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"The legislation also didn’t change how California applies “inverse condemnation,” a legal doctrine under which the state’s utilities can be held liable for any

"The legislation also didn’t change how California applies “inverse condemnation,” a legal doctrine under which the state’s utilities can be held liable for any economic damages tied to their equipment, even if they follow all of the state’s safety rules. That’s left the utilities exposed to open-ended liabilities." This seems like a very inefficient way of allocating risk. California is naturally fire prone and has become more so over recent years due to drought. Anyone operating an electricity distribution network is therefore operating assets that are inherently fire and explosion prone - even if operated and maintained correctly - there is no way to move that much energy over those distances without it occasionally being released in an undesirable way - in a place where the consequences of that are severe. Simple logic dictates that you only expose companies and individuals to economic risks that are within management control, otherwise you just end up with an economic role that is necessary but impossible to fill. Even if state standards for safety were updated to reduce the chances of a transformer explosion, circuit breaker arc, or fault in forested areas you'd never get the risk down to zero nor would you remove all the other sources of ignition.

anilshanbhag 8y ago
Article on how California's forest policy might have exasperated the wildfires: https://www.wsj.com/articles/californias-paradise-lost-1542068600 https://www.wsj.com/articles/californias-paradise-lost-15420...
- lotsofpulp 8y ago
  Funny typo, I think you mean exacerbated.
erickj 8y ago
"Simple logic dictates..." Ahhh, but you assume the legislative body governing 30M people can resort to simple logic :)
namdnay 8y ago
If I understand this system correctly, this means that utilities will need insurance of some sort, and that therefore every home and business in California will pay higher utility rates to cover that extra cost. Indeed it seems a bit of a roundabout way to manage things - I guess the major political advantage is that it is a "hidden" tax? (as opposed to just mandating a certain level of safety and then having the government cover costs of accidents if these levels were respected)
Tyrek 8y ago
I don't necessarily agree with your 'simple logic' - there's plenty of stuff that can be done (but not perhaps outright regulated) that can reduce the incidence of fires around electrical equipment. (i.e. maintaining clearances around transmission stations, etc.) That involves probably more cost that the /free market/ would enjoy bearing. This measure can be framed as an attempt to force the externality (i.e. the damages caused by fires) onto the cause - Why shouldn't individual power consumers of California bear additional cost to prevent/reduce the incidence of fires? Your position is one of deliberate helplessness, and entirely assumes that companies should only toe the regulatory line and go no further.
- Mvandenbergh 8y ago
  It's a regulated utility so the free market doesn't really come into it, fundamentally regulated rates are set by CPUC. These rates need to go up to allow more a more aggressive vegetation control schedule. Sure, I agree with that, and I agree that individual power consumers should pay for that. However the way I think they should pay is precisely through that rate mechanism. What I do not think is efficient is putting the entire consequential damages of a fire caused by an electrical fault on the utility. That is only an effective mechanism to the extent that the fire damage is preventable by them. While they can reduce the chance of this happening through stepping up vegetation clearance and they probably should, it is not possible to reduce it to zero and given the size of the network there may well be fires every year even in the best possible case. To say in the context of climate change, forestry policy, the location of houses in areas that face these fire risks, and the construction of those houses of flammable materials that PG&E "caused" this fire and the previous ones and should therefore bear the damages seems strange to me.
  - cobookman 8y ago
    Aren't PGE rates already some of the highest in the Country?
    - deleted 8y ago
      [deleted]
dragonwriter 8y ago
> Anyone operating an electricity distribution network is therefore operating assets that are inherently fire and explosion prone So, engaging in an activity with high risk of causing damages that cannot be prevented with reasonable care—a long-established basis for imposing strict liability. > Simple logic dictates that you only expose companies and individuals to economic risks that are within management control, otherwise you just end up with an economic role that is necessary but impossible to fill. No, economic roles which are necessary but impossible to fill by private operators, especially natural monopolies, are what government is for.
- Mvandenbergh 8y ago
