This article is part of a series exploring how the utility and waste recovery industries account for the costs of climate change.seriesone of.

In 2012, the California Public Utilities Commission (CPUC)adopted a set of regulationsaimed at reducing fire hazards caused by utility power lines.

Five years earlier, periodic dry, strong winds sweeping through Southern California—the Santa Ana winds—had triggered dozens of fires, killing 17 people and forcing hundreds of thousands to evacuate. Many of those fires were reportedly sparked by power lines, prompting state regulators to order Southern California's investor-owned utilities to develop fire prevention plans.

However, these regulations did not apply to Northern California utilities. Instead, the CPUC required them to assess fire risk within their service areas and only develop fire prevention plans if they met specific weather-related criteria. Regulators believed that, unlike Southern California, Northern California utilities might not necessarily need fire prevention plans.

Eight years later, the state's utility industry faced a starkly different reality. In early 2019, PG&E filed for Chapter 11 bankruptcy protection after its lines sparked wildfires that burned hundreds of thousands of acres in Northern California and killed more than 100 people. The company has paid$25.5 billionto resolve fire-related liabilities and expected to spend $11.7 billion between 2019 and 2022 on wildfire risk reduction—according to its CDP report filed this year—in 2019, the company had expected project spending of up to $2.8 billion that year. Now, PG&E's equipment is again at the center ofa Northern California wildfirethat the company believes could bring significant liability.

The Northern California wildfires were ignited by a variety of factors, including equipment failures. But John MacWilliams, a senior fellow at Columbia University's Center on Global Energy Policy, noted in testimony submitted in January to a joint U.S. House hearing on the impact of wildfires on the electric utility industry that climate change played a "substantial role."testimonypointed out that climate change played a "substantial role."

Research shows that climate change has reduced autumn rainfall, increased wind speeds and daily maximum temperatures, creating "powder keg conditions" in the western United States; according to MacWilliams' testimony, one estimate suggests that climate change has contributed to an additional 4.4 million hectares of wildfire damage in the region since the 1980s.

The testimony also noted that wildfire risk is not limited to California utilities—many parts of the United States, especially the Southeast and Northwest—may face increasing wildfire risk. Therefore, although no other utility has yet experienced financial shocks from wildfires like PG&E, experts warn that utilities may face rising risks and costs.

"I think there are many other utilities that should be concerned about this," said Seth Hilton, a partner at the law firm Stoel Rives. "Whether or not this risk has materialized, utilities and regulators will be vigilant about it—they want to address it proactively before causing a major wildfire and facing significant financial impact."

Utilities in Oregon, Arizona, Colorado, and other states are addressing fire risk

MacWilliams noted that wildfires pose a financial threat to the utility industry because, in most states, if a utility is found to have "operated improperly" causing its lines to ignite a fire, it may be liable for damages that could reach billions of dollars—enough to push a utility into bankruptcy.

"In either case, climate change-driven wildfire activity will increase costs for utility industry stakeholders, including investor-owned utilities, state and local governments, ratepayers, and taxpayers. These increased costs, in turn, will put financial pressure on utilities and crowd out necessary investments in renewable energy and grid upgrades," MacWilliams said in his testimony.

"I expect Oregon regulators—and legislators—will be very proactive in reviewing wildfire causes and mitigation measures. The role of utilities will undoubtedly be part of these discussions."

—Derek Green, attorney at Davis Wright Tremaine LLP

Beyond PG&E's bankruptcy, there are already signs that wildfire risk could have financial impacts on the utility industry. In California, S&P Global Ratings earlier this year downgraded the outlook for PG&E, San Diego Gas & Electric, and Southern California Edison from "stable" to "negative" due to unprecedented wildfire activity in the 2020 fire season.

In Oregon, Pacific Power and its parent company PacifiCorp are facing lawsuits related to the state's September fires, including suits filed by law firms that previously represented victims of PG&E-caused fires. The lawsuits allege that the utility kept its lines energized after receiving warnings of wildfire risk, and that strong winds caused lines to fall and ignite surrounding vegetation.

