 It's a real pleasure to be here and to be back at the Energy Seminar. And so thanks, everyone, for tuning in. I'm going to talk today, as John mentioned, about PG&E's second bankruptcy, its causes and consequences. And this work really comes from a variety of projects that I've conducted with students, sort of this experiential learning projects over the last couple of years and engagement with the legislature in Sacramento, as well as my work on the what was called the California Commission on Catastrophic Wildfire Cost and Recovery. I was an appointed commissioner to that commission and worked with the other commissioners and the legislature and the Governor Newsom on development of what came, what has come to be called the Wildfire Fund. And that provided a lot of kind of close up access to all of the challenges that we're confronting today in California. So I'm going to hopefully be able to advance this slide here. I was working before. There we go. So I'm going to talk briefly about what I perceive to be the many causes of the bankruptcy. I'm going to talk then shift gears and talk about challenges that the state faces as PG&E emerges from bankruptcy and hopefully shed some light on how the wildfire challenge that PG&E is confronting is likely to interact with the other many objectives that we have for our electric utilities in California. I'm going to speak briefly about the structure and risks of the plan of reorganization that is not totally baked, but is increasingly looking like the final product that will be approved and with what the PG&E will use to emerge from bankruptcy. Following the June 30 deadline and then I'm going to talk about what I perceive to be some of the solutions to California's energy and climate challenges that take account of the wildfire challenge that we also face and must confront. And I would emphasize that these are partial solutions. I don't pretend to have a complete answer on any of this. And much of the answer will come through implementation as much as sort of planning in advance. So what are the causes of the bankruptcy? What are the underlying causes? Of course, the campfire was the kind of incident that caused the bankruptcy and the fire and the structure loss that occurred in a campfire, but I think the underlying causes really begin long before that. One underlying cause is that the PG&E system is old. It's an early 20th century technological marvel frankly, pictured here is the Caribou powerhouse, which was placed into operation in 1921. PG&E built its system to provide clean zero pollution, not so much zero carbon at the time, but low pollution, affordable energy to San Francisco. And it did that by building a series of dams, hydro projects in the Sierra Nevada, and long transmission lines that delivered that energy generated in the Sierra to load in the San Francisco Bay Area. The Caribou powerhouse is the powerhouse that is connected to the Caribou Palermo line, the line that ignited the campfire that killed 85 people. It's a national historic landmark. That's how old it is, right? So we're dealing with old infrastructure. There have of course been additional infrastructure additions to the system, most notably major transmission additions that occurred primarily in the 1940 to 1970 period. PG&E for all basic purposes stopped building transmission circa 1980. So much of the infrastructure we have is at least 40 years old. Some of it is more than 100 years old. For the purposes of litigation associated with a campfire, lawyers were having to go through old electrical engineering magazines and journals to try to find ads for the kind of cable and the kind of sea hooks that were used that failed in the transmission infrastructure. It was so old that PG&E didn't actually know what it was, didn't know how old it was. So part of the challenge here is we're dealing with aging infrastructure in place. And there's a broader question about how we deal with that in context that I'll talk about in a second. So another context that matters is that citing new infrastructure is tough. Citing new transmission infrastructure is tough anywhere, but it's especially tough in California because we have some of the most stringent citing regulation and law in the country. And also we have a lot of sensitive ecosystems and environments that are potentially disturbed by new transmission corridors being cited through them. This is just a picture of recent transmission repair work that had to occur in the Marin headlands. And just to give a sense for why it might be more expensive, there are sensitive species in the area. And so every piece of infrastructure had to be flown in by helicopter and installed via helicopter rather than being brought in on roads. So costs a lot more if you have to fly your transmission towers instead of drive the components in. Another important piece of the puzzle in California is that there's no load growth. In fact, there's negative load growth. PG&E load growth since 1990 has been less than 15%. It's actually 14.7%. PG&E load growth since 2008, i.e. over the last 12 years has been negative 8%. And California load growth more broadly since the 1980s has only been about 40%. Now usually we think of this as a success. This is the success of Art Rosenfeld and the work at the Energy Commission on improving energy efficiency. But I recognize that it also creates business challenges for companies in terms of maintaining their existing infrastructure. The way that we built the existing infrastructure was by paying for it with growth. Transmission build out occurred as load was growing through the early part of the 20th century as customers were being connected to the grid and electrification of heavy industry was happening, of manufacturing. And that's really stopped in California. And right now we face foreseeable, the planning in the integrated resource plan in California for these continued a low decline for their foreseeable future. Another aspect, another contributing cause is what I call run, or what is called run to condition. Run to condition really means run to failure. And it's the standard in many parts of the power sector. Run to condition can be a very cost effective strategy when the failure mode is low risk. If a power line falls down in a winter storm, it's no big deal. PG&E crews come, they fix the power line, turn the power back on. Run to condition is not acceptable, however, if the consequences of failure are catastrophic. If that power line falls down in a windstorm in October during very dry, hot conditions and arcs and causes of fire, it's totally different situation. The solution is preventative maintenance instead of run to condition as a maintenance strategy. But that's much more expensive. I include three mile island here as a picture of one part of the power sector that has had to move from a run to condition