You’re out of free articles.
Log in
To continue reading, log in to your account.
Create a Free Account
To unlock more free articles, please create a free account.
Sign In or Create an Account.
By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy
Welcome to Heatmap
Thank you for registering with Heatmap. Climate change is one of the greatest challenges of our lives, a force reshaping our economy, our politics, and our culture. We hope to be your trusted, friendly, and insightful guide to that transformation. Please enjoy your free articles. You can check your profile here .
subscribe to get Unlimited access
Offer for a Heatmap News Unlimited Access subscription; please note that your subscription will renew automatically unless you cancel prior to renewal. Cancellation takes effect at the end of your current billing period. We will let you know in advance of any price changes. Taxes may apply. Offer terms are subject to change.
Subscribe to get unlimited Access
Hey, you are out of free articles but you are only a few clicks away from full access. Subscribe below and take advantage of our introductory offer.
subscribe to get Unlimited access
Offer for a Heatmap News Unlimited Access subscription; please note that your subscription will renew automatically unless you cancel prior to renewal. Cancellation takes effect at the end of your current billing period. We will let you know in advance of any price changes. Taxes may apply. Offer terms are subject to change.
Create Your Account
Please Enter Your Password
Forgot your password?
Please enter the email address you use for your account so we can send you a link to reset your password:
A conversation with the most interesting man on the Federal Energy Regulatory Commission.

It’s not every day that a top regulator calls into question the last few decades of policy in the area they help oversee. But that’s exactly what Mark Christie, a commissioner on the Federal Energy Regulatory Commission, the interstate power regulator, did earlier this year.
In a paper enticingly titled “It’s Time To Reconsider Single-Clearing Price Mechanisms in U.S. Energy Markets,” Christie gave a history of deregulation in the electricity markets and suggested it may have been a mistake.
While criticisms of deregulation are by no means new, that they were coming from a FERC commissioner was noteworthy — a Republican no less. While there is not yet a full-scale effort to reverse deregulation in the electricity markets, which has been going on since the 1990s, there is a rising tide of skepticism of how electricity markets do — and don’t — reward reliability, let alone the effect they have on consumer prices.
Christie’s criticisms have a conservative bent, as you’d expect from someone who was nominated by former President Donald Trump to the bipartisan commission. He is very concerned about existing generation going offline and has called activist drives against natural gas pipelines and other transportation infrastructure for the fossil-fuel-emitting power sources a “national campaign of legal warfare…[that] has prevented the construction of vitally needed natural gas transportation infrastructure.”
Since renewables have become, at times, among the world’s cheapest sources of energy and thus quite competitive in deregulated markets with fossil fuels (especially when subsidized), this kind of skepticism is a growing issue in the Republican Party, which has deep ties to oil and gas companies. The Texas state legislature, for instance, responded to Winter Storm Uri, which almost destroyed Texas’ electricity grid in 2021, with its own version of central planning: billions in low cost loans for the construction of new gas-fired power plants. Former Texas Governor Rick Perry, as secretary of energy in the Trump administration, even proposed to FERC a plan to explicitly subsidize coal and nuclear plants, citing reliability concerns. (FERC rejected it.) Some regions that didn’t embrace deregulation, like the Southeast and Southwest, also have some of the most carbon-intensive grids.
But Christie is not so much a critic of renewable resources like wind and solar, per se, as he is very focused on the benefits to the grid of ample “dispatchable” resources, i.e. power sources that can power up and down on demand.
This doesn’t have to mean uncritical acceptance of existing fossil fuel infrastructure. The idea that markets don’t reward reliability enough can help explain the poor winterization for fossil fuel generation that was so disastrous during Winter Storm Uri. And in California, the recognition that renewables alone can’t power the grid 24 hours a day has led to a massive investment in energy storage, which can help approximate the on-demand nature of natural gas or coal without the carbon pollution.
But Christie is primarily interested in the question of just how the planning is done for a system that links together electric generation and consumers. He criticized the deregulated system in much of the country where power is generated by companies separate from the utilities that ultimately sell and distribute that power to customers and where states have less of a role in overall planning, despite ultimately approving electricity rates.
Instead, these markets for power are mediated through a system where utilities pay independent generators a single price for their power at a given time that is arrived at through bidding, often in the context of sprawling multi-state regional transmission organizations like PJM Interconnection, which covers a large swath of the Midwest and Mid-Atlantic region, or the New England Independent System Operator. He says this set-up doesn’t do enough to incentivize dispatchable power, which only comes online when demand spikes, thus making the system overall less reliable, while still showing little evidence that costs have gone down for consumers.
Every year, grid operators and their regulators — including Christie — warn of reliability issues. What Christie argues is that these reliability issues may be endemic to the deregulated system.
Here is where there could be common ground between advocates for an energy transition and conservative deregulation skeptics like Christie. While the combination of deregulation and subsidies has been great for getting solar and wind from zero to around 13 percent of the nation’s utility-scale electricity generation, any truly decarbonized grid will likely require intensive government supervision and planning. Ultimately, political authorities who are guiding the grid to be less carbon-intensive will be responsible for keeping the lights on no matter how cold, warm, sunny, or windy it happens to be. And that may not be something today’s electricity “markets” are up for.
