 I've asked each of the speakers to take about two minutes to tell who they are, introduce themselves, and let's start alphabetically. Hi, good morning. I'm Maggie Peloso. I'm a partner with Vincent and Elkins in Washington, D.C. My legal practice focuses on climate risk analysis and climate risk management in the energy and oil and gas industries. And I've been working with some of the utilities out here on wildfire issues for about the past year and a half. And you do have a Stanford connection. I do. I got my law degree here at Stanford and it is lovely to be back on campus. Great. I'm Mike Wara. I'm a senior research scholar at the Woods Institute at Stanford where I also direct the Climate and Energy Policy Program. And for a better part of a decade, I've been working closely with the legislature in California on climate energy policies. We were closely involved in re-enactment, extension of cap and trade in California and also discussions around energy market regionalization. And then, of course, for the last couple of years, thinking hard about wildfire and issues related to the electric utilities and the broader set of issues involving insurance and mitigation of risk. Most recently, I was the Senate appointee to the commission on, I'm trying to get this name right, I think it's just the wildfire commission, but the commission on catastrophic wildfire cost and recovery, we transmitted our report to the legislature and the governor yesterday, our final report making recommendations about how to better manage and socialize the costs of utility-caused catastrophic wildfire in California. Great. So, and I'm Jim Sweeney and I'm not going to say any more about me. So, one of you, this is an issue on wildfires and electricity. How would you, one of you, a quick characterization is how do you think about what the issues of wildfire risk are? What's the got few sentences that we can have in your characterization of what the issue is? Sure. Well, I think California is suffering from sort of a confluence of factors that have really created a level of risk for the state that is unacceptable. And among the factors I would list probably first and foremost are land use policies in the state and the fact that it's very hard to build economically in urban environments, it's much easier to build in Greenfield, high wildfire risk areas. We've been doing that for a better part of 50 years. We don't maintain adequate defensible space and we don't really manage fuels in the areas where we do build effectively. We run, we have an antiquated aging electricity system that is serving individuals that live in these dangerous areas and layered on top of that there's climate change. And you combine all of those factors and you have the potential for a real crisis. And we've had a string of years with really bad luck. But it's just a matter of probabilities and I think we're really suffering from the set of choices that we've made and we can fix them. The good news is we can actually do better in the state. Maggie, do you want to add to that characterization or change it? I will add a little bit. I think Michael has done a really excellent job of capturing some of the broader policy problems that create this firestorm, no pun intended, here in the state. I think one of the really important dynamics, though, to think about is the unique liability regime that you all have in California for how utilities are treated during wildfires. So, as the Luverin Commission report points out, only about 10% of the wildfires in the state are caused by utilities. But utility caused wildfires tend to happen when the winds are really high. They happen because transmission equipment has trees blown into it or it gets knocked over. And so that means that when those fires start, the conditions are really ripe for them to grow very large and spread very quickly. In California right now, there is a judicially created extension of the state's constitutional inverse condemnation protections, which means that utilities are held strictly liable for any fire that is caused by them. And so that means that anybody who loses their home, their property, or their business gets paid no questions asked, which is very different from how other states address liability. And I think it's just an important feature to note at the outset, because one of the many challenging dynamics that needs to be balanced is we're thinking about addressing the wildfire problem going forward, and particularly the role of utilities, is what is the financial viability of the utilities and the markets have reacted very strongly to the combination of the application of inverse condemnation to the utilities and the public utilities commission's decision to not allow those costs to be passed through in rates. Now you've both laid a lot of issues on the table, and I'd like to help us unpack some of them. First, the magnitude of these fires, and Mike, you called that probabilistic. Are these massive losses that we've had a fluke, or should we think it's going to be the new normal, and plan for it to be the new normal? I think there's, well, I spent a lot of time working with reinsurers on this issue. The reinsurers are really the people that ultimately hold the wildfire risk for California, and they write for the utilities and the home insurers, potentially if certain legislation passes this year for the state of California itself. So they are the end holder of the risk, and they're working very hard to better understand the risk, and I think the reality is we don't have a good handle on how bad this could be. What is clear is that we have not yet experienced a worst-case scenario. The worst-case scenarios for loss exist in the areas around the Bay Area that have not yet burned, or in the Maraga, frankly, right next to Stanford's campus, or Marin County, and those are places where you could easily lose $35 billion of insured value in a day. And that's very different than Paradise, where we lost a tremendous amount of housing. It was a terrible tragedy, but from a financial perspective, the disasters are potentially urban Northern California disasters, more like the tunnel fire that we experienced a generation ago. I do think that this is a catastrophic risk that is part of the new reality. The work being done at Stanford, in particular by Noah Diffa-Buzz Group, is working to show that hotter, drier falls are a characteristic feature of a warming California climate. And that is exactly the set of characteristics, that extended drying period into the late fall that kind of loads the gun for catastrophic wildfire. It's the fact that it doesn't start raining on October 1st anymore, or there's a better chance of it not starting to rain on October 1st. It creates the conditions that allow for hot, windy, dry conditions that blow limbs into tree, into lines and start fires. So this may be the new normal. So if I understand this, just to make sure that, to underline, to make sure I haven't understood it, you said, look, there's a probability distribution about what can happen. What really can happen is so far out of the probability distribution from what we've already experienced, that this may be the