approach to a preventative maintenance approach. And it's done so very successfully, albeit at much greater expense in terms of operations and maintenance. Nuclear plants are more expensive to run because they are components are replaced before they wear out. And that's important because we can't have accidents like TMI occurring on anything like a regular basis. But the rest of the power sector, in particular distribution circuits, are not maintained that way. Let me see if I can, there we go. Another part of the cause, and I think a really important part of the cause that I don't want to under emphasize as I point to other factors is safety culture at the company. We've seen pervasive safety culture issues at PG&E at this point for more than two decades. That's just a picture of the piece of natural gas pipeline that blew up under Crestmore in San Bruno in 2010. There's a long record that continues really up to the present of false certification of records, problems, problems with maintenance that have led to a series of catastrophic accidents where many people have died. And safety culture is a big problem at PG&E. Cannot be ignored. It needs to be fixed. Question is how? Another, I don't know if this is showing up on your slide, I'm having a little bit of a problem on my slide, but another big challenge for Northern California is land use policy. Land use policy in California has moved people into dangerous places. Those people that now live in those dangerous places need to be served by electric power. And the reality is that the economics of land development in California favor large master plant communities, not infill development, and available large parcels for master plant communities are generally at this point in higher fire risk areas. There's just no getting around that. That's a picture of Aranda Maraga, which is a place where there's a potential really catastrophic wildfire. We had a near miss last season, but it could happen and it could happen this year. Another challenge contributing to the PG&E bankruptcy is the culture of fuels management in Northern California. This is a picture of Saucedo, California, and you can see that there is very high fuel loads in Saucelito on a very steep hill. In Southern California, there tend to be much stricter enforcement of what we're called defensible space regulations. In addition in Northern California, because there's greater precipitation, we have higher fuel loads. Big trees can grow, they can grow close to houses, and that can cause catastrophic fire when ignition occurs. This is a figure from Goss et al, which is a recent paper just really, I think it's actually not maybe out out, but it's up on the environmental research letters website. This is projects that occurred at Stanford. One of Noah Diffenbaugh's postdocs, Michael Goss did this work, and it just shows how the frequency of high fire weather index days is increasing, is likely to increase due to a predicted output of climate models looking at the evolution of California climate. Fire weather in California is a function of two main factors, low fuel moisture and high temperature in the fall in September, October, November, and climate change makes that confluence of factors much more likely. And we're seeing that trend, we're seeing it in the data, we're seeing it in the model predictions, and it's likely to get worse, that's the reality. So this is a challenge that's going to mean that any spark caused by anything in the environment, including a downed distribution line, is more likely to cause a large fire that's difficult to suppress. And of course, the confluence of dry, hot conditions and winds means that there are likely to be tree limbs that fall onto power lines that potentially cause those fires. Another cause of the PG&E bankruptcy is the liability regime in California. We have a somewhat unusual liability regime governing the harms, the damages caused by utility fires in California, as opposed to the other 49 states, maybe 48, but let's just call it for our purposes the rest of the United States, we impose strict liability as opposed to a negligence standard for utility caused wildfire. This has been the law in California since 1999. The challenge, the additional wrinkle is that if a utility causes a fire, then they're strictly liable for the losses that are created. Under most circumstances, a liability like that could be recovered in rates as an expense, but in California, we've had some decisions in particular, the decision around cost recovery for the witch fire, which is shown here burning above San Diego, that creates real uncertainty about cost recovery for settlements with victims. In the witch fire, the PUC felt that they had to deny cost recovery for a variety of reasons, and that decision, and that decision occurred in 2017, shortly after the Napa Sonoma fire siege, and really led to a lot of concern on the part of investors that they couldn't rely on cost recovery for the strict liability created under California law. And that I think was an important factor, not the only factor, but an important factor in driving PG&E toward bankruptcy. But I think in the end, we have to admit that the second PG&E bankruptcy was caused by many factors, but importantly also by a failure of management and regulators to perceive and mitigate the growing risk of catastrophic fire. There were warning signs. The fires in San Diego in 2003 and 2007, utility caused very important warning signs. The fire in 2015 that occurred in Butte County, known as the Butte Fire, another very important warning sign, and the signals were missed, partly because I think many at the company and also at the regulator were very focused on the last disaster, the San Bruno disaster, and weren't paying close enough attention, but it should be a big flag when $2 billion of real estate burns up. That's what happened in the Butte Fire, that action needs to be taken, evasive action. And it just wasn't. It wasn't after the Butte Fire, and that then proceeded the 2017 Napa Sonoma fire siege that tubs fire most notably, arguably not caused by PG&E, but certainly caused by live utility wires during a wind event. And of course, the Camp Fire, where even though the distribution system was potentially going to be shut down, the transmission system was not, the transmission system was the cause of that fire. So the company and the regulators failed to take evasive action, and that led to where we are today. So I think I would emphasize that the causes are many, but that ultimately the company needs to reduce ignitions. And at the same time, we as a society need to reduce the consequences of those ignitions when they occur, because California is a place that burns, and there's no way to stop that. Climate change is going to accelerate, the, is an accelerant for that process. And so we need to build a