Who pays when utilities get sued over wildfires?

With fire risk on the rise and neglected utility equipment sparking more deadly conflagrations, all electricity customers may be left holding the bag.
By Jake Bittle

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A forest fire
The Alisal fire burns north of Santa Barbara County, California in October 2021. (Xinhua/Getty Images)

This story was first published by Grist.

Early on the morning of November 8, 2018, a strong gust of wind blew down a power line owned by Pacific Gas & Electric, or PG&E, the power utility that serves most of Northern California. As the line hit the ground, it ignited a bed of dry pine needles, starting a fire that soon spiraled out of control. The blaze, which became known as the Camp fire, would go on to destroy more than 18,000 structures and kill dozens of people — ranking it as the deadliest and most destructive wildfire in California’s history.

In the years after the fire, PG&E faced a barrage of civil and criminal lawsuits from fire victims, municipal governments and insurance companies, seeking to hold the utility accountable for starting the blaze. As the company’s stock tanked, it filed for bankruptcy protection, and later pleaded guilty to 84 counts of involuntary manslaughter over fire deaths. In order to exit bankruptcy, the company paid out $23 billion to various plaintiffs and creditors.

PG&E has since drafted a plan to spend $50 billion by 2026 on grid protection and repairs, but it still has a long way to go. The utility can only borrow limited amounts of money thanks to its recent bankruptcy restructuring, and last year it laid off thousands of workers who trim trees around power lines to prevent fires. Starved for cash, the company has raised rates: The average PG&E customer’s bill will rise 18 percent this year and 32 percent by 2026.

Power lines and other electrical infrastructure have ignited hundreds of fires in the American West over the past 10 years, and these wildfires have destroyed thousands of homes and burned millions of acres. In just the latest example, the deadly wildfires in Maui this month appear to have been ignited by power infrastructure. In the aftermath of these events, victims and insurers have increasingly sued large investor-owned utilities for billions of dollars in damages, laying blame for the fires at the feet of the corporations that control the electrical infrastructure that kick-started the blazes.

It seems like there’s this historic trend of utilities just paying for fires, paying for fires, and then there’s a catastrophic one and they get walloped,” said Todd Logan, an attorney at the law firm Edelson PC who has won lawsuits against PG&E and PacifiCorp. And then they actually start changing their practices.”

The trend began in California, where state law makes it easy to hold utilities accountable for starting fires, but it is now spreading to other states including Oregon, where fire victims won a trial last month against the Berkshire Hathaway–owned utility PacifiCorp over a devastating 2020 wildfire, and Colorado, where victims sued the utility Xcel last month over the 2021 Marshall fire. The payouts that stem from these lawsuits could cost these companies billions of dollars.

A charred, smoky area of forest
The aftermath of the June 2022 Sheep fire in Wrightwood, Calif. (Robert Gauthier/Los Angeles Times/Getty Images)

While these lawsuit victories are helping victims rebuild their homes, some experts also believe this wave of legal action and the massive payouts that have come with it have made it harder for utilities to fund grid upgrades that can prevent future fires. In many cases, as these investor-owned utilities work to fireproof their infrastructure, they’re passing the cost of system improvements and delayed maintenance down to their customers in regions where electricity rates are already high.

Ratepayers definitely have to pay for the cost of the utility doing things” like burying power lines and trimming trees, said Michael Wara, a senior research scholar at Stanford Law School and an expert on how climate change affects utilities. With the lawsuits, too, there are significant penalties, and somebody’s going to have to pay for them — and the reality is it’s going to be the customers of the company and the shareholders.”

A large power company like PG&E presides over a vast network of wires and transformers, extending over thousands of square miles of service territory. Almost any part of that network can cause a fire if it falls over or scrapes against flammable wood. It’s almost impossible for a utility to eliminate risk altogether, but there are a number of measures they can take to reduce it. Until the last few years, though, few utilities had bothered to take them.