I spoke with Christie in late June about how FERC gave us the electricity market we have today, why states might be better managers than markets, and what he’s worried about this summer. Our conversation has been edited for length and clarity.
What happened to our energy markets in the 1990s and 2000s where you think things started to go wrong?
In the late ‘90s, we had this big push called deregulation. And as I pointed out in the article, it really wasn’t “deregulation” in the sense that in the ‘70s, you know, the trucking and airlines and railroads were deregulated where you remove government price regulation and you let the market set the prices. That’s not what happened. It really was just a change of the price-setting construct and the regulatory construct.
It took what had been the most common form of regulation of utilities, where utilities are considered to be natural monopolies, and said we’re going to restructure these utilities and we’re going to let the generation part compete in these regional markets.
And, you know, from an economic standpoint, okay, so far so good. But there’s been a lot of questioning as to whether there’s really true competition. Many parts of the country also just didn’t do it.
I think there’s a serious question whether that’s benefiting consumers more than the cost of service model where state regulators set the prices.
So if I’m an electricity consumer in one of the markets that’s more or less deregulated, how might reliability become an issue in my own home?
First of all, when you’re in one of these areas that are deregulated, essentially you’re paying the gas price. If it goes up, that’s what you’re going to pay. If it goes down, it looks really good.
But from the reliability standpoint, the question is whether these markets are procuring enough resources to make sure you have the power to keep your lights on 24/7. That is the big question to a consumer in a so-called deregulated state: Are these markets, which are now the main vehicle for buying generation resources, are they getting enough generation resources to make sure that your lights stay on, your heat stays on, and your air conditioning stays on?
Do you think there’s evidence that these deregulated markets are doing a worse job at that kind of procurement?
Well, let’s take, for example, PJM, which came out with an announcement in February that said they were going to lose in the next five years over 40 gigawatts. A gig is 1,000 megawatts, so that’s a lot of power, that’s a lot of generating resources. And the independent market monitor actually has told me it is closer to 50 gigawatts. So all these units are going to retire and they’re going to retire largely for economic reasons. They’re not getting sufficient compensation to stay open.
The essence of restructuring was that generating units are going to have to make their money in the market. They’re not going to get funding through what's called the “rate base,” which is the regulated, traditional cost-of-service model. They have to get it in the markets and theoretically, that sounds good.
But in reality, if they can’t get enough money to pay their cost, they’re going to retire and then you don’t have those resources. Particularly in the RTOs [regional transmission organizations, i.e. the multi-state electricity markets], you’re seeing these markets result in premature retirements of generating resources. And so, now, why is that? It’s more of a problem in the RTOS than non-RTOS because in the non-RTOS, they procure resources under the supervision of a state regulator through what’s called an integrated resource plan or IRP.
The reason I think the advantage and reliability is with the non-RTOS is that those utilities have to prove to a state regulator that their resource plan makes sense, that they’re planning to buy generating resources. Whether they’re buying wind or solar or gas, whatever, they have to go to a state regulator and say, “Here’s our plan” and then seek approval from that regulator. And if they’re shutting down units, the state regulator can say, “Wait a minute, you’re shutting down units that a few years ago you told us were needed for reliability, and now you’re telling us you want to shut them down.” So the state regulator can actually say , “No, you’re not going to shut that unit down. You’re going to keep running it.”
That’s why I think you have more accountability in the non-RTOS because the state regulators can tell the utility, “you need more resources, go build it or buy it,” or “you already have resources, you’re not going to shut them down, we’re not going to let you.”
You don’t have that in an RTO. In an RTO, it’s all done through the market. The market decides, to the extent it has a mind. You know, it’s all the result of market operations. It’s not anybody saying whether it’s a good idea or not for a certain unit to shut down.
I find it interesting that a lot of the criticism of the deregulated system — and a lot of places that are not deregulated — come from more conservative states that would generally not think of themselves as having this kind of strong state role in economic policy. What’s different about electricity? Why do you think the politics of this line up differently than it would on other issues?
I don’t know. That’s an interesting question. I haven’t even thought about it in those terms.
I think it goes back to when deregulation took place in the mid-to-late ‘90s. Other than Texas, which went all the way, the states that probably went farthest on it were in the Northeast. Part of the reason why is because they already had very high consumer prices. I think deregulation was definitely sold as a way to reduce prices to consumers. It hasn’t worked out that way.
Whereas you look at the Southeast, which never went in for deregulation. The Southeastern states, which are still non-RTO states, had relatively very low rates, so they didn’t see a problem to be fixed.
The other big trend since the 1990s and 2000s is the explosive growth of renewables, especially wind and solar. Is there something about deregulated electricity markets, the RTO system, that makes those types of resources economically more favorable than they would be under a different system?
Well, if you’re getting a very high subsidy, like wind and solar are getting, it means you can bid into the energy markets effectively at zero. So if you can bid in at zero offering, you’re virtually guaranteed to be a winner. In a non-RTO state, a state that's doing it through an integrated resource plan, the state regulator reviews the plan. That's why I think an IRP approach is better actually for implementing wind and solar because you can implement and deploy wind and solar as part of an integrated plan that includes enough balancing resources to make sure you keep the lights on.
