The fault lines running through California’s spiraling homeowners insurance crisis were on display Tuesday at a state hearing, where consumer advocates clashed with industry firms over a plan to allow insurers to use complex computer models to set premiums — a move state officials say will attract insurers to the market. State Insurance Commissioner Ricardo Lara has proposed allowing insurers to employ so-called catastrophe modeling, which uses algorithms that predict the future risk properties face from wildfires, when setting the price of policies. Currently, rates are based on an insurance company’s past losses, which insurers increasingly dismiss as insufficient in light of the widespread acceptance that climate change has thrust California into a more dangerous future by causing more wildfires. The models, which are in use in other states, are a key element of Lara’s strategy to moderate price increases by allowing more accurate calculation of risks while persuading insurers to do business in neighborhoods prone to wildfires. The move comes amid a recent stream of insurers exiting the California market with announcements they are not renewing policies or have stopped writing new ones. Consumer groups worried at the hearing that the draft regulations would not allow enough scrutiny of the models, while several consulting firms that have developed them expressed concern about protecting their intellectual property. “The algorithms and artificial intelligence that private ‘black box’ catastrophe models use will simply be tools for insurance company price gouging unless California mandates real transparency into how they impact prices and imposes real rules of the road regarding their design and use,” said Carmen Balber, executive director of Consumer Watchdog, an L.A. advocacy group that led the campaign for passage of Proposition 103, the 1988 measure that requires homeowners and auto insurers to get state approval for rate hikes. The group, like other consumer advocates who spoke at the hearing, called on Lara to work with the state’s academic and insurance experts to develop a “public model,” in which all the factors that go into the computer simulations are available for everyone to review. Such a model could be used to set rates or benchmark privately developed models. The draft regulations require those who want to review the models to sign nondisclosure agreements, which Consumer Watchdog has alleged will prevent its staff members from discussing the models among themselves. Julia Borman, a director at Verisk, a company that builds computer models used by insurers, expressed concern that the draft proposal put forth by Lara would allow for a review by “countless participants and create the opportunity for an infinite timeline,” while not safeguarding companies from having their models ripped off by others Michael Soller, the state Department of Insurance’s deputy commissioner for communications, said Lara has publicly stated that the draft rules will allow for the development of public catastrophe models, which the department might then use to evaluate the insurers’ proprietary models. The proposal to allow catastrophe models is part of Lara’s larger Sustainable Insurance Strategy announced last fall. Other elements include righting the finances of the state’s Fair Access to Insurance Requirements plan, an insurer of last resort that has been deluged with new policyholders since insurers started pulling back from the market. He also wants to allow insurers to include in premiums the cost of reinsurance, which they purchase to protect themselves from disasters. Catastrophe models are already allowed in California for pricing policies that cover earthquakes and fires caused by quakes. Along with wildfires, under the proposed regulations, the use of the models would also be permitted for insurance covering terrorism, floods and some other types of coverage. Gerald Zimmerman, senior vice president of government and industry relations at Allstate, which stopped selling new homeowners insurance policies in the state in 2022, said that adopting Lara’s strategy would be a game changer. “Allstate will begin writing new homeowner insurance policies in nearly every corner of California,” he said. Other speakers at the three-hour hearing included insurance agents and local officials, as well as homeowners groups, which want to ensure that catastrophe models take into account steps taken by homeowners and government agencies to reduce fire risks, such as by making homes more fire-resistant and reducing brush in a community. Although the draft regulations call for doing so, several speakers complained that such mitigation efforts had not been reflected in recent premium increases. The Insurance Department plans to review Tuesday’s remarks in preparing for the release of a new set of proposed regulations. Lara has the support of Gov. Gavin Newsom, who issued a letter calling for the commissioner to move quickly to resolve the crisis. The regulations do not require legislative approval or the governor’s signature. “We will review all public comments while staying on track to implement all changes this year, so insurance companies start writing more policies in all areas,” Soller said.

The Biden administration on Thursday issued sweeping new rules that crack down on power-plant pollution and could force many of the country’s coal plants to shutter unless they undertake costly upgrades.