new normal, but it can be so much worse than that, and we've got to figure out how to deal with that. I think you said that. Maggie, do you agree with that? I do. I think that it is, without doubt, that we will experience an increase in, I'm going to say, climate-driven disasters, because I do think, while this is a wild biopanel, it's important to say this is not just a wildfire problem. You're going to see more catastrophic flooding. There are a bunch of other natural hazard kinds of problems that have climate change linkages. I think the really interesting question is, when you think about the damage, as opposed to the disaster, whether we will come up with a set of public policy solutions to move people out of hazard areas or keep them from moving there in the first place. I heard some great conversations in the hallway before this panel where someone said, the problem is that Californians have moved to the fire, and that's exactly true. If you look at the development patterns, people have put themselves in harm's way. This is not just true of fires. It's true on the coast. I think the increasing hazard events, absolutely, how much it's going to cost us and what the societal and human costs will be, that's something we can do something about. Okay, scary. It's my bottom line there. But I also heard you say, yeah, climate change has something to do with it, but how we're building it really has a lot to do. We've moved to the fires rather than that. Is it fair to say the climate change is a putt? But at the bottom line, probably only a small putt of the fact that we have massive costs when we have fires. I don't know that I would be comfortable saying it's a small part. I think that climate change is creating conditions where fires can get bigger, faster, and can spread more. But we also have to think about things like what is forest management policy? What does land use look like? We've put ourselves in the way to get hurt, but I just don't know sitting here today that I would be comfortable saying how big or how small of a piece climate change is. It's certainly a factor. But if Solito would have burned down, it has nothing to do probably with the fact that there's pressure on it, it has to do with houses that are next to each other. Am I missing the point on this? Well, I think what climate change has done is to turn a once-in-400-year event into a once-in-50-year event and a once-in-200-year event into a once-in-20-year event. So it's certainly possible that climate change, you know, that Solito, the hillside below 101 could burn down someday in a world without climate change, including all the houses that are there. But it's much more likely, given the evolving climate and weather situation that we confront in the state, but I would also agree with what Maggie said, which is that there's a lot we can do about this. I mean, we can stop, you know, when you're in a hole, the first thing to do is stop digging, right? We can stop putting new people in harm's way. Of course, there's this problem that we put, I don't know, you know, depending on how you count somewhere between one and three and a half million homes in harm's way in the state. And we've got to figure out what to do about those people because just telling them to walk away from their biggest pot of investment and savings, especially if this is California we're talking about, right? People are house poor is not, that's an economic disaster for the people and for the state. And, but I think there are things that we can do to make those people a lot safer, you know, sort of an analogous to what has happened in the Southeast in response to, you know, after Hurricane Andrew, the change perception of risk from wind damage led to, you know, building requirements that basically put super roots on everyone's house, not, and the houses still are going to blow down if the cat five or cat, even cat four comes ashore on top of your house, but they will survive a cat three and we need to build a California that, you know, and especially in the wildland urban interface that will survive the fire equivalent of a cat three without causing a kind of loss and destruction and devastation that we've seen over the past two years. Okay, you use, we've suddenly changed to some, now the things we get. No, no, no, no, no, we're supposed to be changing around. That's why we're doing it in this format so we can jump around the topics. But I want to unpack something earlier that Maggie talked about the liability regime for utilities. Maggie, could you, could you just say a little bit more about how does the regime here differ from other states? I mean, if there's a risk and houses burned down, it is a social cost one way or the other, but tell us about a little bit more about the difference in the liability regime and what, why it matters. Sure, so I think just as a threshold matter, it probably makes sense to say a few words about what happens in any general disaster, right? Because in any disaster, in a hurricane, in a fire or anything, you have utility equipment that's compromised. And so when we think about the cost of a disaster from a utility perspective, we think about first-party costs and third-party costs. And so the first-party cost, that would be, I've got to go out and put back up my lines and poles, I've got to repair transformers, I've got to get electricity back to you. Those costs are very universally recognized as costs that get recovered in rates. In most places, those go into your rates after the fact. There are a couple of states, Florida, being a leader among them, who experience frequent natural disasters and actually allow their utilities to do what's called a storm surcharge. So they charge you a couple of bucks every year and they put it in account. So when the hurricane comes, they spend that money first to put poles and lines back up. And then if they need more money, they'll come back in a rate proceeding. The second piece is the third-party cost. So that's a storm comes and the power lines get knocked down and I start a fire and I burn your home down and now you want me to pay you. In most states, in that situation, the legal regime you're under is a negligence regime. So what that means is that you end up before court and the court is asking the question, was your conduct in operating the power system reasonable? And when you're thinking about a storm event, a high wind event that caused a fire, those kinds of things, the kinds of questions the court will be asking is the court will be trying to balance, well gosh, were you trying to keep the fire station, the traffic lights, the hospitals, the nursing homes where you couldn't evacuate people, functional? And how does that compare to whatever you did to manage the risk of starting the fire or whatever other event caused the loss? Here in California where you have this strict liability regime, what happens instead is the moment that Cal Fire issues that report that says the utility is the root cause of the fire, that's it. Doesn't matter what else you might have been trying to do, doesn't matter if you were diligent or negligent in the maintenance of your lines and your other equipment, you just