To me an Integrated Resource Plan is a holistic process, where you can look at all the resources at your disposal: wind, solar, gas, as well as the demand side. And you can balance them all in a way that you think, “Okay, this balance is appropriate for us for the next three years, or four years, or five years.” Because you’re typically doing an IRP every three to five years anyway. And so I think it’s a good way to make sure you balance these resources.
In a market there’s no balancing. In a market it’s just winners and losers. And so wind and solar are almost always going to win because they have such massive subsidies that they’re going to get to offer in at a bid price of zero. The problem with that is they’re not going to get paid zero. They’re going to get paid the highest price [that all electricity suppliers get]. So they offer in at zero, but they get paid the highest price, which is going to be a gas price. It’s probably going to be the last gas unit to clear, that’s usually the one that’s the highest price unit. And yet because of the single clearing price mechanism, everybody gets that price. So you can offer it at zero to guarantee you clear, but then you’re going to get the highest price, usually a gas combustion turbine peaker.
Do you think we would see as much wind and solar on the grid if it weren’t for the fact that a lot of the resources are benefiting from the pricing mechanism you describe?
I don’t think you can draw that conclusion because there are non-RTO states that have what’s called a mandatory RPS, mandatory renewable portfolio standard. And so you can get there through a mandatory RPS and a cost to service model just as you can end up in a market. And actually, again, I think you can get there in a more balanced way to make sure that the reliability is not being threatened in the meantime.
To get back to what we’re talking about in the beginning, my understanding is that FERC, where you are now, played a large role in encouraging deregulation in the formation of RTOs. Is this something that your staff or other commissioners disagree with you about? How do you see the role you’re playing, where you’re doing public advocacy and reshaping this conversation around deregulation?
First of all, we always have to give the standard disclaimer, you never talk about a pending case. But FERC was really the driving force behind a lot of this deregulation. So obviously, they decided that that’s what they wanted to push, and they did. And so I think it’s appropriate as a FERC regulator to raise questions. I think raising questions about the status quo is an important thing that we do and should do. Ultimately, you advocate for what you think it ought to be and if the votes come eventually, it might take several years, but it’s important.
One of the things I try to do is, I put the consumer at the center of everything I do. It is absolutely my priority. And I think that it should be every regulator’s priority, particularly in the electric area because most consumers in America — in fact, almost all consumers in America — are captive customers. By captive. I mean, they don’t get to choose their electric supplier.
Like, where do you live, Matthew?
I live in New York City.
You don’t get to choose, right? You’re getting electricity from ConEd. And you don’t have any choice. So you’re a captive customer. And most consumers in America are captive customers. We tried this retail choice in a few states that didn’t work. You know, they’re still doing it. I’m not going to say whether it’s working or not, but I know we tried it in Virginia, and it didn’t work at all because of a lot of reasons.
I always put customers first and say, “Look, these customers are captive. We have to protect them. We have to protect the captive customers by making sure they’re not getting overcharged.” So that’s why I care about these issues. And that’s why I wrote this article. I think that customers in a lot of ways in America are not getting treated fairly. They’re getting overcharged and I think they’re not getting what they should be getting. And so I think a big part of it is some of this stuff that FERC's been pushing for the last 25 years.
Our time is running out. So I will leave with a question that is topical: It’s already been quite hot in Texas, but outside of Texas and in FERC-land, where are you concerned about reliability issues this summer?
Well, I’m concerned about everywhere. It’s not a flippant remark. I read very closely the reliability reports that we get from NERC and we have reliability challenges in many, many places. It’s not just in the RTOs. I think we have reliability challenges in the South. Fortunately, the West this year, which has been a problem the last couple of years, is actually looking pretty good because all the rain last winter — even flooding — really was great for hydropower.
I’m from California, and I think it’s the first time in my adult life that I remember stories about dams being 100 percent, if not more than 100 percent, full.
The rains and snowfall were so needed. It’s filled up reservoirs that have been really dry for years. And from an electrical standpoint, it’s been really good for hydro. So they’re looking at really good hydro availability this summer in ways they haven't been for the last several years. So the West actually, because of all the rain and the greater available of hydro, I think is in fairly good shape.
There’s a problem in California with the duck curve, the problem is still there. If you have such a high solar content, when the sun goes down, obviously the solar stops generating and so what do you do you know for the next four to five hours? Because the air conditioners are still running, it’s still hot, but that solar production has just dropped off the table. So they’ve been patching with some battery storage and some gas backup.
But I’m worried about everywhere. I watch very closely the reports that come out of the RTOs and you can’t be shutting down dispatchable resources at the rate we’re doing when you’re not replacing them one to one with wind or solar. The arithmetic doesn’t work and it’s going to catch up to us at some point.
Log in
To continue reading, log in to your account.
Create a Free Account
To unlock more free articles, please create a free account.
On America’s Great Corridors of Commerce, Texas geothermal, and North Dakota carbon capture
Current conditions: Just a week after Tropical Storm Lala devastated the Big Island, a new tropical rainstorm is barreling toward Hawaii, threatening more flooding, strong winds, and choppy seas by this weekend • Forecasters reduced their estimates for the number of storms in this year’s Atlantic hurricane season as a particularly powerful El Niño’s effects ripple out from the Pacific and stir up winds that prevent hurricanes from forming • The air quality index in Kuching, Malaysia, hit 175, making the capital of Sarawak state the most polluted major city in the world this week as winds carry smoke from peatland and forests in neighboring Indonesian Borneo.