society that is resilient to that process, both in our electricity space and also in our built environment. So what does this all, what does the bankruptcy mean in terms of the broader kind of ambitions for the energy system in California? I think the right way to frame this is in terms of climate goals, and just to note that we have incredibly ambitious climate goals in California. The 2030 goal is a 40% cut in emissions. That's essentially a 40% cut below where we are now in 10 short years. By 2045, we would like to be net neutral in terms of emissions in California. The only way to achieve that that we know now as a 2030 target and to get close to the 2045 target is to build a clean electricity system and then electrify everything else. Electrifying everything implies huge investments in our electricity system, not just on the generation side, which is where people tend to focus, right? We need to build lots of new renewable power plants and figure out energy storage, both short and long-term. It also implies investments in the poles and wires to increase the capacity to deliver energy, especially to the last mile of service. And the thing I think about is what I think of is sort of Thanksgiving peak load, right? The moment on Thanksgiving Day when your induction cooktops, electric ovens are all running, the heat is on because it's cold, everyone wants to take a shower so they're to get ready for dinner. So they're using their electric heat pump, hot water heaters, right? And maybe they're charging cars to get ready to go drive somewhere to go to Thanksgiving dinner. And that kind of peak event is different than the one we have now. It's different than the events of the system was designed for because the building in California are primarily not electrified and our transportation system is primarily not electrified. But that has to change if we're going to achieve our climate goals. An additional challenge is that fire affects the cost of new utility investment in the following way. The cost of investment is, for ratepayers, is the capital expense, right? The cost of putting new power lines in the ground or building a new power plant times the required return on investment. It's necessary to attract capital to new capital to the utility. Typically, this is a 50-50 debt equity investment. So there's half bonds, half new stock that's being issued to cover a new investment. High fire risk means higher costs of capital and denying a higher return on investment may lead to inability to raise new money to make the investments we urgently need both to be safer from a wildfire perspective but also to achieve our climate goals. Right now, the utility commission about 10.3%, which is by many respects a very rich return on equity, especially given where treasury rates are these days. At the same time, it's unchanged, essentially, from the level it was at before this whole set of catastrophic fires and the PG&E bankruptcy occurred. So something confusing is going on there and I think we're going to see as time plays out whether the ROI is right or not. I said that's return on equity to 10.3%. Another challenge is that the cost of wildfire mitigation investments is formidable. This just shows a picture of what enhanced vegetation management looks like relative to what is routine in PG&E's view. And I think anyone who lives in Northern California has experienced a much greater level of activity involving vegetation management over the last couple of years, especially this past season. The cost of the current wildfire mitigation plan for PG&E, which is kind of the planning document that incorporates all the different things that PG&E is doing to reduce the risk, is $7.8 billion over the next three years alone. Of course, PG&E has stated clearly that they don't expect because of manpower constraints to even come close to getting all of the wildfire mitigation done that they think they need to do within those three years. So this is more like the annual spend is about $2.6 billion. That's a very significant increase in rates, probably 20% at a minimum. So costs are going up for wildfire at the same time as we're going to need to be doing things to invest in a newer, cleaner system to reduce our climate impacts and air pollution. This is particularly challenging because California electricity rates are already some of the highest in the U.S., the highest in the U.S. outside of Hawaii, which is a special case. And it's worth noting, this is a chart that comes out of the AB67 report, which is an annual publication from the PUC, one of the best ones I think they put out. I really enjoy it. And what you can see here are the three investor utilities in California and inflation. And you can see that they were all at a pretty high level prior to the beginning of this chart, and they continue there. And then San Diego kind of jumps above inflation around 2013, 2014. That's because San Diego implemented wildfire mitigation back in 2012. And so the cost of that began to roll into rates in 2013. And San Diego rates immediately escalated to the highest outside of Hawaii. And that's also led to real challenges for San Diego in terms of departing low. The most concentrated net metering in the country outside of Hawaii, again, is in San Diego gas and electric service territory. That's because rates are so high. So there's kind of feedbacks here. There's only so high rates can go until you incentivize exit in one way or another. Of course, net metering isn't exit, but it's certainly exit of load as a source of new income for the utility. And so there are challenges here. There's only so much headroom, as I like to think about it, in rates. So what does the plan look like? The plan of reorganization. This is sort of the third part of the talk here. Here's some basics. The first thing to understand is that the PG&E plan of reorganization is essentially the first leveraged buyout of an investor-owned utility ever. There's really never been a transaction like this. Executed for a regulated utility in the United States. The regulated utility in the TXU bankruptcy was ring fenced and separated from the generation assets. Same goes in most of the transactions involving investor-owned utilities in other areas. So this is a kind of first of type. And it's a first of type for one of the largest investor-owned utilities in the United States. Another aspect that's important is that creditors are going to be paid 100% of their approved claims. So the bondholders, the trade creditors, and the fire victims are getting 100% on the dollar. In order to pay fire victims 100 cents on the dollar for their settlement, everyone else has to get who has equivalent priority in the bankruptcy has to get paid 100 cents on the dollar. And that is in fact occurring. In addition, an early concern was that renewable power purchase agreements, so the