have to pay for it all. Now, that in and of itself would not necessarily be a huge problem. In fact, the decision that extended the doctrine of inverse condemnation to the utilities, I think was trying to do something very elegant and saying this is a way to socialize a cost that an individual has borne across the rate payer base, right, so that the people who are benefiting from the electric service are going to jointly share in the cost of these utility caused fires. The problem is that when the theory really got tested after the witch fire when SDG&E tried to get rate recovery, the public utility commission stepped in and they said well you know what, we can only pass on costs that are prudent and normally we have a prudency review happen before you like build a new transmission line. You say well is this really needed and so they were trying to figure out how to graft prudency review onto this post hoc review of fire costs and that's really challenging because right now we don't have a framework that what's evolving a bit with the wildfire management plans that says like here's the blueprint and if you can show me before the fire you did A, B, C and D and I can check all those things off the list you were prudent and you get to pass those costs on so instead the regime we're under now you're just you look facially prudent because the fire happened right there clearly was an extra limb that could have been trimmed or something else or otherwise you wouldn't have had the fire so functionally what happens is that the utilities are finding themselves in a position where they have to bear the full cost of the fire and there is nothing in that structure that counts for how diligent you were or were not in trying to prevent wildfires and as Michael said you know we're moving into a regime where the fires are inevitable and so that creates a lot of challenges in thinking about how you're going to have financially solving utilities that will be able to continue to deliver power in the state of California. Well if all the others stay coming on at you sure good go go for it I think it's I think I agree with almost everything that Maggie said although I think I would put a slightly different nuance on it I completely agree that you know the inverse condemnation framework that we have in the state is totally anomalous with respect to the rest of the United States and that though the the San Diego decision the decision where cost recovery was denied really shook the markets and and shook the market confidence that we frankly need in order to be able to invest and put steel in the ground in California in the paradigm the regulatory paradigm in California I would argue though that I think there may have been you know a bit of a market overreaction you know we have one decision on this issue in the state one there's never been another cost recovery application for a fire because the fires were never big enough to exceed the general liability policies of the utilities prior to that fire in 2007 now we have a bunch more fires subsequently that are big enough to exceed the general liability coverage obviously but I think the drawing the conclusion that California is never going to allow the cost to be socialized that they will always be borne by the utilities is kind of a bridge too far and in a I think there are steps that can be taken and and and the legislature and the governor the previous governor have tried to take some steps and I imagine over the next month or so we're going to take a few more to try to create some confidence without overcorrecting right without kind of guaranteeing that no matter what happens ratepayers are on the hook because the reality is in California we have some utilities with some pretty serious safety culture problems and that cannot be taken out of this equation right we've got PG&E where you know I mean I could I could go on and on but there's a cultural issue at the company that needs to be fixed in order for there to be trust between the the state and the management of the utility that things are being done right and and so navigating that is is is tricky business it's not so simple I think it's just changing a rule to make the market happy I've got a simple minded view of this and tell me what's wrong with this the only reason utilities move electricity on transmission lines is because people want to buy that electricity nobody wanted to buy electricity you wouldn't move any in the lines and because people want multiple lines they want it to be really secure and never it turned off is it then the why should it be the customer's responsibility for the cost of any damages because it's only the customers of electricity that cause electricity to be moved that's maybe too simple minded but what's wrong with that I know a lot of things yeah it's called the pregnant pause sorry do you want to go first do you want me to go first okay I mean I think you know we we have regulated monopolies providing essential service there's there's no doubt that and and there's a general kind of policy in the design of rates that that we don't kind of subdivide rate structures um excessively you know one proposal kind of off the cuff that president picker made in the early days of all this was well we should just have a wildfire zone rate where we charge the people who live in the wildfire zones the full cost that they cause by choosing to live there um and you know people if that happened you'd have a lot of generators I mean that's the you know the real answer is there are options that people have and actually I just read a report that said that interest in gas generators is up 600 percent this season in California in the and it's because of this this this decreasing reliability an alternative I think would be to price reliability um and and to try to think about you know we you pointed out we want the three nines or four nines um we assume that that's free and we don't offer um products that are differentiated by the quality of service and that that might be an alternative option um you know that that would allow consumers to make choices countering that is the thought that some consumers are more able to make those choices than others um and yeah okay and you pause in a different way Maggie do you want to do you want to add a subtract or more of that I mean I think those those points are all spot on I think though implicit in your question was was a bit of a who who's causing the problem and who should who should bear the risk because of their their contribution to it um you know and I think it is important to remember that very large portions of this country were not electrified until the middle of the last century right that's why we have things like the rural electric cooperatives act so this is really kind of a modern societal construct that we all expect to just be able to walk into any room and flip a light switch and the lights comes on and there are a lot of complicated things that have to happen to make that happen on a reliable basis and you know I think that one of the things that's tricky about thinking about you know who who should really be bearing those costs right sure the individual consumers