UC Berkeley lecturer sends memo to governor, correlating wildfires with rising utility prices

Flames burst into the air above a rocky landscape.
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Steven Weissman, a lecturer at the UC Berkeley Goldman School of Public Policy, sent a memorandum to Gov. Gavin Newsom on April 10, explaining the impact of California wildfires on the prices of gas and electric utilities.

In 2018, more than 800,000 acres of land were lost to fire damage, according to the Cal Fire website. Ecological damage, however, is not the only concern that the state faces — these incidents also bring enormous economic strain.

California fires have caused more than $36 billion in damages in the last two years, which puts utility companies and their customers in difficult positions, according to the memorandum.

“The utilities can’t continuously borrow money for the liabilities they have been facing,” Weissman said. “Eventually, to recover the cost of the fires, they would have to raise rates.”

PG&E, for example, would have to double its rates to cover damages from fires, which were estimated to be $30 billion for 2017-18 — more than double the amount PG&E usually makes, according to the memo text.

If the fires had been a singular event, the chance of borrowing funds over multiple years would have been an option for utility companies. But, as California fires resume, borrowing becomes an unsustainable process.

According to Weissman, state legislators are “currently looking at the possibility of establishing some kind of disaster insurance pool,” among other approaches being evaluated.

“One way or another, we’re all going to wind up paying,” Weissman said. “The money has to come from somewhere, and ultimately, that gets imposed on the people of the state of California.”

Another important consideration is the broader effect of the wildfires on energy policy throughout the state. The budding electric vehicle economy will become less attainable if the cost per mile of electricity suddenly becomes higher than the cost per mile of gasoline, Weissman explained.

Additionally, businesses that rely heavily on electricity for their operations may be negatively affected, which could discourage other companies from reducing their greenhouse gas emissions. This could also hurt the job market in California, as higher electricity costs could prevent new businesses from moving to the state, according to the memo’s text.

“The state cannot really afford to face ongoing liability at this level and continue to thrive as it has in the last few years,” Weissman said.

In addition to business growth, fixed and low-income individuals, as well as those who cannot adjust their energy consumption because of medical or situational reasons, will be negatively affected by changes in rates, according to Weissman.

Lee Friedman, a professor emeritus of public policy at the UC Berkeley Goldman School of Public Policy, explained in an email the potential positive effect of the memorandum.

“I think it will help the state to make a response that enables California to proceed with its climate goals, by making it more aware of the bad choice of doing nothing differently,” Friedman said in the email.

Contact Marlena Tavernier-Fine at [email protected] and follow her on Twitter at @MarlenaTF_DC.