Data centers’ appetite for gas-fired electricity could, after years of flatlining and even declining, send emissions from the United States’ power sector soaring by at least 20%. That’s according to a new analysis by Bloomberg. Developers have proposed building at least 99 bespoke gas plants across the country that would, if run to industry-standard rates, emit about 318 million metric tons of carbon dioxide per year. Given that the whole U.S. electric power sector emitted about 1,485 million metric tons of carbon last year, this one sliver of the data center industry’s infrastructure could spike the electrical industry’s emissions by as much as a third. Not every plant is likely to be built. But the scale is growing. Just weeks after Amazon confirmed plans to back construction of the nation’s largest power plant, an off-grid gas-fired facility to power a major data center complex in Pennsylvania, OpenAI and Nvidia backed a proposal for an even bigger station in Ohio. As my colleague Robinson Meyer put it earlier this week, we have entered the “era of the gas mega-plant.”
The new estimate comes as more candidates for statewide office build campaigns around opposing data centers. The latest is Aaron Ford, Nevada’s attorney general and a Democratic candidate for governor, who vowed Wednesday to “pause tax breaks” for data centers if elected.
The Trump administration has launched an effort to fast-track permitting of data centers and utility infrastructure along federal highway and railway corridors. This week, the Department of Transportation took the first step to establish what it dubbed America’s Great Corridors of Commerce, along which the agency “will build, in record time, a new backbone for the world’s strongest economy.” In a public notice posted to a federal website Tuesday, the Transportation Department said the potential policy changes would aim to “drastically accelerate the siting, permitting, and financing of linear utility infrastructure projects, including electrical transmission lines, water pipelines along highways, pipelines along railways, fiber optic, and rural broadband.” The zones will also “incentivize data centers, manufacturing facilities, and distribution hubs to locate close to” the corridors “to leverage a ‘plug and play’ model for easy connectivity to new utility corridors.” The proposal, which is currently only a request for information before a September 12 deadline, would also “reduce administrative burdens” for state transportation agencies and railroads “giving them the vital technology backbone — from Wi-Fi and safety systems to intelligent transportation systems — needed to build the connected, intelligent transportation networks of tomorrow.”
If you want proof things can in fact get built, look — perhaps counterintuitively — to clean energy. Despite the Trump administration’s best efforts to curtail development of renewables, new data from S&P Global Energy shows that clean power is booming in America. The U.S. is on track to add a record 45 gigawatts of clean power this year — equal to the average electricity demand of all of Turkey. “There was a campaign promise to go against renewables, but at the same time they’re realizing that you can’t do without it,” Izzet Bensusan, chief executive of the energy investment firm Captona, told the Financial Times. “I don’t see a world where power demand is flattening out.”
Next-generation geothermal technology first debuted in the U.S. in 2013, when Ormat — the company I once embarrassingly called the “unc” of geothermal — completed a 1.7-megawatt demonstration project at a site in western Nevada. A decade later, Fervo Energy — the hot rock sector’s hottest new stock — started up its 3.5-megawatt, Google-backed demonstration plant in northern Nevada. Now one of Fervo’s closest rivals, Sage Geosystems, has joined the list. On Wednesday, Canary Media reported that the company had begun producing power at its 3-megawatt Texas pilot plant in April. Like Fervo, Sage is using the same horizontal drilling and fracking technology that transformed America into the world’s top producer of both oil and gas. Cindhy Taff, the chief executive, spent decades at the helm of Royal Dutch Shell’s fracking division. For a refresher on how the technology works, I recommend this 101 explainer my colleague Matthew Zeitlin wrote last summer.
Sign up to receive Heatmap AM in your inbox every morning:
The Trump administration is doing all it can to keep coal-fired stations from retiring, even funding construction of the first U.S. new coal plants in over a decade. But an electrical cooperative in North Dakota is thinking about how to keep a coal-fired plant open even if a future White House looks to crack down once again on emissions. On Wednesday, the North Dakota Monitor reported Minnkota Power Cooperative had inked a deal to work with a carbon capture and storage developer to revive a long-stalled project. The state’s Clean Sustainable Energy Authority recommended approving a combined $205 million in loans for the partnership between Minnkota and Reliant Carbon Capture & Storage. The state industrial commission — to which the sustainability agency, established in 2021, reports — will have final approval.
Canada’s largest oil producers, meanwhile, told Reuters they plan to make a final investment decision on a sweeping carbon capture project called Pathways in Alberta by the end of next year.

Taiwan’s long-stalled offshore wind buildout was supposed to justify the self-governing island’s shutdown of its nuclear power stations. Yet the Taiwanese successfully constructed less than 5 gigawatts of offshore turbines before powering down the last reactor. That put the country at a deficit since the atomic stations once provided more than 5 gigawatts of power, and left a place widely considered to be at risk of a Chinese invasion in the coming years more reliant on imported fossil fuels. But Orsted is now stepping up to build more turbines. On Wednesday, the Danish giant announced plans to develop a new 2-gigawatt project off Taiwan. The project is the larger, second phase of the Dadu plant the company is already developing, according to offshoreWIND.biz.