are consuming electricity and that's why we need to put electrons through lines but where we need to put the lines is because of where we're choosing to build right and I think that if you're really trying to get at how you're going to address the the risk conversation while demand reduction may be part of it I think that a much larger part of it is thinking about how are you designing communities right we have all these conversations now about smart communities and EV charging and all those kinds of things and one of the pieces that's often missing from those conversations is how are we thinking about hazard risk exposure and and how we're designing communities for hazard exposure okay let's expand on that one of the phrase we've already heard today is resilience and it would seem that you know there's one view you can take is fires if you live in a rural wooded area you know fires happen and you can build communities so they're resilient and some that aren't if you want resilience you never build a community that has only one one road in and out but you also make sure you have have defensible spaces and you figure out construction standards so fire can just wipe over the community without burning it down kill it why why aren't we going in that direction are we all right I was gonna say you know I think I think you know Jim all these questions are pushing on a basic issue which is how much does this cost and who's going to pay for it and it is certainly possible to build resilient communities I think there's a wonderful article about the monocido fire protection district monocido is a very affluent place if you've been there it's nice they the community funded several full-time employees to work full time for a better part of a decade before the thomas fire hit on improving the fire resilience of the community and they made a lot of progress such that when the thomas fire came down the hill at monocido it basically stopped it burned I think three houses down within the community and it was coming at that and then they had some time they had some time to get ready they had a day to get ready but but the real preparation began years before but the the challenge I think at the state level is not everyone lives in monocido and and the willingness to pay taxes and fees to support those kinds of investments is I think you know something we need to have an honest conversation about because one way or another we're going to pay for them and I guess my view would be it's much better to pay for them upfront in terms of investment in mitigation than it is to pay for them on the back end paying to you know re prop up financially distressed utilities to try to find a way to keep you know help people rebuild through emergency funding um emergency declaration funding or other means and and and that's what we're doing right now that is not a resilient response to this crisis but but I think there are very good options out there but nothing is free yeah I I think of um something called the coast theorem and and a lot of our cosy and concepts are in law and economics there and they say you got to get the incentives right to make sure that the tort feeder the person who causes the damage gets does the right thing but but people have optimal protection against the damages when it seems to me when we're talking about all what the utility should do without asking about the incentives for optimal protection from it we're forgetting all the lessons from coasts now that maybe maybe some of you may not love coasts as much as I do but uh how do you respond to that so yeah no I think that um one of one of the things that is a real challenge if you look through the literature and I will tell you a lot about disaster relief literature and then I'm going to but I'm caveat at first by saying the wildfire risks in California I think are now so real and so present for people that while I'm telling you is what is true and established in academia it might not be true here any longer which is potentially really exciting for disaster policy but fundamentally people are really bad at understanding risk right if you look at what happens after hurricanes people who actually experience the hurricane tend to leave their houses get bought and they don't get bought at a reduced value we're only just now starting to see in certain parts of Miami real estate values decline because of sea level rise people perceive natural hazard risks as things that don't happen to them or they happen once they say oh that was the one in 500 year event I'm not going to live another 500 years so I'll be fine so that means that it is politically really difficult especially before disaster events to go in and talk to people about restructuring communities and even about simple things like risk mitigation there's a paper by a guy at Penn Howard Cunry their very famous paper about California earthquake insurance where he basically showed that people will not go buy a roll of duct tape and duct tape their water heater to a supporting structure in the home which will prevent thousands of dollars in damage during our earthquake and it will reduce your premium substantially but they just don't think it's going to happen so they don't go buy the roll of duct tape right and so I think that when you think about the behavioral economics aspects of how individuals perceive and respond to and mitigate risks people will tend to systematically under mitigate and so then it becomes a question of how localities can start to think about incentivizing risk mitigating behaviors and we do have some examples of that in other places the community rating system and the national flood insurance program is one of them and under that program what happens is if communities adopt certain community-wide risk reduction measures typically in the form of zoning ordinances you know you have to elevate your home or you know you can't build within a certain number of feet of the floodplain the whole community gets lower flood insurance premiums generally the uptake of those things has been much much much less than what classical economics would predict that we generally find that it is politically so difficult to address these things that people are not responding to traditional economic incentives and I think that in this context that's really challenging both for communities and for the investor-owned utilities we think when communities really want to try to do things to restructure in advance of a fire event it can be tricky to figure out where you're going to get the money from and convince people they ought to spend it or that they ought to cut down that big old tree they really really love because it's resting on a power line and from the utility perspective I think one of the things that's really challenging as we start to think about climate risk and this is not true not just of wildfires but of all natural hazards because utilities are obligated to serve anybody who builds in their service territory right now if you're running a utility company you are your climate risk is entirely dependent upon the land use territory of the government land use policies of the governments whose territory you serve