early out-of-the-money power purchase agreements for wind and solar from 2009 to 2010 as the RPS was really ramping up, but renewable costs were still high relative to today are being reinstated post bankruptcy. So that market will not be disturbed. In addition, there's a new nine or so billion, nine plus billion dollar injection of new equity from investors. Folks that already own majority of the equity in PG&E are going to essentially invest more money and gain a substantially controlling stake in the future company. So other aspects to understand, so that's how this is happening. It's also important to understand that as a consequence of this plan of reorganization, PG&E is going to have a lot more debt. This is the LBO aspect of this transaction. PG&E is going to emerge from bankruptcy with much higher debt levels. There's going to be debt at the hold-co level, which means not just the electricity subsidiary is going to have debt, but also the holding company that owns both the electricity and the gas side of company will have substantial new debt. And higher debt means higher risk, right? If you're leveraged up, if you have an enormous mortgage on a home, say, in Northern California, I don't know, many of us in the audience may have this experience, the, you know, it means that you are less able to withstand shocks that may come in future. And in general, LBO companies that have gone through an LBO are less able to withstand unexpected outcomes. So I think we can all imagine what a future unexpected outcome for PG&E might be. There are state policies put in place to try to stabilize it in the face of most wildfires, but not a worst case scenario. The wildfire fund is $21 billion. That's not enough to protect this company from a worst case wildfire, at least as the catastrophe models envision that outcome. So there's risk here. In addition, the plan of reorganization envisages, and I think it's tacitly, you know, there's been some tacit agreement to this, but not any formal agreement yet, a securitization of debt post bankruptcy. So what does that mean? It essentially means that $6 billion in short-term debt will be securitized in rates. So that would mean that rate payers are on the hook to pay that debt. PG&E, according to the plan, will credit them, credit rate payers, for all of the costs of that debt. So it's rate payer neutral, this securitization. However, if there were to be a third bankruptcy, say because there was a catastrophic wildfire in a place like where I live, Mill Valley or maybe in the East Bay, then you could imagine that in the third bankruptcy, rate payers would be left still paying that debt, but it's not clear that the company would honor a promise to cover the cost. In addition, and this is a really important change, all of PG&E's existing unsecured debt is being reinstated as secured debt post bankruptcy, and PG&E is borrowing more on a secured basis. If there were to be a future bankruptcy, secured debt has priority over everyone else, right? So it gets paid 100 cents on the dollar before anyone else gets anything, and that anyone else, I think, foreseeably in a third bankruptcy would include fire victims. So this is placing the bondholders of PG&E ahead of any other claim on the assets of the company. This is needed to get investment-grade bonds from the market. There's no investment-grade credit rating for unsecured PG&E debt. So if we borrow on an unsecured basis right now, it's going to cost us, it's going to be very expensive for ratepayers. So this may be a necessary evil, but it certainly is also a transfer of risk from the bondholders to the state of California envisaging a future disaster. Last point to make about the plan of reorganization, you may have read about this in the papers recently. The wildfire victims, unlike insurance companies or local government wildfire claims, get paid half in cash, half in stock under the plan. The stock position is large enough that it's likely to take years to liquidate, maybe longer due to the recession. And of course now, because of the volatility in the markets, there's a lot of uncertainty about the value of that stock position. So victims, and of course victims, some of whom have been waiting more than five years, but fire victims from 2015 are a part of the settlement, as are the 2017 victims from Napa and Sonoma and the campfire victims from 2018. They desperately need the money and they need it now. So there are questions about whether to accept the settlement or not. I think there's a reasonable question to be asked about why only the wildfire victims are taking stock, taking on additional risk that the value of the company turns out as expected and not any of the other claims in the bankruptcy. But at this point it's baked, it is what it is, and this is a feature of the plan that probably is not going away. So what's the bottom line on how PG&E is emerging from bankruptcy? This is probably the best private exit possible, given the situation. Governor Newsom, the PUC, Governor Newsom's team have negotiated hard on the part of the state of California to get the best deal that they can. I think they were not totally ready to accept what was on the table until COVID-19 entered the scene and they realized that the market turmoil, that the stock market and the bond markets were experiencing, created enormous uncertainty for the deal. It could fall apart and they might get nothing. And so they took the deal that was on the table with a lot of governance reform, a lot, much greater oversight of the state of California, on the part of the state of California into PG&E's affairs to hopefully fix that safety culture problem. I think that it's a reasonable conclusion that the only real alternative to the plan on the table right now is a transition to government ownership, either a municipally owned utility, a co-op, public benefit corporation. There's lots of flavors of that, but every flavor is going to involve delay. That means delay in wildfire victims getting money. It means continued uncertainty through the next wildfire season about future wildfire victims and whether they have a claim. And so I think in the net, this may be the best deal that California could get under the circumstances and there are lots of curve balls that have been thrown, especially by the pandemic. But make no mistake, this is a large transfer of risk away from PG&E and towards various other actors, the state of California, ratepayers, and wildfire victims, most notably. Hopefully risk isn't realized liability. Hopefully everything goes well and PG&E fixes its wildfire problems and we don't see catastrophic wildfires like we've seen over the past half decade. I think everyone hopes that, including a company, and they are making best efforts to change the situation so that it never occurs again. But they face an enormous set of challenges