Utility panel considers rates based on fire risk
The cost of preventing power-line wildfires could rise so high that California’s top utility regulator recently suggested a new way to pay for it — charge residents of high-risk areas more money for electricity.
Michael Picker, president of the California Public Utilities Commission, floated the idea during a Jan. 31 meeting on fire safety for utility companies. With more Californians moving into rural areas prone to fires, he questioned the fairness of forcing all utility customers to pay the costs of preventing rural wildfires sparked by utility lines.
“Should we actually start to charge differentially for the use of the distribution system for those sections that are in the high-fire-hazard zone and people who choose to live there?” Picker said.
While it wasn’t a formal proposal, Picker said in a follow-up interview that it’s an idea worth discussing. As last fall’s deadly, wind-driven blazes in both Northern and Southern California showed, the state now faces the threat of wildfires even at times of year once considered
safe. And Californians are increasingly moving into harm’s way.
“As we spend more to harden the grid and protect people in those high-risk areas, how do we pay for it?” Picker said in the interview. “If you’re in Richmond, do you want to be paying to protect vacation homes in Napa?”
State investigators have yet to pinpoint the causes of last year’s fires. But power lines tossed about by harsh winds are considered a likely culprit. Pacific Gas and Electric Co. reported finding damaged equipment near the suspected ignition points of the four biggest North Bay fires. The night the fires began, Sonoma County emergency dispatchers received reports of downed or sparking power lines, blown transformers or other concerns with PG&E’s equipment from more than 50 locations.
Fires sparked by electrical lines have repeatedly ravaged California. Many of the ways of preventing them — trimming or chopping down millions of trees, replacing wooden poles with steel, burying power lines underground — are expensive. So is rebuilding the grid after a fire passes through.
“Here we’re facing costs for upgrading the grid that primarily benefits one group of people,” Picker said. “I’m just trying to come up with ways to figure out how we do this fairly but still manage to serve people who live in these high-risk areas. Because no doubt, they need electricity.”
The idea of basing rates on the risks associated with a particular location is common among insurance companies.
But electricity rates usually don’t work that way. A spokeswoman for a national association of utility regulators said her group didn’t know of any utility with different rates for urban versus rural customers. Someone building a home in the hinterlands will typically pay more to start service than will a new home owner in a town or city, particularly if the rural home sits at a distance from existing power lines. But the monthly rates will be the same.
“It’s a policy decision that’s pretty firmly entrenched that the price should be the same wherever you live,” said Mike Florio, who served on the California Public Utilities Commission from 2011 through 2016.
That remains true even though utilities face different costs for serving rural areas versus cities and suburbs. Water providers will sometimes charge higher rates based on the costs of serving different locations, but electric utilities typically don’t.
“There’s no question it’s more costly per kilowatt-hour to serve someone at the very end of a distribution line than it is in an urban area,” said UC Berkeley energy economist Severin Borenstein.
There is a way in which electricity bills in California are based on location, although it has nothing to do with risk.
The state’s large, investorowned utilities charge more for electricity once a customer passes a monthly “baseline” — a bare minimum of electricity usage. Those baselines vary according to location, to account for the state’s many climate zones. The baselines in Bakersfield and Fresno, for example, are higher than in San Francisco or San Jose.
The idea of charging more in fire-prone areas cuts to the heart of a basic principle underlying utility rates. Electric utilities and their government regulators have traditionally used rates to spread around the cost of building and maintaining the grid, an immense and expensive collection of infrastructure.
“The whole point of utility rates is evening things out to make them just and reasonable,” said Mark Toney, executive director of The Utility Reform Network consumer advocacy group. “We think it’s going to be awful hard to justify charging individuals a higher rate just based on where they live.”
There’s also the question of political feasibility.
Rural utility customers and their elected representatives would doubtless push back if the utilities commission chose to seriously pursue the idea. Florio pointed to the fate of a widely resented fire-prevention fee the state used to charge rural homeowners. Gov. Jerry Brown agreed to suspend the fee last year in exchange for the votes he needed in the Legislature to reauthorize California’s greenhouse gas cap-andtrade system.
“The rural legislators made the price of their support getting rid of that fee,” Florio said. “And that was a modest attempt at making the user pay.”
And yet, the costs of preventing fires from power lines are expected to increase in the coming years. The utilities commission in December approved a new, tougher set of fire-safety rules that will require more tree trimming and more frequent field inspections of equipment. And commissioners left open the possibility of tightening the rules further.
Dian Grueneich, a senior research scholar at Stanford University’s Precourt Institute for Energy, said the idea of charging different rates in fire-risk areas was at least worth exploring. She served on the utilities commission from 2005 through 2010.
“If you’re voluntarily living in a high-risk zone, and that triggers costs for the utility, in my mind we have to think outside the box of what we’ve done for the last 50 years,” she said.