Climate change is driving more frequent and more severe wildfires. The electricity grid plays a dual role in this crisis: it can both spark wildfires and be damaged by them, leading to widespread economic and social consequences. The economic and human costs of wildfires are immense. Interventions designed to reduce the risk of electric system ignitions are expensive too. 

Wildfire mitigation is a major driver of increasing electricity rates in California. In addition to prospective wildfire mitigation costs, utilities bear and sometimes pass on massive liability costs for wildfires that have occurred. Under California’s inverse condemnation doctrine, utilities are strictly liable for damages caused by their infrastructure, regardless of negligence. These costs are inevitable, which makes the question of who will bear them increasingly important. A substantial body of research has explored the costs and impacts of wildfires on the distribution grid. Parallel discussions of transmission costs, however, have been less robust, notwithstanding the fact that transmission lines have been implicated in some of California’s largest wildfires. 

This brief aims to fill that gap. It describes the players and processes involved in the transmission cost recovery process. and explains how transmission costs are established and recovered by transmission owners. The brief highlights several ways transmission costs are impacted by wildfires, including wildfire mitigation interventions and liability costs, and poses several questions for future research related to the distribution of these costs. 

The brief finds that the current transmission cost allocation process for wildfire mitigation and liability payouts is convoluted and confusing, with a lack of hard-and-fast rules governing the allocation between transmission and distribution. Interlocking federal and state regulations only serve to further complicate the picture. Although California is taking some promising steps towards ways of harmonizing cost recovery and socializing costs generally, ultimately substantive collaboration with nearby states and federal regulatory agencies will be required to create clarity surrounding wildfire costs. 

Download the brief. 

Photo by Fré Sonneveld via Unsplash