and very little margin for error. So what might solutions look like? What are the important solutions at the state, the utility, the PUC, and most notably for the purposes of this talk, Stanford, and Stanford researchers should be focused on to help us navigate this incredibly challenging situation. One is focusing on cost-effective mitigation. So we urgently need better risk modeling to understand in a geospatially specific way where fire risks are high and why. This is just a picture that Zesty.ai has produced mapping tubs fire structure loss onto the pink, which is the mapped high risk zones, what are called high fire hazard severity zones in the area. And you can see that the tubs fire, which destroyed more than 5,000 homes in a single night, basically didn't burn structures in the mapped high hazard area. I mean, some of them are there, but the majority of structure loss was outside of that area. So that suggests that we're not evaluating risk correctly. And I would commend there's a wildfire hackathon going on right now that I think everyone who's interested in sort of hackathon and has machine learning skills and is interested in the problem of wildfire should get involved in, but we need better risk modeling. We also need cost-effective fire mitigation. We need to make sure that every dollar we spend on wildfire risk reduction is spent as effectively as possible. Right now, I'll tell you that that is just not going on. There's a need for modeling tools that bust the silos between investor owned utilities, grid planning, community investments, and planning about risk, wildfire risk, and individual homeowner decision making about home hardening. Right, so we need to know whether it makes sense to harden the distribution system, to do community level fuel reduction, fuel breaks, those kinds of things, or maybe prescribed fire where it can be done, or if it makes more sense and it's more cost-effective to harden homes. And in reality, of course, we probably want to do all three things and figure out what the optimal mix of strategies should be. Right now, spending is happening in those silos, essentially independent of the others. And there's not a coordination. There's not integrated planning occurring. That is urgently needed if we're going to solve this problem. In terms of grid investment, this is one of my favorite towers right near my house. You can see it's situated in a forested area. It dates from the 1940s. And I'll tell you, when you walk up to it and touch it, and I have touched it, it sort of wiggles. It's a very financial structure, which makes me a little bit nervous, but there you go. Given that we need to invest a lot in the grid, we need to really be focused over the next decade on increasing the productivity of the grid and increasing the productivity of our new investments. So that means being incredibly smart, putting new sensors and SCADA into the system so that we can really understand situational awareness and hopefully do predictive management. There are experiments happening this year in California in PG&E serves territory to try to pilot different technologies. We need to figure out what works and get it in the field at scale quickly. I would also argue that we need to focus on competitive procurement in the grid. Even though there are some transmission line extensions and sort of new transmission lines where competitive procurement occurs, it is not the norm. And in particular, it is not the norm for the kind of typical sort of maintenance and upgrades that have to occur across the system. We need to really be thinking about how we can drive costs down through better procurement process. And then, of course, we need to do preventative maintenance rather than run to condition, but we need to be very surgical about where that occurs. Otherwise, we're going to overwhelm the headroom in rates. We're not going to have the space to do the kinds of things that we would like to do to invest in a clean energy future. I'd also argue that we need to think seriously about distributed energy resources and look at valuing the potential risk reduction that they can provide. This is a picture of the Goldman Sachs building after Hurricane Sandy. It was the picture of the southern tip of Manhattan. The big glowing object in that picture is Goldman Sachs. They installed a microgrid prior to Sandy because they evaluated the risk of a flood in the southern tip of Manhattan locking, shutting down power for an extended period. And they thought it was worth doing. We need to be thinking about DER, especially distributed storage, as a potential enabler of other very cost-effective risk reduction strategies, in particular public safety power shutoffs. We all went through the October... Well, many of us went through the October power shutoffs. They were extremely disruptive. As time passes, PG&E hopes to make those power shutoffs more surgical in their application. This year, their goal is to reduce the number of customers impacted by a third. That's still going to leave 700,000, six to 700,000 people in the dark if we have an event similar to what occurred in last October. And I think in the long run, we need to be thinking about what... Not so much that we need to replace the grid with batteries and solar panels and microturbants, but where it is cost-effective, given high fire risk to enable power shutoffs by having DER in place is a very important conversation. And it's one that the PUC is beginning to have and is in early processes of discussing. I think we also need to be thinking about what else is in utility rates? Many, many California energy programs are paid for in utility rates. These have been incredibly important in driving energy efficiency and in avoiding low growth in California over several decades. The assumption underlying that has always been that it's okay to have high electricity rates so long as we have a low bill for residential customers. Unfortunately, the low bill appears to be something that may be in the rear view window or mirror. And so we need to at least not be afraid to have a conversation that says, what is in rates now? What is absolutely essential? What is a like to have? And what is something that we can maybe take out of rates? And also perhaps consider paying for in other ways. This is going to be a very difficult conversation, but I think it's one that we need to at least have with an open mind because ultimately energy access and affordability is just something that we cannot give up in California. Another potential solution, one that was mentioned by President Picker when he was running the PUC but has not really reemerged, but I think is something that we may have to think about is cost causation in rate setting. Cost causation is a basic rate setting principle. It's the idea that if you cause a cost, you should pay for it in rates. I