  >No, economic roles which are necessary but impossible to fill by private operators, especially natural monopolies, are what government is for. So there are multiple ways of allocating risk here: One possibility is to have the entire thing run by the state, that's certainly not uncommon for natural monopolies. The whole risk then sits with the state. Another is to set tighter technical standards and accompanying higher rates for the regulated utilities and to restrict liability to a certain cap - enough to push investors without making the company unfinanceable - and have the state take the liability for the excess. That insulates the state from minor accidents but leaves it with the catastrophic risk. That's how nuclear regulation works. Of course the criticism of that has always been that socialises the risk while privatising the profit which is a fair criticism. A third approach is to fine the company per pre-cursor event at a significant level. For instance $100m per fire caused by their assets that spreads beyond their boundary. That would give them a strong incentive to reduce events within their control without holding them responsible for the overall dryness of the state of California which they cannot control.
  - selimthegrim 8y ago
    I bet the investors are just piling into nuclear stocks with that assurance.
  - Faark 8y ago
    Your entire line of reasoning is based on the assumption that risk of fire is unavoidable and such we don't want to exert pressure on them to reduce that risk any further than regulation requires. I disagree. Government should regulate the minimum required to make society function. If citizens decide they don't want to rebuild their burned down homes every once in while, then this might include some minium safety requirements utilities have to satisfy or be criminals. This has little to do with pricing risk. Beyond that, we want to find the best cost/benefit trade-offs. And finding those best trade-offs is what we use competing private companies for in the first place. That's the reason the gov hands the privilege to run the local utility to whatever company makes the best offer running it. Only in return do we allow them to keep additional profits competitors couldn't match. Ideally, this should include all externalities, like this preventive measures vs insurance cost trade-off. I understand the price has to payed by citizens anyway. Either directly to the utility, or by tax funded subsidy, if they want to cap prices. Either is fine. But if we use profit generating companies to optimize cost, then it just makes no sense to not have them optimize on a significant chunk of cost society will suffer.
adrianN 8y ago
It's a matter of cost. You could probably make the equipment extremely safe, for example by installing an appropriate amount of fire suppression systems along the distribution network. By putting the risk on the utilities it's up to them to calculate how much prevention makes sense.
- Pinckney 8y ago
  That will substantially increase the cost of power lines. Is PG&E allowed to decide that running expensive lines through rough, fire-prone terrain isn't worth the cost, and to simply stop distributing power to cities like Paradise?
taneq 8y ago
Australian here, our fire danger charts start at 'high' and now go past 'extreme' to 'catastrophic'. (https://goo.gl/maps/FqEpv2MTUnB2 https://goo.gl/maps/FqEpv2MTUnB2 not that you can read the text but consider the fact that red wasn't bad enough and we had to go to stripey for the last segment.) I think that in some environments, fire hazard needs to become a publicly managed risk rather than an externalized one where the liability is pushed onto whoever fails first. Our last big bushfire where I live was started by some silly bastard using an angle grinder near dry grass. The one before that was pinned on our local power utility for a sparking pole-top transformer (iirc). Our environmental management agency (whose name changes on a regular basis) conducts regular burn-offs to keep overburden down but even so, it feels like we're leaving munitions lying around. In a country where even the wildlife wants to start fires (https://www.dailymail.co.uk/news/article-3439042/Birds-prey-starting-fires-DELIBERATELY-Brown-falcon-dropped-smouldering-twigs-Australian-bush-smoke-mice-insects-say-researchers.html https://www.dailymail.co.uk/news/article-3439042/Birds-prey-...) we need a systematic, coordinated approach.
the_clarence 8y ago
This is indeed simple logic. So simple that it probably fails quickly if you think about it. Many things can be done to prevent this, underground cables are one solution.
kaizendad 8y ago
One issue that's often overlooked is that PG&E has severe issues in their safety record. Last year their equipment sparked 16 wildfires, 11 of which may have been related to negligent maintenance. https://www.sfchronicle.com/business/article/PG-E-to-pay-2-5-billion-for-Wine-Country-fires-13013596.php https://www.sfchronicle.com/business/article/PG-E-to-pay-2-5.... In 2010, they blew up 8 people and an entire neighborhood from improperly maintained gas pipes. https://abc7news.com/news/pg-e-receives-maximum-sentence-for-2010-san-bruno-explosion/1722674/ https://abc7news.com/news/pg-e-receives-maximum-sentence-for.... I'm ok with open-ended liability for things like this. These are risks that are managed by utilities across the country and around the globe, in a responsible way.
- vkou 8y ago
  I'm generally OK with open-ended liability, even against people who were following the rules, to a T. (And especially against people who were not - see [1]) With wildfires, though, I'm not so sure. These forests are giant powderkegs, and that's no fault of PG&E. They will burn, sooner, or later. It might be from power utility equipment, it might be from a van's hot exhaust, it might be from a lightning strike. Blaming the last person who touched it seems... Unfair, in many ways. [1] https://en.wikipedia.org/wiki/Johnstown_Flood https://en.wikipedia.org/wiki/Johnstown_Flood is a great example of an organization that should have been held criminally liable - for second degree murder.