which essentially means you have absolutely no ability to control your natural hazard risk in a broad brushway now there are things you can do you can harden you can underground all of those things but it is there is a component of that risk and that hazard exposure that lies completely in the hands of the local government and that it's hard to influence okay let me suddenly change from okay we've been talking about background and big concepts but recently the wildlife commission the wildfire commission whatever the long name is recently finalizes recommendations I think it was yesterday uh and you remember that committee what can you tell us about what the recommendations were publicly of that that commission just briefly because many of us have not many of the audience and may not have read all the conclusions of your of your recommendation that you're making I understand to the governor and to the legislature why don't you tell us a little bit about what your what your commission is recommending so so to start you know we're we're in a pretty narrow lane we've been talking in this in our conversation today about mostly about mitigation what can we do to lower the risk the commission's role was to think about how to socialize the costs from these disasters moving forward in a way that was better for california than what we're currently doing and we made recommendations in sort of three silos one was recommendations about potentially reforming the inverse condemnation doctrine and an avenue for approaching that issue I would say that that's unlikely to happen but we felt it was important to at least discuss it and and mention you know one approach to that would we think would be a better outcome moving in the direction of sort of a negligence standard the second piece of what we did was to to make recommendation a recommendation to create essentially a risk pooling mechanism for the entire state's utility system right a wildfire what we call a wildfire victims fund but basically a gigantic insurance policy that would cover losses from the from these these catastrophic wildfires that are utility cost and and we spent a lot of time thinking about moral hazard in that context how to avoid just cutting big checks for utilities that do bad things but but but we concluded and and this this chapter was actually authored by myself and carla peterman a former commissioner that that it was in the interest of the state to make that investment we recommended at the same time changes to cost recovery some of the issues that that that maggie has has brought up this morning about and I've discussed about the sort of uncertainty around whether costs will be passed through and basically said if the utilities make their own contribution of shareholders of utilities contribute to the creation of this insurance policy essentially if they buy pay their part of the insurance premium and rate payers pay their part of the insurance premium then the utility should be protected to a greater degree from the cost of these fires the last part of the recommendations were some some pretty detailed kind of technical tweaks to how home insurance works and anybody who lives in high wildfire risk areas in california probably has experienced or is experienced or has neighbors that have experienced the strain that the home insurance market is under and I co-wrote a chapter of the report with former insurance commissioner dave jones on those issues and sort of how to think about them and some modest tweaks to make now we view the situation the home insurance market is fragile but not a crisis but it's fragile and there are steps we can take to kind of stabilize the situation to some degree hopefully avoid a crisis maggie what do you think of those recommendations understanding that he just set you up by saying and I offered these very you know the utilities were all very involved in commenting in the process and I think the commission is to be commended for recognizing the need to stabilize the fine to reassure the financial markets and provide a stable situation for the utilities so that the utilities can continue to play their role in doing all the really important things that california wants to do on climate change or if you don't know financially solid utilities it's hard to do those I think the commission had a very hard task to do in terms of thinking about balancing and the equities and where do the incentives lie and I think they did a very admirable job at that I will say you know speaking on behalf of the utilities there's certainly a good bit of controversy about the level of shareholder contribution and whether that's something that they are willing to stomach you know to my mind I think the real question is not how good of a job did the commission do but what is the legislature going to do with that right I think the commission put quite a few things on the table that in whole could do a lot to both reduce the scope of those liabilities and mitigate risks on a going forward basis but you know there are many pieces of that that you could enact enough pieces of it to really make a meaningful difference both in terms of risk exposure and financial stability of the utilities it's just not clear to me what's going to happen with that over the next month or two politically it seems to me that as you said you stayed in in a well it's not that narrow lane but there's a lot of things you didn't deal with in the commission and it seems to me that there may be a bit of a trade-off between the clean energy goals that the state has articulated and the wildfire risk what I have in mind is if you do a lot of solar systems utility scale you may do it a long ways away from people where people are using their electricity if you if you shut down the the the deep power electricity lines that we so often then people may get gas fire generator or diesel generators in their home can you comment some of you comment on the trade-offs between the clean energy goals and the wildfire mitigation goals that we have I think there's a huge trade-off to be made if we don't solve this problem we're not going to achieve the climate goals I mean it's really the basic strategy for achieving our climate goals is build an incredibly clean electricity system and then electrify everything in the state cars and buildings especially maybe we'll deal with industry at the end that's the hard that's really the hardest part but electrifying everything building all that clean energy production and the storage the energy storage is going to be required to balance load both on a short and long-term basis is not a cheap proposition it is one thing to put that on the equivalent of a 30-year mortgage it is quite another to go to put it on your credit card or go to a payday lender and we are in payday lender land in california right now the utilities recently asked for a cost of capital increased to 17 percent that's it's it's hard for those of you who don't like get into the wonkery of utility rate making that may not sound like a lot but it's sort of like saying this is no longer a utility business anymore right we're in a different world when it comes to and of course they won't get 