As California bills soar, PG&E pushes costly wildfire projects over cheaper options. Here’s why

Burying power lines, often called undergrounding, is a popular way to reduce the risk of wildfires ignited by electrical equipment in California. It’s a powerful safety measure, but one that carries a hefty price tag.

Undergrounding efforts are a piece of the steady rise in electricity bills, one that’s expected to grow in upcoming years. As millions face mounting bills, Gov. Gavin Newsom has emphasized that he and state lawmakers are committed to bringing rates down.

Yet every legislative effort this year by state leaders to tackle electricity rates, whether related to wildfire safety or not, has died after utilities opposed it.

Utilities like PG&E have resisted proposals that could end up lowering their profits, experts say. Even when it’s not the most cost-effective option, they argue, utilities often favor undergrounding over other strategies because it boosts their returns.

“It’s just maddening,” said Matt Vespa, senior energy attorney for Earth Justice. “The utilities are going to oppose things that impact their profits. The question is does Sacramento have the political will to press ahead. And so far the answer has been no.”

Among California’s investor-owned utilities — Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric — electricity rates have gone up by as much as 110% in the last decade, and more than 50% just in the last three years.

PG&E reported a record profit of $2.24 billion in 2023, reflecting a 24% increase from the previous year. The company also noted that revenues from electric customers surged nearly 50% in the second quarter of this year, compared to the same period last year.

A spokesperson for the company Matt Nauman said burying power lines is the most effective way to reduce fire risk, and is making California’s grid more resilient to climate change by leading to a notable reduction in wildfire ignitions this season.

“Undergrounding projects are identified based on their ability to reduce wildfire risk only,” he said. “Cost is then considered as part of our feasibility analysis when determining constructibility... We are focused on reducing risk as efficiently as possible.”

Undergrounding vs. insulating

At a PG&E construction site in Dutch Flat in Placer County, crews used heavy machinery to dig trenches, lay conduits, and remove overhead lines home by home, block by block.

While one-third of California’s 230,000 miles of distribution lines are already underground, many older communities, particularly in the Sierra Nevada, still rely on overhead wires, posing significant fire risks.

California’s power lines have sparked numerous wildfires, responsible for 19% of total acres burned between 2016 and 2020. They also triggered some of the state’s most devastating fires, including the 2018 Camp Fire, which killed 85 people.

Undergrounding power lines has gained broad support as a key wildfire prevention strategy, a risk reduction tactic that PG&E has actively promoted in TV ads, investor updates, and community outreach.

Major efforts are underway across the state’s three investor-owned utilities (IOUs), with PG&E having completed 600 miles since 2021, aiming to bury 10,000 miles of lines in total. Smaller municipal utilities like SMUD and LADWP are pursuing it at a slower pace.

The process costs $3 million to $4 million per mile, with ratepayers absorbing most of the expense. While currently a small part of utility bills, these costs are expected to rise significantly after the Public Utilities Commission approved 1,230 miles of it in the utility’s 2023-2026 general rate case.

But cheaper alternatives exist. Covered conductors, or insulated wire, prevent tree branches from contacting power lines. Southern California Edison has installed 4,000 miles of it, which analyses show costs a third of undergrounding while reducing fire risk by 85%.

PG&E contends that covered conductors lessens wildfire risk by 64%, and that its service area is different than SCE.

Downed conductor detection systems, like PG&E’s “fast trip,” are also more cost-effective, cutting power to affected areas when faults are detected. This strategy has also shown to reduce the need for larger scale power outages during high fire risk.

However, utilities have a financial incentive to prioritize undergrounding. Under state regulations, they can charge higher electricity rates to recoup costs considered capital expenditures, a category for large infrastructure projects known as capital investment.

The system is meant to encourage utilities to fix their infrastructure and make necessary improvements, but several analysts think it may be discouraging cost effectiveness when it comes to wildfire mitigation.

“If utilities have to choose between something that’s cost efficient and very expensive, they make a lot more money if they choose the expensive thing,” said Joseph Mitchell, a consultant expert for SCE. “I don’t know if that’s their reasoning here but they have a tremendous incentive to do that.”

Political brick walls

Tammi Riedel, who owns a small grocery store in downtown Auburn, is considering closing her business due to rising PG&E bills. A licensed CPA, she calculated a 14% increase in electricity costs over the past year.

Her latest bill was $1,700 — more than half her rent. Nearly one in five California households are behind on their electric bills.

“I’ve spent everything to keep this going, hoping things would improve,” Riedel said. “Now I’m asking myself if I can keep this business afloat or just cut my losses and find a day job.”

Riedel, who sources local, organic food, said customers are opting for cheaper options due to financial pressures. She criticized PG&E’s high rates and the lack of legislative action for relief.

“When I crunched the numbers, the weight of it hit me,” she said. “It’d be great to catch a break when the economy takes a dip like this.”

This year’s legislative session in Sacramento saw several attempts by Newsom and lawmakers in response to growing frustration over rising utility bills.

First a bill by Senator David Min, SB 938, sought to keep political lobbying costs out of customers’ monthly bills. Then SB 1003 vied to analyze utilities’ wildfire mitigation plans based on cost in addition to safety, adding financial oversight.

Finally, the governor was considering a plan to lower monthly bills through a financial process that would have lowered interest rates on utilities’ long-term capital investments, cutting shareholder profits in the process.

All were scuttled following opposition from utility lobbyists and electrical worker unions.

Nauman, PG&E spokesperson, said in a written statement that neither bill would have led to notable or immediate reductions for customers, and that the company has been adopting initiatives to lower operating costs and cut expenses.

“We’re committed to stabilizing customer bills, without sacrificing safety through last-hour amendments to legislation that had little to no public vetting,” Nauman said in the statement. “We look forward to working with all stakeholders on ways to reduce energy bills through changes in state policy that currently account for about a third of what our customers pay for energy today, and disproportionately burden low-income households.”

The Public Utilities Commission has begun to compare cost effectiveness of wildfire mitigation strategies and recommend the best use of ratepayer dollars. Last year, the commission approved fewer miles of undergrounding than what PG&E wanted.

But utility reform advocates want to see the Legislature take proactive steps to lessen the burden on Californians.

“The issue has been that there’s no fiscal discipline when it comes to wildfire mitigation spending,” said Katy Morsony, former staff attorney at the Utility Reform Network. “If we can do things in a more cost effective way, meaning take less ratepayer dollars and have lower bills, that’s a worthwhile goal.”

This story was originally published October 14, 2024 at 5:00 AM with the headline "As California bills soar, PG&E pushes costly wildfire projects over cheaper options. Here’s why."