The rules, which will almost certainly be challenged in court, mandate strict controls on carbon-dioxide emissions at existing coal plants and newly built natural-gas plants. They set the stage for a significant infrastructure build-out to capture and dispose of CO2 emitted at such plants in order to comply.

The changes come as the industry juggles the first upswing in power demand in two decades and a shifting generation mix. Solar and wind projects are being added to the grid, and utilities say more gas-fired power plants are needed for reliability and to replace coal. Some utilities say they could need aging coal plants to stay online longer than expected.

Existing gas plants, the backbone of the nation’s power supply, aren’t included in the new rules.

“The electricity industry is central to America’s economic growth and competitiveness. These are the folks who keep the lights on and power our country forward,” said Michael Regan, U.S. Environmental Protection Agency administrator. “At the same time, the power sector is also a major contributor to the pollution that drives climate change and threatens public health.”

The EPA administrator said the new rules will cut 1.4 billion metric tons of carbon-dioxide emissions, roughly equivalent to the power sector’s 2022 emissions, and move the U.S. closer to the Biden administration’s goal of making the electricity sector carbon-free by 2035.

Regan said the new rules will amount to $370 billion in climate and public health net benefits over the next two decades. In 2035, the new rules would prevent approximately 1,200 premature deaths and 870 hospital visits, according to Regan. Carbon emissions from power plants make up around a quarter of U.S. greenhouse-gas emissions. Vehicles account for the largest source, about 28%. Separate EPA rules issued Thursday will limit pollution from power-plant wastewater, regulate coal ash, and limit air emissions of mercury and other toxic compounds.

Plants operating past 2039 would need to install carbon-capture units before 2032 to comply with the new climate rules, according to EPA officials. A nationwide slowdown in permitting and constructing energy projects will test the utilities’ ability to deploy carbon capture and storage, which is mostly untried on a large scale.

While the administration said the timelines for the power-plant rules would give companies time to comply, National Rural Electric Cooperative Association Chief Executive Jim Matheson called the rules unachievable.

“It undermines electric reliability and poses grave consequences for an already-stressed electric grid,” said Matheson, whose organization represents many smaller utilities that operate coal plants. Many power executives say that carbon-capture systems are too experimental, unproven and expensive. Environmentalists say that wider use of the technologies will bring costs down and that the rules would help lower emissions in a major industry that has already been shifting to renewables.

Tax credits for carbon capture in the 2022 climate, health and tax law known as the Inflation Reduction Act, combined with the new EPA rule, will spur both innovation and adoption of the technology, according to David Doniger, senior federal strategist at the Natural Resources Defense Council, an environmental group.

“It’s going to cause coal-plant operators who want to keep the plants around to get serious about carbon capture,” Doniger said.

Doniger said utilities raised similar fears in the 1980s about the cost of installing scrubber technology to remove sulfur pollutants that damaged lakes and waterways in the Northeast. The actual cost was less than either industry or the EPA had projected, he said. The new rules will likely stoke the political debate over regulations designed to fight climate change.

The administration has been pushing through rule changes designed to survive election-year politics. Last month the EPA issued its most stringent rules ever for tailpipe emissions for vehicles, though it handed the auto industry a concession by giving it more time to comply than what had originally been proposed.

Issuing the rules now avoids the threat of a potential congressional change, but they are still likely to end up in court.

Coal plants have struggled financially against natural gas and renewables, and the rules essentially schedule their phaseout, said Daniel Cohan, associate professor of civil and environmental engineering at Rice University. Most were built before 1990 and would be at least 50 years old by 2040. Their owners would face enormous costs for ongoing maintenance, in addition to the expense of installing a carbon-capture system.

“It’s going to be only really special cases where it would make sense to install this technology,” Cohan said.

The industry would need to remove CO2 before it goes out of smokestacks, build pipelines to transport it and drill wells that could permanently store the carbon dioxide deep underground in rock formations. Such a build-out faces myriad challenges. Not all parts of the country, for example, have the geology required for storage.