17 percent they'll get something less than that that's their opening offer and you know and a former commissioner who I know you know would always say just divide by two whatever they asked for and she was kidding but whatever it's there's something to that um and you'd say that there is an enormous trade-off here because we simply we have to keep rates affordable the other challenge that we haven't talked about is that it is you know california has high electricity rates those are affordable in places like here that have relatively equitable climates but when you go to bakersfield and it's 120 degrees every day in summer and you have to run your air conditioner in order to avoid you know heat illness in your house it is not easy to afford what california is doing and if we make it a lot harder it's it's just it's just not something that's going to happen there's not political space and rates and the things that will be cut are the climate and energy goals those are the luxury goods that california has been able to afford because we've managed this kind of careful evolution in dance and there's so many people in this room i'm looking around that have been a part of that evolution and keeping the train on the tracks but we're we're off the tracks right now and if we can't get back on and can't get these costs under control we just can't afford it it's just not going to happen this would be my view we have a raised hand if you want to open it up but you know what i'm going to open it up in just a minute i want to just have a couple quick questions and then i will open up for questions from the from the audience um with question marks at the end um you mentioned the financial markets what's happening and the utilities asking for is there any other lessons that we get loud and clear from any other financial markets that are out there right now you mentioned the insurance markets too is there something that the financial markets are telling us that um you caused said that some of the reductions are overreaction which means you believe your judgment is better than that of all the investors but what can you say about the financial markets what they're telling us so you know from my perspective i think one of the the most significant facts and thinking about where california's utilities are financially is that calpers has gotten out of the mall right that that the state entities that are charged with managing the retirement funds of state employees no longer invest in the state's utilities and that is a really big deal utilities are traditionally considered to be incredibly safe stocks they are dividend stocks they are really stable and you know so to be a retirement fund and not be in your own state's dividend stocks says a lot about not just what credit rating agencies think not you know what hedge fund people think but what real investors think about what's going on with the utilities um you know so i think that that suggests a crisis of confidence um you know it was a very strong reaction to a single set of decisions but i do think that part of that was because we didn't move quickly to fix the policy problem right the california supreme court got asked on two separate occasions to go in and overrule boron which is the decision that created the inverse condemnation you know and i think that the markets also saw sp901 is not going far enough if you look at any of the credit ratings that are out there right now they basically said the policy market in california is way too volatile right now if the state doesn't act to fix it before the 2019 fire situation kicks off we expect to downgrade everybody again um and i don't think those are inappropriate reactions given that you see what's happened with pgd and you think about the possibility of giant runaway exposures you know because if you really think that your wildfire exposure is somewhere in the neighborhood of seven to ten billion dollars and you can buy one and a half billion dollars of coverage and it's really hard to place is the other credit piece really hard to place alternative forms right it's very hard to place cap bonds right now it's really hard to get other kinds of insurance it becomes really hard to see how investors create a thesis to infuse long-term capital into that system okay there's more expertise in the audience than i have so let's turn the questions to to expertise and please go up to the microphone and and this way i don't have to make any decisions that's whoever's next in line but but no long speeches alan and alan like you and everybody else uh identify who you are thank you jim i want to thank you identify yourself sorry i'm alan sanstead from uh lauren's berkeley national laboratory uh thank you for an excellent discussion i want to shift and have a question about the cost benefit analysis of prevention on the part of the utility so as you may know the puc has overseen it's overseen them very long involved process to develop risk management systems and tools which are now being implemented in the wildfire wildfire prevention plans but they essentially said um the staff their staff wrote a report recently said this you know there's no way of monetizing the benefits of these preventive investments because the risks are just so huge uh florida has recently done something similar with respect to hurricanes so my question is can you say something about that you know what you think is the even the conceptual possibility of actually monetizing the benefits of preventive investments hardening undergrounding whatever in a way that um they could be the the utilities could undertake actual cost benefit analysis with risk either i i think i i i i wouldn't agree with the characterization that it's impossible to quantify the risk that's not my yeah okay i i i just think i think there's clearly more work to be done on that front and the decision on the general guidance on the wildfire mitigation plans uh says as much right and some utilities clearly from what they're saying in their wildfire mitigation plans have done risk modeling my sense is that you know that that would be more typical of a large corporation that has something that can blow up and kill a lot of people right and and i think i think there are companies know how to do that they know how to measure and reduce variance in operation of their systems and that's exactly the kind of problem we're talking about here and sorry just to be clear yeah they are doing risk man they are doing that that's not the issue the issue is the monetization of the benefits and investments in terms of avoided fires and the avoided costs yeah so i i think it's possible to quantify the risk buy down right and and the degree to which a particular event reduces risk i think there are ways to get at that number um that you know might actually coexist alongside uh some sort of a wildfire fund for example if utilities have to go into the market and buy a small fraction of the kind of higher tiers of risk in a in an insurance tower you can quantify what the risk buy down is and we're still learning a lot about how big this risk is and what to do but but i i guess i would say there's a lot of science that can be done