For a long time, most big utilities would keep energy flowing through their wires continually, until a snowstorm or heat wave caused one of their lines to break or blow up. Instead of spending money to forecast weather disruptions or harden their power lines against those disruptions, they just spent money to fix them afterward. In the case of PG&E, this allowed legacy transmission lines to grow old and worn down, increasing the risk of ignition.

They basically used to run the system until it would break and then repair the part that broke,” said Wara. It’s a cheap way to maintain a system, and the benefit was to customers because it kept rates lower. It is much more expensive to do preventative maintenance.”

But now that business model has come back to bite the utilities. The lawsuits against PacifiCorp in Oregon and Xcel in Colorado both argue that the utilities should have cut power to vulnerable areas before the fire. The jury in the PacifiCorp trial, for instance, found that the power company acted negligently when it didn’t shut off electricity to 600,000 customers on the dry Labor Day weekend of 2020.

That decision caused multiple fires that destroyed thousands of structures and killed 11 people. Hawaiian Electric, the utility that supplies power to Maui, is also facing criticism for failing to shut off power during the high-wind event that fueled the wildfires on the island this month. Video and data obtained by The Washington Post appear to show that a power line caused the island’s first fire.

Burned cars and homes are seen in a neighborhood that was destroyed by a wildfire on August 17, 2023 in Lahaina, Hawaii. (Justin Sullivan/Getty Images)

In the years since the record-breaking 2017 and 2018 fire seasons, California’s utilities have shifted away from that model, said Caroline Thomas Jacobs, the director of the state’s new Office of Energy Infrastructure Safety, which became a stand-alone entity in 2021 with the aim of preventing another Camp fire–like blaze from devastating the region.

We’re seeing exponential change in a short period of time,” said Thomas Jacobs. Only five years ago, when I came into this whole space, it was fundamentally an analog business. They used paper to record everything, and they knew that your power was out because you called them.” Not only did they not plan for climate change, they didn’t assess fire risk at all.

Now, Thomas Jacobs says, the state’s utilities have entered the 21st century. Big power providers like PG&E and Southern California Edison have hired in-house meteorologists, invested millions in advanced fire modeling, and deployed hundreds of sensors across their grid networks so they can identify risky areas. They’ve also instituted a new regime for shutting off electricity when fire risk is high: PG&E can now cut power to precise areas with the flip of a switch.

But the larger challenge facing utilities like PG&E is upgrading the physical infrastructure itself, which can cost tens of billions of dollars — money that gets harder to raise as settlements add up. Most utility-caused wildfires happen when falling trees or dead branches scrape up against power lines, or when those power lines blow over onto dry ground. The surest way to reduce ignitions is to trim vegetation around power lines, as well as by insulating lines or burying them underground. All these measures, however, come at significant cost.

In some cases, this grid-hardening” effort has proven difficult for California utilities. PG&E has trimmed thousands of trees and undergrounded more than 300 miles of power lines, but Thomas Jacobs’ department chastised the utility earlier this year for its growing backlog of asset repairs, saying the company has not been able to show that it has adequate resources or proper planning to address its backlog given the continual increase.” (PG&E says it is working to accelerate the repairs.)

Southern California Edison has opted to insulate its wires rather than bury them, which is faster and cheaper but may not provide the same level of long-term fire resilience, says Wara.

Furthermore, in PG&E’s case, it’s unclear just how effective these infrastructure efforts have been. Earlier this month, The Wall Street Journal reported that PG&E scrapped its tree-trimming program altogether in the face of new evidence that it wasn’t reducing risk despite almost $2 billion in expenditures to date. (PG&E disputes this, saying that it is focusing investment on programs to enable permanent risk reduction.”) Meanwhile, one recent study found that power line undergrounding in California tends to benefit wealthy communities and leave low-income areas behind.

The key question utilities are asking themselves is how much of this infrastructure improvement work they need to do in order to avoid being found liable for starting fires, says Wara. The answer depends on where the utility is. In every state except California, plaintiffs must prove that a power provider acted with recklessness or negligence. That’s what happened in the Oregon trial against PacifiCorp, and it’s the argument in the Colorado case as well.