think, well, right now, folks who live in very high risk areas don't pay any more for their electricity than people that live in low risk areas, even though high risk areas are causing very significant escalation in rates. So it may be worth considering whether residential rates in the wildland urban interface or in some other appropriately defined zone should be higher. I think this is probably a last resort. It's not ideal because another goal of rates is to have simple broadly applicable rates and this would have potentially significant equity consequences, especially for lower income residents that happen to own property in these areas and have challenges moving. I think the last thing that we all need to be realistic about, unfortunately, is public safety power shutoffs. First thing to say is that the October public safety power shutoffs, even though there was a major fire in Sonoma County that occurred during the shutoff there, they also prevented catastrophic wildfires. There's just no way to look at the system damage that occurred to the wires that were turned off and think that ignitions would not have occurred and the ignitions would not have occurred during the time period when the Kincaid fire was burning out of control and when all firefighting resources in California were focused on that single fire. So I think PSPS will be a feature, probably not a bug, unfortunately, of cost-effective risk management for the foreseeable future, at least the next decade. However, it can be done much less disruptively than at present and I think we have an obligation as a state to be thinking about that and to be taking, helping the utilities to implement policies and they are busy trying to do this. I mean, I think the utilities, it goes against every grain of a utility employee's being to intentionally turn off power to their customers, right? Reliability is what is drilled into everyone from the first day they sit down in power systems engineering and here we are saying we're going to reduce reliability in order to avoid another risk. It's a really difficult thing to do but I think it is necessary right now and the key is going to be how do we reduce the footprint of the PSPSs that are necessary and how do we reduce their disruptive effects within the footprint where they are necessary for the foreseeable future. So in conclusion, I think that we have very little margin for error over the next decade. If we're going to achieve our cost and climate objectives, we simply cannot afford to price people out of the California electricity space. It is too expensive to live in California already. It doesn't necessarily always have to do with energy but energy is a disproportionate share of low income residents budgets and we cannot see that share grow much faster than inflation. At the same time, our climate goals are going to require a lot of investment. There is very little margin for error. We need close coordination between utilities and communities in order to achieve that goal. We need to drive down wildfire risks. That means reducing ignitions, utility costs and otherwise. It also means working systematically to reduce the consequences of ignitions when they occur. We also need urgently research, development, and deployment across multiple sectors where Stanford has comparative advantage. In particular, I would argue we need a deep think about cross-sector wildfire risk management and mitigation that can build in cost effectiveness of various actions in the utility sector at the community level and in terms of individual home ignitions. We also need a lot of smart sensors in the grid so that we can understand when components need to be replaced cost effectively rather than having to pay a very high preventative maintenance cost which will otherwise be necessary in order to avoid catastrophic fires. Thank you very much and I'm happy to take questions. Again, Michael, thanks for that great tour de force overview of the challenges and opportunities. I do think the challenges seem many but I was very pleased to see you in the middle and towards the end come back to some very positive ideas about what to do and in particular the role that the community here at Stanford can help out with, broadly speaking, alumni, students, future students, faculty, staff, etc. Quite a few questions came in. I will ask a few. I will try to combine them and prioritize them. There are quite a few and you did touch on renewables in general and DER. So one framing of this is with continued reductions in the cost of solar PV and batteries in particular. Does that help you, at least on the financial side of that she did mention a little bit about the that might be helpful in the financial side? I guess another tag on to that would be, necessity is the mother of the Virgin. Are we likely, in your opinion, to be able to make this transition to higher reliance on these resources easier now that we're up against it than before or at least use it as a way to help alleviate some of the pressure that you artfully describe? I think we have no choice but to be innovative at this point. The sort of standard, and that's true both because of the sort of things that in happier days, I used to spend a lot of time thinking about grid integration of renewables and how to manage high variable loads or variable generation sources. But I think at this point, there is simply no choice but to get smart about how the grid is managed in order to cut costs. The key will be creating the right sorts of incentives for the utilities to actually make money doing that. And for other actors to participate in that process so that we have the right mix of utility spending and community level spending, state spending, and individual homeowner spending. And it is a tough problem, and we're not there yet. And it's challenging because institutionally, we're not totally set up to have this conversation. Yeah, I would say even in the modeling community, other than perhaps bits and watts, we're not really moving very fast. You and I worked on this probably 10 years ago, and it seems to have taken a long time. So on that, do you think the challenges in that domain, you may have already just answered this, are primarily technological or regulatory or not enough innovative business models for our business school audience? Well, what do you think? Probably all the above in some degree, but what would you attack and analyze first? Well, I think it is both and. There are certainly major technological challenges. There's a very active set of experiments ongoing about how to do preventative detection of faults that have not yet occurred in the distribution circuits and the transmission system. You know, if the Kincaid fire taught us anything, it's that our current inspection regime is inadequate. The tower that failed up at the geysers that caused the Kincaid