New Study Analyzes Costs and Benefits of California Electricity Shutoffs

Electricity shutoffs help utilities prevent wildfires—but customers foot a disproportionate bill

NEW YORK, NY– Last fall, electric utilities in California, especially the Pacific Gas and Electric Company (PG&E), executed a series of electricity shutoffs to prevent their equipment from sparking wildfires. Customers across California, from small businesses to nursing homes, were left without power for days at a time. But did the preemptive shutoffs make economic sense—and if so, for whom? In a new Manhattan Institute report, adjunct fellow Jonathan Lesser and Charles Feinstein, CEO of VMN Group, LLC, conduct a first-of-its-kind cost-benefit analysis of the preemptive shutoff policy. The results suggest that these shutoffs, while providing low-cost insurance for utility executives and shareholders, cost far more than the potential benefits from reduced wildfire risk.

Wildfires caused by electrical utility equipment account for a small percentage of wildfires in California, and those that do occur tend to be small (over the five-year period of 2014-2018, 79% were less than a quarter of an acre and over 95% were less than ten acres). While preemptive shutoffs allow utilities like PG&E to shield shareholders from potential financial risk, the costs to residential and business customers are substantial. By the report’s estimate, the shutoffs PG&E enacted from October 9-12, 2019, for example, cost PG&E customers between $846.9 million and $1.69 billion. By comparison, the expected cost of a potential wildfire is $272.2 million in PG&E’s entire high fire-risk service territory, under worst-case weather and equipment conditions. In other words, the cost to PG&E customers was more than triple the expected cost of an electric operations-caused wildfire.

According to the report, alternative methods of risk management would prevent wildfires more effectively. First, environmental policies that prevent the clearing of dead and diseased trees from forests and limit opportunities for controlled burns exacerbate wildfire consequences and should be reversed. Second, utilities should consider hiring personnel and deploying drones to monitor specific high-risk locations during high-risk conditions. The utilities already use estimates of weather and fuel conditions to determine where to schedule preemptive shutoffs; in areas where tree-trimming is inadequate or equipment is in poor condition, active monitoring during such periods could decrease the response time of firefighters and reduce the likelihood that a wildfire will spread.

Click here to read the full report.