Electric Utilities are Becoming Uninsurable Thanks to Wildfires

Image courtesy of Sergio Boscaino under Attribution 2.0 Generic License, resized to 700 x 391 pixels.

The word “uninsurable” is a nasty, risk-laden concept that sends shivers down my spine.  Imagine not being able to get insurance on your car…or your home…or even your life.  Talk about a nightmare!  Unfortunately, for electric utilities in California and surrounding areas, this isn’t just a nightmare, it’s reality.

Why Some Utilities are Uninsurable

Thanks to climate change, the frequency and severity of wildfires is increasing each and every year.  And even though utilities cannot control the weather, regulators are increasingly pointing the finger at them for wildfire activity and initiating wildfire lawsuits, playing the blame game.  Most of this reaction is on display in California, but other western states are starting to follow suit.

This double-whammy has created an insurance problem within the industry.  Because of the heightened wildfire risk – regardless of whether it is real or perceived – finding insurance against fire-related claims has become prohibitively expensive at best, and impossible at worst.  Case in point: commercial wildfire insurance rates have spiked 30% on average in less than 12 months!  And many utilities, such as Portland General Electric, have seen their premiums expand by over 100%.

The largest impact of this is on smaller utilities, many of which are uninsured and run the risk of going bankrupt if they are found liable for igniting a fire.  At a minimum, the sky-high rates are forcing utilities to defer or cancel plans to harden their systems or execute other wildfire prevention tactics.  Large utilities have been pooling together resources to essentially self-insure, but this does not help small utilities.

Make no mistake about it, this is a serious problem.  Discussions are underway to launch a federal program to provide an insurance safety net for the small utilities, but it is unclear if these plans will ever come to fruition.

The bottom line is that wildfire risk might just be the most pressing issue facing the industry today.  Simply put, nobody benefits when electric utilities become uninsurable, especially not the utilities themselves.