fire had been inspected four times over the two years proceeding with climbing inspections, IR inspections. You know, it had everything thrown at it. And yet it failed in the moment when it we most needed it not to. And so we need to figure out what the right way to inspect is and figure out how to do that cost effectively. You know, and that probably is not just like more of what we know how to do now. I don't think it would have mattered if we'd inspected that tower a fifth time. The, you know, but there are also big challenges with regulatory models. I'll just point to one. Many of the small sort of smaller towns that are blacked out routinely in places like Mute County, Alpine County, Sonora County, and the foothills of the Sierra in PSPS events would like to do micro grids. But that's a situation where you have multiple customers. And so there's potentially an argument around wholesale or, you know, transactions or at least power transactions, retail transactions within a utility service territory. So there are legal and regulatory barriers there. The interconnection process for micro grids is something that is, I'll just say, work in progress at the PUC. They're working hard on it, but it's a challenge. And so their whole set of regulatory and sort of business model challenges to be overcome in order to get to a situation where a town, if it wanted to, could self-provide, could go out and procure a micro grid to serve its own power needs when there's a power shutoff and do also do things when the power's on potentially, right? If there are batteries, it might provide a storage, an energy storage function or create value from that part of the stack. And I think really re-envisioning the potential technology offerings that do exist now in terms of this new risk is incredibly important and removing any barriers that might exist to deploying them at scale. Another set of questions which you have already touched on and a couple of occasions have to do explicitly with land use and forest management options, everything from new laws to getting tribal groups involved in managing the lands and reducing the risk of fire and making agricultural and biological processes more sustainable through biochar, you name it. We got, it's a great group. We got a huge range of solutions there. Do you see there? Sometimes I think people poo-poo these as being not a big deal and not areas where innovation, like new business models and tech stuff, could come in. But I'm not sure that's true. What's your view on that whole panoply potential options on the land and fire risk side, having studied this so intensively? Well, what I would say is that the group of, the research group that I work most closely with, Chris Fields group at Woods, I think believes, many of the students there believes that their research indicates that putting fire back on the landscape can be an important solution and fuel management more generally can be an important solution. And it can provide, what that allows is fires to burn without turning into catastrophes. And that's a really important part of this solution because we are never going to eliminate fire from the California landscape and we shouldn't try because that is a recipe for catastrophe, right? Fuels accumulate and then when a fire occurs, when your zero tolerance policy fails for that one in one thousandth moment, you have a runaway catastrophe. So we need to make it more acceptable for fire to burn and that means managing fuels on the land. It means figuring out what to do with the biomass once you have it. My understanding is that many places in Sonoma and Marin and Napa are running out of, they can't use the biomass for mulch anymore that they're collecting for people's greenway spins and they're landfilling it. We need to figure out something better to do than landfilling the biomass. And I think it's also fair to say that there are multiple ecological benefits from reapplication of fire using traditional Native American methods, burning the forest. The challenge there has been historically that there are associated air quality impacts. So prescribed fire causes air pollution just like wildfire, wildland fire does. And the prescribed fire impacts because they are permitted by the resources board count against our ambient air quality standards in a way that the wildland fire, the wildfire emissions do not. And I think the ARB is working through how to manage that problem. It's complicated and there's actually been a lot of good epidemiological science that's happening at Stanford that looks at, specifically carrying a dose lab that's looking at what are the differences in terms of health impacts of prescribed fire which tends to be lower temperature, lower intensity versus more intense wildfires on sensitive populations in the Central Valley. And we need to understand that better too so that we can strike the right balance. But I think there's no question that he's kind of landscape. The reality is taking fire out of the landscape is a modification. And we need to think thoughtfully and artfully and strategically about how to use fire in the landscape to get the outcomes we want. Let me lump two disparate things that seem pretty common. One is does CCAs make load loss to CCAs make the challenge here more onerous at the same time we do expect to see pretty dramatic reductions in natural gas demand. And the G and PG&E we sometimes forget is actually natural gas. Do you see those as managed? Well, these are almost more, the reason I lumped them together is we're running out of time. But also they may be much more regulatory genius that's required, I don't know if technology and or new business models are going to help with those. Any thoughts on that and what might be feasible and or desirable from your point of view? Well, I actually think that the CCA business model has a lot of merit in this context in the following respect. CCAs are run. They are a creature of local government. So CCAs are a place where local government planning and cost and fiscal implications interacts directly with the energy system. And so it's not perhaps it's not surprising that the CCAs in the Bay Area have put out a major call for procurement of distributed storage in response to PSPS events. They are the ones procuring storage all over the landscape in order to make sure that the impacts of future events are reduced. PG&E, by contrast, they're trying to do this as well but in different ways. And I think the CCAs also have an advantage because they can shift both land use and energy together. So they may play an important role. It's I think it's still to be written, but there are signs that they could be very significant. The natural gas building electrification and reduced utilization of natural gas is a huge challenge for the state. And I actually have an ongoing research project looking