on this question and that has not yet been done and there's a lot to learn there's also a lot of big data kind of analytics that's coming into the space that i think is going to over the next couple of years really improve our our understanding of the risk thank you so much thank you melissa good morning i'm melissa mckieth i'm the woman with the doberman who's been growling under his breath a little bit at this panel because uh he thinks the tail is wagging the dog when we're always talking about how to offset and readjust liability and costs after the fact um as jim knows 20 years ago my family started a nonprofit just dealing with urban forest interface and development and i'm delighted that 20 years later people are finally talking about it and um monocito is a great example so i worked closely with the la times on exposing how this was less southern california edison and more poor planning debris basins overflowing and by the way it cost almost a half a billion dollars to clean pacific coast highway and my guess is that you and i and everybody in this room are paying so uh two questions one is could we communicate risk better you talk about a hundred year flood a 200 year flood that's really a one percent likelihood of an event occurring if i knew i was going to get on a plane and there was a one percent chance that plane was going down i wouldn't get on the plane and most people they hear a hundred years 500 years and they think it won't happen in their lifetime so i'd like to know if your report dealt with any of that and secondly on land use planning at the local level the third grail of everything um the problem is not the utilities at least and i don't represent utilities that's not where the issue is the the problem is that we were putting people in harm's way because it's economically a good thing for a lot of developers we don't like to talk about it but um in monocito the county and city officials are being sued um and at some point they're going to get sued in terms of their personal liability for making decisions that ultimately result in people's deaths and i'd like to know whether you guys addressed any of that kind of accountability at the local level so that we're dealing with things before the fire before the storm not deterring people not after the fact and i'm sorry it's a speech jim that's okay but by the way i almost got i almost got on the commission and my mom said and i listened to she goes everyone will hate you both sides of the issue because it's so controversial and can we answer that not just in terms of what the commission did but in terms of the ideas out there because it's it's really much more general than just the commission so you two decide yeah i mean i i'll just say the first thing that i always say when i and i didn't get it well i think i said it before we even talked about the commission this morning the most important thing that california can do is lower the risk not figure out how to socialize it better and that that means land use it means fuels management and it means home hardening right and those are the three legs of the stool and there isn't just no way around that and i agree with you that there needs to be greater accountability for local governments that effectively are external externalizing their costs onto the state both through cal fire emergency response and then through the you know the rebuilding costs that are that are passed through and that's that is a hard thing to do it's especially hard to do in the midst of a terrible housing crisis in the state i would say that i am encouraged by moves that are occurring in the legislature with respect to this it's it's it's there's more movement this there's much more active discussion of the land use question this year than there was last year and i'm hopeful not optimistic but i'm hopeful so i think that the point that you raised about developers and their time horizons is a really important one because they you know just putting my lawyer hat on one of the things that really drives local land use decision making in addition to the fact that they can externalize all these costs is the takings doctrine right california has had a bunch of cases go all the way up to the supreme court where land use planning authorities have tried to tell people they can't build in certain places because of hazards they face and generally it's really hard to do that you can structure how they develop right you can exact fees from them to create better wildfire mitigation right so you could do things like say well gosh if you're going to build in the wooey you have to underground and we don't want you just pay for the undergrounding the distribution system in your community we think maybe you need to pay the millions of dollars a mile to underground the transmission that gets there so you can think about ways that there are things you can do within the legal constraints that fall on land use planning authorities that would hopefully better reflect the true costs of building in those areas but there there are some real legal and political constraints that i think do do make that more difficult than one might hope uh jeff alson with peninsula clean energy and the town of portola valley so we're a local land use authority that's bumped up against that exact question here is just i have a different question though which is um we talked a lot about incentives uh incentives and safety and my question is do you see differences in behavior between io use and muni so do you see differences in behavior in terms of line safety and such between for-profit and non-profit entities so i would say i wouldn't necessarily draw the line that way i think fundamentally the io use have a much bigger bite of the transmission system than the po use do so they have a much bigger piece of the risk right because most of the risk is the fire risk is really coming from those long transmission lines um but you know i think my experience in interacting with the utilities out here has been that they're all they're all you know serious about this risk and trying to address it and i i have not personally noticed any difference between the two i don't know i i think there are differences across institutions right and so certainly there's a contrast to be drawn between san diego and the other two investor on utilities i think la uh department of water and power has done a better job perhaps than the io use in terms of system hardening and they've built rate players for that over time the smaller municipals in northern california are under tremendous strain right now they basically they can't buy insurance right so they're they're self-insuring and um some of them have done things you know one municipal that we heard from on a commission just gave generators to everyone in the tier three wildfire area so that they could turn the power off more easily and they only had a couple hundred customers to do that too you know out of eight thousand total customers this is a small operation but you know i think i think there are there are different experiments that are happening i would agree with with maggie's statement that everyone is concerned with reducing this risk