anilshanbhag 8y ago

Article on how California's forest policy might have exasperated the wildfires: https://www.wsj.com/articles/californias-paradise-lost-1542068600 https://www.wsj.com/articles/californias-paradise-lost-15420...

lotsofpulp 8y ago
Funny typo, I think you mean exacerbated.

erickj 8y ago

"Simple logic dictates..." Ahhh, but you assume the legislative body governing 30M people can resort to simple logic :)

namdnay 8y ago

If I understand this system correctly, this means that utilities will need insurance of some sort, and that therefore every home and business in California will pay higher utility rates to cover that extra cost. Indeed it seems a bit of a roundabout way to manage things - I guess the major political advantage is that it is a "hidden" tax? (as opposed to just mandating a certain level of safety and then having the government cover costs of accidents if these levels were respected)

Tyrek 8y ago

I don't necessarily agree with your 'simple logic' - there's plenty of stuff that can be done (but not perhaps outright regulated) that can reduce the incidence of fires around electrical equipment. (i.e. maintaining clearances around transmission stations, etc.) That involves probably more cost that the /free market/ would enjoy bearing. This measure can be framed as an attempt to force the externality (i.e. the damages caused by fires) onto the cause - Why shouldn't individual power consumers of California bear additional cost to prevent/reduce the incidence of fires? Your position is one of deliberate helplessness, and entirely assumes that companies should only toe the regulatory line and go no further.

Mvandenbergh 8y ago
It's a regulated utility so the free market doesn't really come into it, fundamentally regulated rates are set by CPUC. These rates need to go up to allow more a more aggressive vegetation control schedule. Sure, I agree with that, and I agree that individual power consumers should pay for that. However the way I think they should pay is precisely through that rate mechanism. What I do not think is efficient is putting the entire consequential damages of a fire caused by an electrical fault on the utility. That is only an effective mechanism to the extent that the fire damage is preventable by them. While they can reduce the chance of this happening through stepping up vegetation clearance and they probably should, it is not possible to reduce it to zero and given the size of the network there may well be fires every year even in the best possible case. To say in the context of climate change, forestry policy, the location of houses in areas that face these fire risks, and the construction of those houses of flammable materials that PG&E "caused" this fire and the previous ones and should therefore bear the damages seems strange to me.
- cobookman 8y ago
  Aren't PGE rates already some of the highest in the Country?
  - deleted 8y ago
    [deleted]

dragonwriter 8y ago

> Anyone operating an electricity distribution network is therefore operating assets that are inherently fire and explosion prone So, engaging in an activity with high risk of causing damages that cannot be prevented with reasonable care—a long-established basis for imposing strict liability. > Simple logic dictates that you only expose companies and individuals to economic risks that are within management control, otherwise you just end up with an economic role that is necessary but impossible to fill. No, economic roles which are necessary but impossible to fill by private operators, especially natural monopolies, are what government is for.