Pacific Power spokesperson Drew Hanson said in an email comment that the company does not discuss pending litigation. "We will continue to work with federal and state investigators as well as our own third-party investigators to fully understand the impacts of one of the largest and most widespread storms in our 110-year history," Hanson added.

Derek Green, an attorney at Davis Wright Tremaine, said in an email that wildfire risk is currently a top issue in Oregon, and the Oregon Public Utility Commission is developing rules to review wildfire mitigation plans of regulated utilities.

"I expect Oregon regulators—and legislators—will be very proactive in reviewing wildfire causes and mitigation measures. The role of utilities will undoubtedly be part of these discussions," Green added.

In Arizona, Pinnacle West—the parent company of Arizona Public Service (APS)—has listed wildfire risk as a "Level 4" risk in its 2020 CDP report, meaning it could cause financial impacts exceeding $25 million to the utility. In Nevada, wildfire risk has been a top concern for the Nevada Rural Electric Association and its members, said Executive Director Carolyn Turner. Although the state has not experienced catastrophic wildfires this year, "we understand that does not represent a long-term trend. The risk remains," Turner added.

Colorado also experienced wildfires this year. Although none appear to have been caused by utilities, Geoffrey Hier, director of government relations for the Colorado Rural Electric Association, said the industry faces two concerns—the liability utilities could face if they cause a fire, and the overall threat to infrastructure and service. Wildfire mitigation has been a priority, "but the PG&E situation and the damage the Camp Fire caused to communities certainly accelerated our timeline," Hier added.

In the northeastern United States, Liberty Utilities said in its 2020 CDP report that wildfires could increase its insurance costs and reduce the availability of insurance in high-risk areas.

Fire prevention investments are becoming more widespread—and more expensive

As wildfire risk increases, so do utility investments in mitigation measures. For example, PG&E estimated in 2020 that implementing its wildfire mitigation plan from 2019 to 2022 would cost $11.7 billion. The plan "expands and strengthens" the utility's previous Community Wildfire Safety Program, spokesperson Ari Vanrenen said in an email.

The plan includes a range of measures such as hardening the electric system, accelerating infrastructure inspections, vegetation management, and real-time monitoring and situational awareness tools. The utility's broader strategy also includes public safety power shutoffs, which proactively de-energize lines during periods of high fire risk.

Wildfire mitigation plans "are becoming more extensive and more expensive because climate change is driving increasing risk."

—Seth Hilton, partner at Stoel Rives LLP

Stoel Rives' Hilton said other California utilities are also increasing wildfire mitigation spending, and their wildfire mitigation plans, which they are required to submit to regulators, "are becoming more extensive and more expensive because climate change is driving increasing risk."

The Sacramento Municipal Utility District spent nearly $7.2 million on wildfire mitigation in 2019, the utility said in its 2020 CDP report. Most of that—about $5.77 million—went to wildfire insurance, with the remainder going to grounding projects, X-ray technology to inspect transmission lines, timber harvesting, and similar measures. The Los Angeles Department of Water and Power—whose 2020 CDP report estimated that wildfires caused by its equipment could result in $350 million in losses and liabilities—estimated its wildfire risk mitigation costs at nearly $94 million. That figure is based on LADWP's 2017-2018 transmission-related budget for its Power System Reliability Plan, including vegetation management, transmission design, and work to improve reliability that fiscal year, a utility spokesperson said.

In Nevada, which has large amounts of federally managed land, a key focus for the Nevada Rural Electric Association is ensuring continued, predictable access to rights-of-way to mitigate potential infrastructure risks, Turner said. Meanwhile, NV Energy submitted aNatural Disaster Protection Planto the Public Utilities Commission of Nevada in February, outlining several strategies including shortened inspection intervals, system hardening and vegetation management measures, and proactive de-energization of lines as a last resort under extreme wildfire weather conditions.

In Colorado, utilities are very proactive in vegetation management, Hier said. Other priorities for the Colorado Rural Electric Association include introducing legislation to clarify rights-of-way standards to better access and manage vegetation to reduce fire risk.

"Additionally, we are always looking for best practices to harden the system—whether it's applying protective coatings on poles," or using insulated power lines in heavily forested areas, Hier explained.