In California, though, a legal standard known as inverse condemnation” means that a utility is liable for a wildfire as long as any part of its infrastructure helped start the blaze, even if the utility tried to prevent ignition. This standard led to numerous settlements over the years against utilities including SoCal Edison and San Diego Gas & Electric, but most of them were relatively small. That changed with the big lawsuits that followed the 2017 and 2018 wildfire seasons.

The threat of litigation imposes a dual financial obligation on utilities. On the one hand, they have to pay out damages to victims and insurance companies, and on the other, they have to spend on grid upgrades to avoid future lawsuits. PG&E is the most extreme example of this money crunch: The utility had to pay out a $23 billion settlement package to exit bankruptcy in 2020 and has since spent billions more on grid repairs, including ultra-expensive undergrounding. In Oregon, PacifiCorp may have to pay upward of $1 billion in damages to victims of the 2020 fires that its infrastructure was found to have started.

A downed power line with a charred wooden pole blocks a road
Burned cars and downed power lines are seen along Pearson Road in Paradise, Calif. on Nov. 10, 2018. The Camp fire was the most destructive wildfire in California history. (Jane Tyska/Digital First Media/The Mercury News/Getty Images)

As utilities spend to upgrade their grids and avoid future lawsuits, they also raise electricity prices on customers, making it more expensive for them to run their fridges and air-conditioning units, says Logan. In order to raise rates, the companies must get permission from state regulators, but regulators tend to approve the increases without much hubbub.

In addition to PG&E’s double-digit-percentage rate increase this year, Oregon’s PacifiCorp raised rates by 14 percent as it worked to implement its wildfire-mitigation plan. That increase came before the utility lost at trial against fire victims last month. SoCal Edison already raised rates in 2021 to finance the insulation of its power lines, leading to a $12.41 monthly increase for the average customer; the utility is also facing multiple fire lawsuits and may have to raise rates even further.

Experts disagree about just how necessary these rate increases are. Logan, the Edelson attorney, says companies like PacifiCorp return plenty of money to their shareholders and don’t need to pass costs on to consumers. Logan is also leading the lawsuit against Xcel in Colorado. The notion that they’re financially constrained to me is completely absurd,” he told Grist.

Logan points out that investment firms including Vanguard, Apollo and Third Point have invested in PG&E. Meanwhile, PacifiCorp is a subsidiary of Warren Buffett’s Berkshire Hathaway, a massive conglomerate led by one of the world’s richest men.

In response to a request for comment, PG&E said its system has never been safer, and we continue to make it safer every day.” The company also said that damages from previous legal settlements were paid by shareholders and did not impact customer bills.” PacifiCorp declined to comment.

Even so, the task of upgrading an entire grid network is enormous, and the capital costs of vegetation management and grid hardening are unprecedented for most big power companies, says Kevin Schneider, a utility expert at the Pacific Northwest National Laboratory.

It’s fair to say that these are big companies and they have a lot of money, but also, look at what they’re being expected to do,” he told Grist. These are big ledger values, and they were not originally set up as organizations that were meant to be tackling climate-change problems. Now, they’re trying to rethink a system that needs to be designed to last another 50 years.” He added that utilities in the West are also trying to prepare for the increased energy demand that will accompany the coming transition away from fossil fuels.

Adapting to climate change will require rebuilding roads, water systems and transit lines, and local governments across the country are already struggling to keep up. When it comes to power infrastructure, though, the adaptation effort in the West is being led not by governments but by some of the nation’s largest companies, investor-owned businesses that must also think about returning profit to shareholders. This dynamic has meant that even when the law allows victims to wrest money away from the big utilities responsible for many of the region’s worst fires, it’s ordinary residents who end up footing the bill for adaptation.

Jake Bittle is a journalist based in Brooklyn who covers climate change and energy.