Deforestation and aquaculture across Southeast Asia’s fast-growing economies have destroyed mangroves at an alarming rate. But here’s some good news: Even more new mangroves are growing back in other parts of the world. Global mangrove cover has increased over the past 40 years, with a net gain of 47,720 hectares, or about 185 square miles between 1985 and 2025. That’s according to a new tally by Global Mangrove Watch, a project at Aberystwyth University in Wales. Indonesia has lost nearly 800 square miles of mangrove since 1985, and Myanmar, Malaysia, and Nigeria record significant declines. Australia, India, and the Philippines, by contrast, saw growth. “The overall increase in mangrove cover is encouraging, but it also shows that progress is uneven, with some regions continuing to experience significant losses,” Pete Bunting, a researcher at Aberystwyth University whose work was part of the study, said in a press release. “The findings also highlight the complexity of mangrove change, with gains in some areas linked to both restoration efforts and natural processes.”
Rob digs into a new paper with a radical new idea to fix California’s economy with the Breakthrough Institute’s Lauren Teixeira.
California now has the most expensive electricity in the continental United States. It also has expensive housing … and an increasingly broken home insurance market.
Are the three phenomena linked? They might be. Due to a peculiarity in the state’s constitution, electricity utilities are incentivized to pay for a huge amount of wildfire prevention, above and beyond what would be seen as economically reasonable in another state. Fixing that constitutional peculiarity could help bring down energy costs and heal the home insurance market, but it will be complicated — and a number of policies will need to get passed at the same time.
That’s what Lauren Teixeira argues in her new report, “Rewiring Risk.” Teixeira, a senior climate and energy analyst at the Breakthrough Institute, joins Rob for today’s episode of Shift Key. They discuss how California found itself in this situation, how it might be fixed, and why the state treats utilities as a sin-eater for wildfire risk.
Shift Key is hosted by Robinson Meyer, the founding executive editor of Heatmap News.
Subscribe to “Shift Key” and find this episode on Apple Podcasts, Spotify, Amazon, or wherever you get your podcasts.
You can also add the show’s RSS feed to your podcast app to follow us directly.
Here is an excerpt from their conversation:
Robinson Meyer: How much of this is an issue of it’s very hard to raise tax revenue in California, but it’s very easy to raise electricity rates? Speaking of the prop system, right, it’s very hard to pay to increase the tax base in California. But the CPUC can raise electricity rates when the utility asks it to do so.
Lauren Teixeira: I think that’s a big part of it, yeah.
Meyer: And so to some degree, this is the public’s in California — not the public in the sense of the government, but the public in the sense of society’s easiest way of raising revenue in the California system. And so therefore, it’s the revenue that tends to get raised. Unfortunately, it’s very regressive and bad for climate policy.
Teixeira: Right. It’s a tax through a different system. It’s a regressive tax. And it’s rational to do that. But as I argue in my report, this is actually a really ineffective and inefficient way of reducing wildfire risk. And that, you know, say we weren’t parking all of this on the utilities,.I think it’s very possible we would get a lot more risk reduction for the same amount of money, in that when it’s all on the utilities, they could very expensively underground a power line or a local municipality or property owner could construct a fuel break or do mitigation much more cheaply, and reduce the same amount of risk. But with the status quo, we end up with the expensive power line instead of the fuel break.
And I think that’s a huge loss of opportunity because obviously wildfire is very dangerous and bad, and we want to get as much risk reduction for a certain sum of money as we can. So what we have right now is the politically convenient thing, but it’s not the most risk reducing thing. And the most risk reducing thing is not the politically convenient thing. But we may have to go toward it because electricity rates have also become politically unattainable.
You can find a full transcript of the episode here.
Mentioned:
Lauren’s report: Rewiring Risk
Rethinking Utility Wildfire Risk in California
Previously on Shift Key: How California Broke Its Electricity Bills
Previously on Shift Key: How Wildfires Destroyed California’s Insurance Market
This episode of Shift Key is sponsored by ...
Discover the Yale Clean and Equitable Energy Development online certificate program at the Yale Center for Business and the Environment. In this fully online, 5-month program, you’ll learn from leading experts, develop practical skills, and grow a powerful network. Visit cbey.yale.edu to learn more and apply.
Music for Shift Key is by Adam Kromelow.
The transcript has been automatically generated.
Subscribe to “Shift Key” and find this episode on Apple Podcasts, Spotify, Amazon, or wherever you get your podcasts.
You can also add the show’s RSS feed to your podcast app to follow us directly.
Robinson Meyer:
Hello, it’s Thursday, August 20, and we’re just a few months from the end of Gavin Newsom’s second term as California governor. He should be coasting to the finish line, maybe gearing up to run for president. But earlier this month, he took up a big legislative push, which, if successful, would be one of his last acts as governor. It’s to reduce how much California’s utilities pay for wildfires. Now, I realize that may sound arcane and maybe even surprising in a populist era. But as you’ll hear, it’s a policy with huge implications for the state’s economy, for its housing costs and for its electricity costs. California’s electricity costs, as you may remember, have surged in recent years and are now the most expensive in the continental United States. In fact, rates are rising in part because of the very dynamic we’re going to talk about today. And given that high power rates, expensive electricity keeps people from electrifying and switching to EVs, and given that California has the country’s most aggressive climate policy, and that wildfires are worsened by climate change, this is quite a messy and important problem. The stakes are very high.
