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July 1, 2023

California Burning: The Risks We Face From Wildfire and Aging Infrastructure

Mark Trexler

I just listened to Katherine Blunt's fascinating 2022 book: California Burning: The Fall of Pacific Gas and Electric and What It Means for America's Power Grid. It's a great history and a good story, with some fundamentally important takeaways.

  1. 1
    PG&E's power grid is OLD (as are many others, no doubt). Some of the equipment, particularly in rural areas, dates back decades and decades.
  2. 2
    PG&E's power grid is in bad shape, in part because investor-owned utilities in California earn a rate of return on invested capital, but not on money going to maintenance (that's just reimbursed).
  3. 3
    Deregulation of the utility sector has really complicated a lot of decision-making and incentive structures. As more and more big investors get involved, what do you suppose happens to the pressure to reduce the amount of money spent on maintenance?
  4. 4
    The growing fire risk in Northern California is an existential threat to a utility like PG&E. But what is it supposed to do? Trim or cut down literally hundreds of millions of trees near power lines, spend MASSIVE amounts of money to underground the transmission system, or turn off the power to millions of people for weeks every year? Who pays for any of those options?

Perhaps the most interesting part of the story relates to PG&E's bankruptcy case following the 2018 fires that destroyed Paradise, CA. It was a complicated bankruptcy negotiation in which post-bankruptcy PG&E stock was the basis for a big part of the compensation being awarded to fire victims. But the valuation of that stock in the settlement explicitly avoided consideration of future fires. Fire victims argued that made no sense because future fires might make the stock worthless again. The judge in charge of the bankruptcy said he had no jurisdiction over "safety issues," much less (I assume) the future impacts of climate change on the utility.

In other words, a massive decision-making process resulting from the impacts of climate change on PG&E took no note at all of the future implications of climate change for PG&E and the region. It's not a good sign for climate-resilient decision-making.

Final note: during this whole process, the PG&E Board of Directors was largely replaced by representatives of large investors. What could possibly go wrong?

See Mark's original post on LinkedIn.

Featured image by Chil Vera from Pixabay.



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