ServiceFriday: California Conundrum – Wildfire’s Impact on Service Delivery

Despite the number of wildfires decreasing from their peak in 1980, U.S. Secretary of Agriculture Sonny Purdue stated in September 2017 that the U.S. was spending more than $2 billion to combat fires. According to the U.S. Department of Agriculture, that 2017 fire season was the most expensive ever with the costs exceeding $2.4 billion. Understanding the outstanding liability costs associated with these wild fires, on October 9 California utility company Pacific Gas & Electric (PG&E) decided to start shutting off power to its affected areas. 

This resulted in a loss of power to more than 500,000 homes and businesses in Northern California and another 234,000 people from cities including San Jose and Santa Cruz. But PG&E isn’t the only utility company taking precaution as Southern California Edison also cut power to 12,900 customers in areas east and north of Los Angeles.

Why are California utility companies cutting power to customers during these times of wild fires? The answer is a legal provision in state law known as inverse condemnation. This means that if a power company’s equipment starts a fire, it is responsible for paying property damages, regardless of if they are found to have been negligent or not. This is of high importance to understand because there is a key commonality between PG&E and Southern California Edison: they’re both investor-owned companies. With potential liability costs expected to be in the billions, it’s no wonder why shareholders would not feel a sudden urge to restore power to customers.

“You could do everything right and follow every standard, do all the maintenance and inspections, go above and beyond. And if something happens, you are still on the hook for liability,” said Brad Kuhn, a partner with Nossaman LLP, a Los Angeles-based law firm. But the utility companies are not the only ones who feel these massive blackouts are an appropriate counter to these wild fires. Public officials have recognized the power outages as a necessary precaution but many have questioned the utility companies’ preparedness for these outages, specifically PG&E. One of those public officials is state Sen. Jerry Hill who is also the chair of Senate Energy, Utilities and Communications Subcommittee on Gas, Electric, and Transportation Safety. “These shutdowns are supposed to be surgical. Shutdowns that could impact as many as 800,000 people in 34 of our 58 counties are by no means surgical,” said Hill. “PG&E clearly hasn’t made its system safe.”

If you want to know more about the power outages and wild fires in California, here are the stories used to compile this article:

https://www.wsj.com/articles/pg-e-isnt-alone-in-facing-liability-risk-over-california-fires-
11572476471?mod=searchresults&page=1&pos=4
https://www.usatoday.com/story/news/nation/2019/10/09/power-outage-q-a-what-california-
needs-know-cutoffs/3922175002/
https://www.usatoday.com/story/news/politics/2019/10/09/california-power-outage-blackout-
legislators-promise-accountability/3921343002/
https://www.latimes.com/california/story/2019-10-31/california-power-outage-darkness-cold-
and-fear
(Fees may apply.)