you know this is a the one thing to say about this issue is the interests are aligned right shareholders do not want to have a fire because that is a disaster if you're a shareholder just as it is as a disaster if you're a rate payer or if you are you know for a muni or an investor out and we want to go move pretty quickly now because we're running out of time we may extend it maybe one or two minutes beyond it but it's it's getting in the way of lunch so if if we extend it more than a couple of minutes yes okay you all right so gotta identify yourself though mark roost i'm with sustainable clean energy a battery startup i'm also involved in a bunch of other businesses and i'm also involved in activism supporting peninsula clean energy and things like that so we don't actually need to put in singly large infrastructure we should not just can do smart micro goods lots of solar battery storage and fire resistant construction which means ultra high performance cement which is just barely getting started into the united states now and uh and the degree of savings for consumers is switching all energy to local energy and energy efficiency is the greatest good for the greatest number so if you look at it from a whole systems perspective instead of from the silos even what you're talking about is still silos from my point of view because we the tribes can organize thinning the forest make first mechanically and then re reintroducing fire as the carot cultural fire people your cultural fire people are talking about we can do that and by using you know but you know we can turn that into few into actually chemical feedstocks or fuel and we can turn it into biochar and things so there's a whole lot more i won't do it right now but okay i want you are you interested in doing that yeah so there there's my question is would you consider that and can we all talk more about it later i just say that i think these fires raise a really important question about the locational value of distributed storage and that you know this is a special application where there is enormous locational value that might not exist you know on stanford campus but when you go up on the hill up by skyline the ability of the companies to turn the power off when it's dangerous is incredibly valuable and i think there's a public interest in facilitating that action right now so yeah hi i'm pat show walter and i'm a former mayor of mountain view california and um you've mentioned the importance of local land use decisions just in the bay area we have over a hundred um cities and towns that are all served by from five to seven maybe nine city council people and most of those people you know are are really good right well thinking people but they're not fire experts so what i would say to you is they need to become fire experts and they need to understand what are the good um practices that need to be done to make their communities resilient for fires how are you going to educate those local officials and keep in mind that it is a rolling group of people people are in are in office for from two to eight years and then they move on thank you okay and and the use is the next to the last question let i'll let you guys try to respond to that one although that to a large extent was a statement as well as the questions and which i appreciate that is it was a very valuable statement so you can answer it or not answer it up to you i think there's a role for the state in both um funding and uh supporting the education efforts at the local level and you know one of the best illustrates for this the state put up 200 million dollars at greenhouse gas reduction funds last year to help reduce fuels and one of the biggest challenges is just getting the money out the door because there are not people at the local level that have time to write grant applications right you know the the level of community kind of volunteer organizing that's required to get this stuff done in communities is is too hard right now and i think there's a real role for the state to fund you know fte's in local governments that's a fire prevention person that could then educate the leadership when these big land use decisions come up but also walk door to door and knock on people's doors get to know the community and and help to educate homeowners so that there's less political resistance when hard decisions come before uh planning commission or the the county council or whoever has to make these decisions and and we're not doing that and we need to i completely agree i think there's also an important role for the private sector to play right i think to the extent that the investor owned utilities really want to continue to be able to be part of communities they need to be engaging with the communities and helping communities think more broadly about their their fire resilience and what kinds of measures they can be engaging in in partnership to reduce risk and to build capacity right i want to before we have the last question which this is want to remind people we're into we're supposed to be ended so nobody's in polite if they want to leave now because of lunch lunch will happen until one o'clock when the when the debate begins okay last question i'm max henrian from liman a decision systems um you know we don't have a representative from a utility here but i obviously you know some mistakes were made let's say in the past how good a job do you think they're doing right now in terms of mitigating the fire risks to the best that they can do either of you want to take that on they they call the lawyers so you gotta wait we only have half a minute left of course yes i understand this might not be there i think i would just underscore something that that michael said earlier and that is you know this is an existential threat to the utilities and to their business they are taking this incredibly seriously and i think they are looking at all kinds of approaches to try to mitigate fire risk yeah i mean i i i would agree with what what maggie said and and i think the problem we face is that there's not you know ideally there are a set of things utilities would like to do some of them are probably cost effective some of them are you know gold plating the system but it will reduce fire risk but they take time and you know probably a decade right because of the limitations on skilled skilled electrical line workers and skilled tree trimmers even and so in the meantime what do we do right and we cannot live through a decade like the last two years there won't be investor there won't be investors in investor on utilities anymore not even the hedge funds that own them now and and the state will just can't we can't tolerate more paradises it's just not acceptable and so there's a very difficult transition period that we're going to be going through the next couple years hopefully we can manage the politics of that turning off the power is not convenient it's even dangerous but it also creates a lot of safety and finding that sweet spot is really tough right i want to thank both of you i want to thank especially maggie who who flew from dc in order to be with us today michael mike drove from san francisco so that's