Xcel Energy, which serves customers in eight states and has more than 67,000 miles of transmission and distribution lines, focuses its fire prevention efforts on Colorado, where the number of wildfires is increasing, spokesperson Julie Borgen said in an email.

This includes technology to identify and remove dead trees near equipment, devices that can detect broken lines and ensure they are de-energized, and drones to inspect infrastructure in fire-prone areas, while also experimenting with adding fire-resistant coatings to wooden poles. In 2019, Xcel Energy invested $50 million in transmission and distribution assets in fire-prone areas and plans to invest another $500 million by 2025, Borgen said.

Pacific Power, within its 21,000-square-mile service area, has developed a wildfire mitigation plan containing a similar mix of strategies—such as installing weather monitoring stations, hardening the system, increasing vegetation management, and deploying public safety power shutoffs as a last resort—Hanson said, adding that the utility has invested "millions of dollars" in system hardening and other technologies. APS, meanwhile, maintains a forestry business unit—with an annual budget of about $17 million—focused on managing rights-of-way and hardening the system.

"Make sure you're all moving in the same direction"

But reducing wildfire risk across large service areas can pose challenges for utilities.

PG&E's broader strategy is evolving rapidly as it gains experience, Vanrenen said, adding that while measures such as vegetation management can significantly reduce fire risk, climate change-driven factors such as drought and high temperatures can increase risk.

Additionally, PG&E may face "execution risk" in completing wildfire mitigation work; for example, weather, environmental regulations, or property owner opposition may prevent it from accessing needed areas, and there is a limited number of qualified personnel able to perform the necessary work.

There are also broader methodological challenges, said William Abrams, a Northern California resident and survivor of the 2017 Tubbs Fire. Abrams—who has evacuated from three wildfires in the past three years and recalls dragging burning branches off his driveway to escape during the 2017 fire—has since been actively involved in CPUC hearings on wildfire mitigation and has expressed concerns about gaps in the state's broader wildfire mitigation strategy.

"The goal should be to tie the financial returns of utility investors to the public interest and safety."

—William Abrams, community advocate and Sonoma County resident

For example, Abrams believes that utility wildfire mitigation plans need to focus more on relative risk reduction analysis—a detailed examination of how much risk specific actions can reduce.

"Unless you actually map infrastructure risk and the external variables of internal variables and environmental conditions relative to that infrastructure into the plan, you haven't arrived yet," Abrams said.

Another concern for Abrams is the monitoring process, which he says can sometimes be disconnected from utility wildfire mitigation plans. Abrams said what the state needs is a system where someone randomly selects, for example, a 200-mile stretch of line, conducts a field inspection, and then rewards or penalizes the utility based on compliance.

"The goal should be to tie the financial returns of utility investors to the public interest and safety," Abrams said. "In my view, that's where we need to push—to link performance-based metrics around safety, wildfire mitigation, and transitioning to renewable energy to address climate change to the bottom line of utility investors. Until we do that, a lot of it is just talk."

CPUC spokesperson Terrie Prosper said in an email that the agency's Wildfire Safety Division has been conducting field inspections of PG&E's equipment since May and has completed more than 2,400 "inspection activities" statewide to date. These inspections found 154 "deficiencies"—such as equipment damage—that were inconsistent with the utility's wildfire plan.

PG&E's analysis of wildfire risk is based on an understanding of mitigation measures that reduce the likelihood or consequences of potential fires, Vanrenen said.

"We are continuously improving our ongoing efforts to reduce wildfire risk in our service area, including better understanding the conditions that can lead to wildfires and ways to reduce risk. We continue to make further improvements and follow CPUC guidance and requirements, while welcoming feedback from all stakeholders," she said.

Other states facing wildfire threats should coordinate their local, state-level, and utility-related mitigation strategies early, Abrams added.

"Make sure you're all moving in the same direction, because we didn't do that here," he said of California.

Hilton agreed that addressing the threat early is key.

"I think the unsurprising lesson is that the sooner utilities get to work on this risk, the better off they are," Hilton said.

"PG&E experienced major wildfires before it really started paying attention to the condition of its transmission and distribution lines. Other utilities—including those in California—addressed the risk earlier and are therefore in a better position."