Robinson Meyer:
Now, how did we get here? Before we get to our guests, I think it’s worth clarifying something about where all of this started. Under the California constitution, the state government has what’s called strict liability, meaning that if a piece of government infrastructure damages your property, then the government is responsible for paying for it, even if it wasn’t negligent or even necessarily at fault. Now, since 1999, as you’ll hear, that trait has applied to utilities too. And that means that if a piece of utility equipment starts a wildfire, even if the company was doing everything right and it had the best technology and it had cleared out brush near its wires, even buried the wires, then it’s very easy for that company to become wholly responsible for the wildfire. Well, what does that mean? Well, you’ll hear in a moment. But according to our guest today, it potentially raises electricity rates for California households by $300 to $500 dollars a year. Maybe you can see why Governor Newsom wants to fix it. Our guest today is Lauren Teixeira. She’s a senior analyst at the Breakthrough Institute and the author of a recent report called “Rewiring Risk,” which is all about this dynamic. We talk about how the state of affairs came about, how it might be remedied, and what it means for California’s economy and climate progress. I’m Robinson Meyer, the founding executive editor of Heatmap News, and you are listening to Shift Key. Lauren Teixeira, welcome to Shift Key.
Lauren Teixeira:
Thank you. I’m so happy to be here.
Robinson Meyer:
I think I’m thinking of this episode already as a sequel to an episode that we did a few years ago about why California’s electricity prices are so broken.
Lauren Teixeira:
That was a good one.
Robinson Meyer:
You came out of the report recently about how the legal system that governs California’s wildfires is broken. And we’re going to talk about the different ways that it’s broken, but how that’s now kind of starting to almost leak into the rest of the state’s governance and drive issues throughout the rest of the California economy. Can you give us, like, what is the status quo for how California pays for wildfires right now? And how is that different from maybe other states in the U.S.?
Lauren Teixeira:
So you can imagine that there’s a certain amount of wildfire risk. California has a lot of it because it’s a hot, dry place. And we have really extreme wind events. And combined with a large fuel buildup, things are going to burn. And so how we pay for that right now is weirdly through our utilities and through ratepayers’ electricity bills. And how that ended up happening is that... We have a unique legal doctrine. It’s called inverse condemnation with strict liability. And what this says is, as applied to utilities, it says if a utility happens to ignite a fire and it damages your property, the utility is liable for all of those damages. In other states apply this doctrine to utilities, but they don’t use a strict liability standard. They use a fault-based standard.
Robinson Meyer:
And so get into a little bit of the distinction there, because I think at first, that’s going to sound like very reasonable. That like, yes, of course, if a wildfire.
Lauren Teixeira:
That’s why we have it. Yeah, exactly.
Robinson Meyer:
If a utility starts a wildfire and then the wildfire burns down my house, then like, yes, of course, the utility should like pay to replace my house. That makes sense. And that also as a homeowner seems to me that it would do things like keep my home insurance cheaper, which I would like as a homeowner.
Lauren Teixeira:
Yes.
Robinson Meyer:
But can you maybe walk us into why this standard is not as simple as I have just described it?
Lauren Teixeira:
Yeah, so it sounds totally plausible. There are a couple of reasons why it is actually causing a lot of negative consequences. One is we should make a distinction between a strict liability standard and a fault-based standard. So fault-based standard says if the utility was negligent, they’re responsible for the damages. Strict liability says even if they were not negligent, even if it was a total freak accident and a palm frond from hundreds of feet outside the right of way flies into a power line, touches it, sparks a catastrophic fire in a wind event, the utility is still responsible for it. So that’s one distinction, and I think the latter is less reasonable than the former. The second is a little philosophical, and it has to do with, you could say, the causation, chain of causation for wildfires. Because at first glance, you’re saying, okay, a utility ignited a wildfire. It’s their problem. But let’s think about all the other things that contribute to wildfires. Fuel buildup. Whose fault is that? Is it the utility? No. You know, homes in high-risk areas, what facilitated that? In California, we can get into this. A lot of it was price controls on insurance. There’s also the failure of local governments to construct fuel breaks. You know, also climate change. It does contribute to wildfire. Exactly how much is, of course, a matter of enormous dispute and very hard to say. But yeah, so for that reason, it does not make as much sense as it would initially seem to place all of the liability on a utility.
Robinson Meyer:
So it almost seems like you’re getting into like different distinctions around the word ignite, right? Because there’s like ignite as in if I were to ignite a candle, I like take out a match and I like light the candle on fire. And then there’s ignite as in it seems like under the law, ignite for utilities means anytime a piece of utility equipment happens to intervene in a situation that then produces a wildfire. The utility is judged to have ignited the wildfire, even if the utility essentially did nothing wrong or acted in a very reasonable way. Is that like a correct summary?
Lauren Teixeira:
That’s correct. That’s the status quo. Yeah, it’s whoever started it pays for everything, even if it wasn’t their fault and it was a total freak accident.
Robinson Meyer:
What does this mean for California’s electricity system, for California’s economy, for the whole ecosystem of state policy that exists around wildfires and the utility system?
