Trial by Fire: California Fires Are Burning Holes Through Utilities' Budgets

Photo credit: Shutterstock / Erin Donalson

Thanks to a climate that is growing both warmer and drier, California’s investor-owned utilities are facing an existential crisis. As the state sets new records for fire damage with each passing year, utility transmission lines and substations are increasingly being targeted as likely ignition culprits. Already, one piece of legislation has been signed to pass damage costs onto ratepayers in some situations, but it’s yet to be seen if this relief will keep one utility, Pacific Gas & Electric (PG&E), from declaring bankruptcy.

There’s no question that California utilities are increasingly challenged by climate conditions that put their operations at risk. The years 2014–2018 have been the five hottest on record for the Golden State. With the 2018 fire season over, researchers say six of the state’s 10 most destructive wildfires ever have occurred in the last three years, and they point to several climate-related factors they say contribute to the spread of fires:

  • Higher temperatures, which dries out vegetation and produce more fuel for fires
  • Shorter rainy seasons, which results in longer fire seasons
  • A shift in Santa Ana wind patterns
  • A slowing of the jet stream, which leads to more heat waves and high-pressure ridges that block rain from the region

So, while wildfires have always been a challenge for California utilities, changing climate trends are boosting the potential for catastrophic damage. Line maintenance and vegetation management have become increasingly critical, as a result—which PG&E learned only too clearly in 2017. California’s Department of Forestry and Fire Protection found the company’s equipment caused 12 wildfires in 2017, and in June 2018, the company took a $2.5 billion pretax charge related to just a portion of the resulting damage.

More recently, PG&E told the California Public Utility Commission (CPUC) that a transmission line experienced a problem near the point where November’s devastating Camp Fire began in Butte County, moments before the fire was first reported. That fire, which killed at least 88 people and burned more than 150,000 acres and almost 14,000 homes, was the deadliest in the state’s history. The utility has stated that damage claims related to the fire could overwhelm the company’s liability insurance coverage.

PG&E isn’t alone in its liability woes. In October, Southern California Edison (SCE) announced it faces 102 separate lawsuits relating to the role its equipment played in the start of the December 2017 Thomas Fire. That blaze burned through more than 280,000 acres of Ventura and Santa Barbara Counties. New lawsuits are likely to rise from November’s Woolsey Fire, also in Ventura County, which also has been tied to SCE equipment.

Damage estimates from just the Camp and Woolsey fires are staggeringly large—up to $19 billion combined, according to the property data firm CoreLogic. PG&E has said it could face bankruptcy if found responsible for Camp fire damages, a statement that has encouraged state legislators to explore options for financial relief. A bill signed in September by then-Gov. Jerry Brown allowed utilities to issue bonds for a large portion of the cost of the 2017 fires. Those bonds will be paid off by ratepayers over 20 years. A potential second bill would provide similar relief related to 2018’s blazes.

However, these one-off legislative solutions do little to address the long-term liability issues California utilities face going forward. Currently, thanks to a state legal principle called inverse condemnation, electric companies are deemed liable for all customer damages related to fires caused by utility equipment, regardless of negligence. Last fall’s legislation maintains this principle, though it also authorizes the CPUC to use a newly defined “reasonableness” standard to determine utilities’ liability for future blazes. But these moves still could leave ratepayers on the hook for billions in future costs.

As the state’s largest utility, PG&E now faces special scrutiny, with CPUC President Michael Picker suggesting in a Wall Street Journal interview that breaking up the company might be an option for regulators. However, he noted in a separate conversation with the Sacramento Bee that PG&E was hardly alone in facing safety challenges in an increasingly hot, dry climate.

“What is California doing about wildfires?” was his rhetorical question, regarding the growing risk posed by climate changes. “We have to have other solutions.”

One solution could be even greater implementation of the state’s already generous Self-Generation Incentive Program, which pays a large percentage of the cost of behind-the-meter batteries. Now, utilities proactively shut down transmission lines during times when temperature, wind and humidity conditions are ripe for fire—PG&E considered this move in Butte County, prior to the Camp Fire’s start. Encouraging more customers to install paired solar panels and batteries could limit the inconvenience and financial impact of these outages. Such efforts to boost installation of distributed energy resources also could pay off long after a fire has passed, enabling customers to pick up and resume their lives as transmission repairs are still underway.

About the Author

Chuck Ross

Freelance Writer

Chuck Ross has covered building and energy technologies and electric-utility business issues for a range of industry publications and websites for more than 25 years. Contact him at chuck@chuck-ross.com.

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