnify those losses by 10 — any event that results in at least $250 million in losses.

Measuring factors including the state’s proliferation of cheatgrass (a highly flammable invasive species) and climatic, weather and human factors (humans start an estimated 85 percent of all wildfires), Pollak estimates there is at least a 10 percent chance of a catastrophic fire causing $2 billion or more in losses over the next decade in Nevada and an 18 percent chance of a fire causing $1 billion or more in financial losses.

Between 1900 and 2000, there were three U.S. wildfires that, adjusting for inflation, would have qualified as super-catastrophic: the Great Fire of 1910, the Cloquet Fire of 1918 and the Tunnel Fire of 1991 (also known as the Oakland Hills Fire).

The Great Fire of 1910 is considered the largest wildfire in U.S. history, burning 3 million acres in northern Idaho and western Montana and killing 86 people. It caused damages totaling $400 million in today’s dollars. Also known as the Big Burn, the fire prompted the U.S. Forest Service to enact a policy requiring all wildfires be extinguished by 10 a.m. the day after their discovery, inadvertently leading to densely overgrown forests in many areas as thinning brought on by natural fire was suppressed.  

The Cloquet Fire of 1918 in northern Minnesota killed 453 people and injured or displaced 52,000 more, causing damages of close to $2 billion in today’s dollars, while the 1991 California Tunnel Fire caused damages of $3.1 billion in current dollars.

The number of super-catastrophic fires has grown significantly since the turn of the century. Between 2001 and 2024, there have been 26 super-catastrophic wildfires nationwide, with 19 causing losses exceeding $1 billion. Almost all the fires were in the western United States; the origin of at least seven of the fires were traced to public utility equipment failure.

Most super-catastrophic wildfires in the last 20 years have occurred in the wildland urban interface — places where homes and businesses encroach on wildland. Known to fire experts as the WUI (pronounced woo-ee), it is a growing part of where Nevadans choose to live.

Between 1990 and 2022, Nevada’s population nearly tripled, growing from 1.2 million residents to 3.2 million. As the population tripled, so did the number of people who live in the WUI. There were 185,000 households in the wildland urban interface in 1990; by 2020, that was up to 571,000.

While the WUI accounts for less than 1 percent of Nevada’s land, almost 45 percent of the state’s housing is in these high-risk areas, such as the Galena area of south Reno or communities around Lake Tahoe, according to Pollak. In Northern Nevada, nearly all of Elko, Douglas and Washoe counties — 93 percent, 88 percent and 72 percent — are considered to be part of the wildland urban interface. When fires break out in these highly developed areas, they can quickly become costly as they destroy homes and businesses.

The nuts and bolts of the policy

Options to increase the utility’s level of commercial insurance are “sparse to non-existent,” according to filings by the utility.

NV Energy’s premiums have increased dramatically over the last several years, with costs rising substantially in 2020, the year after PG&E, California’s largest electricity provider, declared bankruptcy after being found liable for starting devastating wildfires.

In 2018, NV Energy paid approximately $1.35 million for insurance and received approximately $485 million in coverage, meaning each dollar paid resulted in about $360 dollars in coverage.

For coverage this year, the company paid $54.34 million, receiving about $405 million in coverage — despite paying roughly 50 times more, each dollar results in less than $7.50 worth of coverage.

It’s a challenge facing utilities across the West. After PG&E declared bankruptcy, California energy regulators approved $1 billion self-insurance policies for the utility in 2023, as well as another of the state’s major electricity providers. The state also adopted a bill to create a $21 billion fund that utilities can access to address claims in excess of $1 billion from wildfires. 

In 2024, Utah lawmakers passed a bill allowing the Utah Public Utilities Commission to determine the appropriate amount for a fire fund, paid for through a 10-year rate surcharge.

To create its self-insurance fund, NV Energy would use the same allocation formula state energy regulators previously approved to fund its purchase of commercial wildfire insurance, with Northern Nevada customers paying 76 percent of the policy premiums and Southern Nevada customers paying 24 percent.

If NV Energy collects the $500 million from ratepayers before 10 years, the utility will decrease or halt the amount it collects. However, if a catastrophic wildfire occurs in the next decade, the company will increase the amount it is collecting, with shareholders contributing toward 10 percent of the expenses. 

If the fund is created, NV Energy said it will work with the Nevada Division of Insurance to create a captive insurance company (one that is owned and controlled by the utility) to oversee the money.