Lauren Teixeira:
So the first thing it means, and the reason why it’s getting a lot of traction now, is that it is the primary driver of our famous rising electricity rates, which are quite eye-popping and the highest in the continental U.S. The reason for those high electricity rates are qua wildfire is one, grid mitigation. So utilities invest exorbitantly in grid mitigation, which again sounds reasonable, but in fact, it’s possible to do it to the point of diminishing marginal returns. And the second is ratepayers are actually paying up front for people’s property damages through their bills. So what happens is utilities can get sued for the damages. The insurer goes to the utility and says, I represent, you know, this homeowner and I want the money and the utility pays out. And of course, those costs are passed along to ratepayers. Now we have a fund called the Wildfire Fund, which is created after PG&E went bankrupt in 2019. And that is something that is meant to keep utilities from going bankrupt ever again. It is capitalized in part by shareholders and in part by the rate payers.
Lauren Teixeira:
So the ratepayers pay into that. It’s a $21 billion fund that was recently depleted. The ratepayers also pay for self-insurance, utility self-insurance, because they need that money before $1 billion in damages. They cannot access the wildfire fund, so they need to make up that difference. So in short, ratepayers are paying billions of dollars in insurance and grid mitigation. Then there’s a hidden effect. So they pay up front for insurance, but then we should also think about what incentives does this create?
Lauren Teixeira:
As you alluded to before, this disincentivizes homeowners and municipal governments to invest in mitigation because they know that they can eventually get bailed out by a utility.
Lauren Teixeira:
The other issue is that we have price controls on insurance through this kind of strange system called Prop 103. And one of the only reasons insurers are staying in the state is that they have this recourse to subrogate and recover the damages. So we are essentially subsidizing wildfire risk through our utility bills in a lot of ways.
Robinson Meyer:
Okay, so, and my understanding, too, is like this only became a problem, I’m going to say recently. This wasn’t really an issue right until the campfire. Like this legal doctrine sat, kind of emerged on the books in what, the 1980s? And then it just was there for a while?
Lauren Teixeira:
1999, yeah. Okay. It was just there, yeah.
Robinson Meyer:
Tell us some of that story.
Lauren Teixeira:
So what happened is that there are nonlinear effects with, we call it the WUI. It stands for wildland urban interface. So there are nonlinear effects to this. And there also are to climate change and to fuel buildup. And in the 2010s, all of those things kind of broke. And there was the campfire, which PG&E equipment started, wiped out the town of Paradise. Extremely tragic. About 90 people died. PG&E went bankrupt from those damages. And what changed legally after that fire is lawmakers said, we can’t have our utility go bankrupt because we need electricity. So we’re going to start a wildfire fund to make sure this never happens again. And in order to get access to the wildfire fund, utilities have to show that they’ve done this whole menu of mitigations. And they are not going to take any risks there in losing access. They are going to err on the side of over mitigation so that’s why bills start skyrocketing a lot it’s not just capital expenditures they also do vegetation management which is incredibly expensive and also passed through in its entirety because it’s operational it’s not amortize it of.
Lauren Teixeira:
Course yeah yeah
Lauren Teixeira:
Insurance by the way it also counts as OPEX so that’s also passed so.
Robinson Meyer:
It just gets fully passed along too and it
Lauren Teixeira:
Sounds like.
Robinson Meyer:
Yeah so basically like almost rate payers aren’t only paying to like insure, quote unquote, utilities from the wildfires. They’re like paying like three different ways to do it. Is that right?
Lauren Teixeira:
Exactly. That is exactly right, Rob. And that is exactly the point I make in my report that that grid mitigation, the capex, which, by the way, has reached diminishing marginal returns, is in fact a form of insurance. And it’s also a huge subsidy to the 10 percent of people who live in the very high risk areas.
Robinson Meyer:
How did this emerge in the first place? Pre-Camp Fire, like 1999. Yeah. Can you talk about the 1999 decision?
Lauren Teixeira:
Yeah, it was a courts of appeal decision called Barham versus Southern California Edison. That’s the big utility in Southern California. And, you know, I’ve talked to Eric Biber about this, who’s a legal scholar and studies these things. And he was kind of just like, it kind of just made sense at the time, the interpretation. Most states do apply inverse condemnation to utilities, even though it’s not the government, because inverse condemnation is supposed to apply to a public use. However, they’re like, even though it’s private, electricity is a public use. We’re going to say that’s inverse condemnation. The strict liability standard is something that was kind of just how they interpreted it. They said, if it’s a public use and it’s a taking, we should socialize that among the public. Of course, usually when we socialize things among the public, it’s through the tax base, which is progressive, not the rate base, which is regressive. And what Eric said is he suspects if they had known, you know, what the consequences would be, they would not have made that interpretation. But that’s how the cookie crumbled.
Robinson Meyer:
Can you just talk through the different parts of that phrase? Inverse condemnation versus strict liability. What does that mean?
Lauren Teixeira:
So I’m not a legal scholar, but inverse condemnation is kind of the flip side of eminent domain, which I’m sure everyone is at least glancingly familiar with. Eminent domain says, you know, the government wants to build a highway. They’re going to take your property. If they’re going to do that, they have to compensate you justly and reasonably. Inverse condemnation says the government did a taking, but they didn’t pay you. So ex post, the government owes you money. So that’s how we get to this. And it’s not immediately obvious that that should be applied to utilities because they’re not the government.
Robinson Meyer:
Inverse condemnation is like initially designed for, I don’t know, maybe there’s some your property backs up to a military base.