at this issue. It's a huge problem. It's a huge potential stranded asset. It could be like a boat anchor around ratepayers ankles if we're not careful or rocks in our pocket as we're trying to stay afloat. And so managing it carefully is incredibly important. At the same time, the reality is that the available supply of renewable natural gas is looking pretty limited at present. And so we need to be realistic about how far that can get us in terms of gas decarbonization and probably use that renewable gas where it's most valuable and focus on electrification where it isn't. So that's going to mean that communities, that's going to mean the way that we talk about this in our studies. It's going to mean we need to prune branches of the gas distribution system. PG&E is a partner in those efforts. They are thinking very carefully about how to do that, how to create structures to do that, regulatory structures. We're thinking in partnership with them and with lots of other electrification advocates. Obviously in Southern California, the situation is much more challenging because so-called gas loses and Edison wins when an Edison and so-called gas customer electrifies their building. In the PG&E case, it's kind of a wash. So figuring out the business model in Southern California I think is actually much more challenging than the situation in Northern California. So one last, we have about five minutes left for this segment. So let me, sorry for doing this to you at the end. A lot of questions regarding could you elaborate on how you think the branch of the tree that goes to public ownership or co-op ownership. So there we got everything from, yes, I agree with you. It'll never work. We don't want it to, it's inevitable. What's your forecast for whether or not public ownership or co-op ownership might emerge in the next two years and so on. So I'll just let you again put your own thought processes behind how to respond to that wide range of options. So they're kind of like, why don't you like that option? A little bit more, maybe an answering that about how it would play out. Is it so bad? Is a hybrid model worth considering? Go for it. Sure. So let me be clear. You know, my statements about public ownership don't, I did not mean to imply that I think it's a bad option. I, you know, as a part of this wildfire experience, I come to know many, many utilities that struggle with this problem, both municipally owned, co-ops and investor owned. And I think there are good investor owned utilities. They're poorly run investor owned utilities. There are well run municipals and poorly run municipals. I don't actually think the ownership model really drives the outcome. What drives the outcome is good management, good decision, good careful decision making and stewardship of the system for customers. So I'm not opposed to it at all. If that's, you know, and I think if this plan, you know, what I would say is that given where we are in the bankruptcy process, given the need or the perceived need of PG&E to approve a plan by June 30th, have a plan approved by the bankruptcy court by June 30th in order to enter the wildfire fund, which is kind of an essential element of exit from bankruptcy as a private entity. It's really, it just hasn't, the municipal options just haven't gained traction in the process. Now, if for some reason the deal falls apart, right? And there are, I think I can think of two reasons why it might. One would be that the wildfire victims vote no on the plan. So everyone gets a vote in bankruptcy and the wildfire victims are currently voting on the plan. They'll be done voting by May 15th. If the wildfire victims vote a resounding no because of the issues I discussed about compensation for their claims, that could blow up the bankruptcy. In addition, if future, you know, this bankruptcy, this is a very large transaction, financing transaction that has to occur in the midst of the most chaotic market situation maybe ever. You know, and the only reason the situation is not catastrophic is that the Federal Reserve is like injecting more liquidity into the markets every day than they did per month during the Great Recession. If financing falls apart, that's another reason, right? Where the public will have to step in. I think, and those are sort of the two off ramps, I guess at this point, to the transaction being completed. I think we're far enough along that the kind of the die is cast. Now, could there be a successful publicly owned utility in California that in Northern California that does a better job than PG&E? Well, I mean, there are some advantages, right? You wouldn't have to pay for the cost of equity. You'd only be paying the cost of debt. That would lower the total cost of new investment for the utility. There would likely be some significant transition costs associated with paying PG&E for the value of its assets, whatever that is, it's not clear what that is, given the claims on the assets into bankruptcy, but there'd be some fight about that and some need to pay the equity something to make them go away. But it might be worth it. I think the decision has been made that by Governor Newsom's team that that's not the way to proceed right now. And I would just say, unless you're in the room, it's hard to know the right answer to these questions. And so for those of us like me and you and, presumably, most people in this audience who are not in the room, I at least am very hesitant to second guess that assessment. And what I do know from working with Newsom's team is that they have some of the best financial people and utility and risk management folks working for them in the country. And I hold them in the highest regard and I think that they are getting very good advice on how to proceed and have taken really judicious action to drive as hard of ardent as is possible with this utility. Great. Well, thank you, Michael, once again, one last time. It was a great talk. I think you broke the record. We're now almost 50 questions. I got through a small percentage of them and tried to combine a few. And we're counting on you and the people you advise to solve all these problems. And please let all of us know there's anything we can do to help you on the research side. So thanks once again. We'll be looking forward to good things from these groups you're working with in the years ahead. Well, thanks so much for having me. And I'm so grateful to be able to present to the energy seminar on this work. And I would just say that if there are students, graduate students, undergraduates that have expertise that are interested in these questions, please do reach out. I'm always sort of running these little experiential learning opportunities. And it's part of the thing I find most satisfying. And I'd love to keep doing it with new students. Yeah, I've seen you do a couple and they are awesome.