Generators in competitive markets are considered unlikely to make the capital investments that would be needed for older plants, but some utilities or electric co-ops in coal-heavy states might do so and pass the costs on to consumers.

The sector could also turn to options such as the use of hydrogen fuel or small modular nuclear reactors, which remain under development in the U.S. The EPA said it is also including flexibility regarding grid reliability and operations during emergencies.

There are only a few examples globally of carbon-capture projects tied to power plants. In North Dakota, Minnkota Power Cooperative hopes to build a carbon capture and sequestration project at a coal plant. Chief Executive Mac McLennan said the EPA is overestimating the current and future capabilities of the technology and underestimating the time needed to build.

“I have great optimism and confidence that we can figure out how to make technology work to capture CO2 off of a coal plant,” McLennan said. “I have some fundamental concerns just whether and how we affordably and reliably keep the lights on.”

Meanwhile, the coal-mining industry is finding new customers abroad to replace retiring U.S. coal plants. Consol Energy operates three mines in Pennsylvania and one in West Virginia. Chief Executive Jimmy Brock said new export markets took 60% of the 26 million tons of coal that Consol dug last year.

“I think we need to invest in those technologies,” Brock said, referring to carbon capture. “If they don’t, we’ll continue to send our coal overseas.”

   

McKinsey & Co is under criminal investigation in the United States over allegations that the consulting firm played a key role in fueling the opioid epidemic, with federal prosecutors homing in on its work advising OxyContin maker Purdue Pharma and other drugmakers, three people familiar with the matter said. The consulting firm and the U.S. Justice Department declined to comment. The probe is focused on whether McKinsey engaged in a criminal conspiracy when advising Purdue and other pharmaceutical manufacturers on marketing strategies to boost sales of prescription painkillers that led to widespread addiction and fatal overdoses, two of the people said. The Justice Department is also investigating whether McKinsey conspired to commit healthcare fraud when its consulting work for companies selling opioids allegedly resulted in fraudulent claims being made to government programs such as Medicare, they said. Prosecutors are also looking at whether McKinsey obstructed justice, an inquiry related to McKinsey's disclosure that it had fired two partners who communicated about deleting documents related to their opioids work, the people said. The probe, opened several years ago before the onset of the global pandemic, involves Justice Department officials spanning offices in Washington, Massachusetts and Virginia, they said. Both sides are in discussions to resolve the probe, one of the people said. Investigations are not evidence of wrongdoing and officials conducting the inquiry could ultimately pursue criminal charges, seek civil sanctions or close the probe without taking any action. The Wall Street Journal previously reported the Justice Department investigation. The Justice Department probe underscores how McKinsey's past work advising drugmakers on opioids continues to follow the near-century-old consulting firm. It carries higher stakes than other government investigations McKinsey has resolved because of the potential for criminal charges against the company or executives, and steep financial penalties that the Justice Department often demands in exchange for resolving its white-collar probes. McKinsey earlier reached separate agreements totaling nearly $1 billion to settle widespread opioid lawsuits and other related legal actions brought by all 50 states, Washington, D.C., U.S. territories, various local governments, school districts, Native American tribes and health insurers. McKinsey in 2019 said it would no longer advise clients on any opioid-related businesses. None of the settlements have contained admissions of liability or wrongdoing, McKinsey has said. "We understand and accept the scrutiny around our past client service to opioid manufacturers. This work, while lawful, fell short of the high standards we set for ourselves," McKinsey said in a 2022 statement following the release of a congressional committee report scrutinizing its consulting work. Purdue did not immediately respond to a request for comment. The drugmaker pleaded guilty in 2020 to criminal charges over its handling of opioid painkillers. Purdue filed for bankruptcy in 2019 and later negotiated a settlement valued at about $10 billion to settle thousands of lawsuits alleging it contributed to the opioid epidemic. The Supreme Court halted that settlement and is soon expected to rule on a Biden administration challenge to the deal. Prosecutors are far from making any charging decisions in their criminal investigation of McKinsey, in part because they are sifting through voluminous documents as part of their inquiry and engaging in discussions with the consulting firm's lawyers, one of the people said.