Mvandenbergh 8y ago
>No, economic roles which are necessary but impossible to fill by private operators, especially natural monopolies, are what government is for. So there are multiple ways of allocating risk here: One possibility is to have the entire thing run by the state, that's certainly not uncommon for natural monopolies. The whole risk then sits with the state. Another is to set tighter technical standards and accompanying higher rates for the regulated utilities and to restrict liability to a certain cap - enough to push investors without making the company unfinanceable - and have the state take the liability for the excess. That insulates the state from minor accidents but leaves it with the catastrophic risk. That's how nuclear regulation works. Of course the criticism of that has always been that socialises the risk while privatising the profit which is a fair criticism. A third approach is to fine the company per pre-cursor event at a significant level. For instance $100m per fire caused by their assets that spreads beyond their boundary. That would give them a strong incentive to reduce events within their control without holding them responsible for the overall dryness of the state of California which they cannot control.
- selimthegrim 8y ago
  I bet the investors are just piling into nuclear stocks with that assurance.
- Faark 8y ago
  Your entire line of reasoning is based on the assumption that risk of fire is unavoidable and such we don't want to exert pressure on them to reduce that risk any further than regulation requires. I disagree. Government should regulate the minimum required to make society function. If citizens decide they don't want to rebuild their burned down homes every once in while, then this might include some minium safety requirements utilities have to satisfy or be criminals. This has little to do with pricing risk. Beyond that, we want to find the best cost/benefit trade-offs. And finding those best trade-offs is what we use competing private companies for in the first place. That's the reason the gov hands the privilege to run the local utility to whatever company makes the best offer running it. Only in return do we allow them to keep additional profits competitors couldn't match. Ideally, this should include all externalities, like this preventive measures vs insurance cost trade-off. I understand the price has to payed by citizens anyway. Either directly to the utility, or by tax funded subsidy, if they want to cap prices. Either is fine. But if we use profit generating companies to optimize cost, then it just makes no sense to not have them optimize on a significant chunk of cost society will suffer.

adrianN 8y ago

It's a matter of cost. You could probably make the equipment extremely safe, for example by installing an appropriate amount of fire suppression systems along the distribution network. By putting the risk on the utilities it's up to them to calculate how much prevention makes sense.

Pinckney 8y ago
That will substantially increase the cost of power lines. Is PG&E allowed to decide that running expensive lines through rough, fire-prone terrain isn't worth the cost, and to simply stop distributing power to cities like Paradise?

taneq 8y ago

Australian here, our fire danger charts start at 'high' and now go past 'extreme' to 'catastrophic'. (https://goo.gl/maps/FqEpv2MTUnB2 https://goo.gl/maps/FqEpv2MTUnB2 not that you can read the text but consider the fact that red wasn't bad enough and we had to go to stripey for the last segment.) I think that in some environments, fire hazard needs to become a publicly managed risk rather than an externalized one where the liability is pushed onto whoever fails first. Our last big bushfire where I live was started by some silly bastard using an angle grinder near dry grass. The one before that was pinned on our local power utility for a sparking pole-top transformer (iirc). Our environmental management agency (whose name changes on a regular basis) conducts regular burn-offs to keep overburden down but even so, it feels like we're leaving munitions lying around. In a country where even the wildlife wants to start fires (https://www.dailymail.co.uk/news/article-3439042/Birds-prey-starting-fires-DELIBERATELY-Brown-falcon-dropped-smouldering-twigs-Australian-bush-smoke-mice-insects-say-researchers.html https://www.dailymail.co.uk/news/article-3439042/Birds-prey-...) we need a systematic, coordinated approach.

the_clarence 8y ago

This is indeed simple logic. So simple that it probably fails quickly if you think about it. Many things can be done to prevent this, underground cables are one solution.

kaizendad 8y ago

One issue that's often overlooked is that PG&E has severe issues in their safety record. Last year their equipment sparked 16 wildfires, 11 of which may have been related to negligent maintenance. https://www.sfchronicle.com/business/article/PG-E-to-pay-2-5-billion-for-Wine-Country-fires-13013596.php https://www.sfchronicle.com/business/article/PG-E-to-pay-2-5.... In 2010, they blew up 8 people and an entire neighborhood from improperly maintained gas pipes. https://abc7news.com/news/pg-e-receives-maximum-sentence-for-2010-san-bruno-explosion/1722674/ https://abc7news.com/news/pg-e-receives-maximum-sentence-for.... I'm ok with open-ended liability for things like this. These are risks that are managed by utilities across the country and around the globe, in a responsible way.

vkou 8y ago
I'm generally OK with open-ended liability, even against people who were following the rules, to a T. (And especially against people who were not - see [1]) With wildfires, though, I'm not so sure. These forests are giant powderkegs, and that's no fault of PG&E. They will burn, sooner, or later. It might be from power utility equipment, it might be from a van's hot exhaust, it might be from a lightning strike. Blaming the last person who touched it seems... Unfair, in many ways. [1] https://en.wikipedia.org/wiki/Johnstown_Flood https://en.wikipedia.org/wiki/Johnstown_Flood is a great example of an organization that should have been held criminally liable - for second degree murder.