Lauren Teixeira:
Yeah, a streetlight falls on your house or something.
Robinson Meyer:
A streetlight falls on your car. And now, obviously, the government has to fully pay you for the car. And it might not have, like, been the government’s fault that the streetlight fell. But the idea is basically if the streetlight falls on your car, they’re going to have to pay you for the car, even if they were doing an OK job of, let’s say, watching the streetlight.
Lauren Teixeira:
Well, no, usually the standard is negligence. And that’s what’s weird about California.
Robinson Meyer:
OK, so now explain strict liability to us.
Lauren Teixeira:
So it’s just a, you know, usually in tort law or, you know, the law of people harming others, you say that person owes me only if they were negligent. And obviously that will generate a lot of case law of what exactly was negligent. Strict liability says that doesn’t matter. Even if they’re crossing all of their T’s, dotting all of their I’s, they’re still liable. Got it. So that’s what we have in California. And we’re the only state that does that.
Robinson Meyer:
And is this applied to California’s government too, or is this only in the case of wildfires? Caused by public utilities?
Lauren Teixeira:
No, no. It applies to anything that could be a taking by the government. And then it was an extension of the doctrine to extend it to utilities because, again, they’re not public. So it’s not obvious it would apply to them. It’s a public use.
Robinson Meyer:
Yeah. Got it. Is the state government generally bound by strict liability?
Lauren Teixeira:
Yes. That’s the law of the land in California.
Robinson Meyer:
Yeah. I want to get into how this could be fixed and kind of what the way would be to fix it. But even though this legal doctrine has been on the books since 1989, the whole situation broke relatively recently because it like sat there. I don’t know, were utilities worried about it? It seems like probably not.
Lauren Teixeira:
No, they had. They’d sued many times to try to get this overturned because they knew it was a huge issue. Yeah, and they failed every time.
Robinson Meyer:
And then the campfire happened in 2019 and it was like suddenly Chekhov’s gun in California state utility law kind of went off. And it was like, oh no, this actually doesn’t work at all because PG&E went bankrupt. And since then, I don’t know, lawmakers just been trying to clean it up.
Lauren Teixeira:
Yes and no. I mean, how lawmakers initially addressed it was just like, we cannot let a utility go insolvent again. And that’s why they created the Wildfire Fund. But what that did is it did keep the utility solvent, but it also drove up electricity rates by quite a lot. And that is increasingly politically untenable. At the same time, we are in the midst of an insurance crisis because the Chekhov’s gun of insurance policy, Prop 103, also went off. And in the past few years, a lot of the private insurers have declined to renew their policies or they have left, because they say, you know, we can’t recover, we can’t stay solvent if we’re not allowed to let our premia match our claims, which is how, of course, an insurance business works. That has had the effect of rolling an astronomical number of people, it’s increased 5x in the past year, six years, onto the insurer of last resort, the FAIR Plan, which of course is in part capitalized by all the other insureds in the state. So that’s another subsidy from low risk people to high risk people. And that is politically very untenable, especially since many of the people receiving the subsidy of the FAIR Plan are rich people with second homes in
Lauren Teixeira:
Calabasas or Tahoe or Malibu or whatever.
Robinson Meyer:
We did an episode last year about California’s housing insurance and how broken it is. But it seems like these are like two latent problems in state law that both became active problems in the past decade and have this deep interrelation. And so how would you, how do you think we should go about fixing them?
Lauren Teixeira:
Wow, I’m so glad you asked. So it’s not going to be easy. However, it will get fixed in part if only because it’s become so politically untenable to have all of these people going on to the state insurer and to have incredibly high electricity prices, which people hate. And by the way, our hurt, you know, poorest people the hardest because it’s regressive. Also, the people who need the most air conditioning in California live in the Central Valley. They tend to be poor and don’t have rooftop solar, which is something that reduces your electricity bills.
Robinson Meyer:
So in California,
Lauren Teixeira:
We don’t have the huge subsidy for rooftop solar anymore, but we still subsidize it.
Robinson Meyer:
Users are grandfathered in, right?
Lauren Teixeira:
Existing users are grandfathered in. That is an awesome subsidy for them. And by the way, second to wildfire, that’s the biggest driver of rising electricity bills is the rooftop solar subsidy.
Robinson Meyer:
Want to hear more about that? You can listen to the episode we did with Severin Borenstein in 2024. We’ll put it in the show notes.
Lauren Teixeira:
Yes. Severin is the absolute GOAT of California land energy policy.
Robinson Meyer:
So basically, you have this system where, and I just want to make sure I understand this correctly. Anytime utility touches a wildfire at all, that utility then becomes responsible for the wildfire. And so utilities are obsessed with making sure they reduce their risk of ever touching a wildfire in any way. And they are willing to pay out the wazoo, as they are encouraged to do by state law, to reduce their risk. At the same time, the housing insurance system in California is breaking down. And one reason that homeowners who live in this so-called wildland urban interface, this kind of sprawly area into nature, where your chance of your home burning down in wildfire are much higher, one place they can dump risk is into utilities, too. And so almost the whole economy of the residential sector in California, both homeowners and also how the primary source of homeowner energy, the electricity system, like all just want to like dump risk onto the utility sector. And then the utility sector is like trying to get the risk off of it as fast as it can. It’s like basically almost like the scapegoat.
Lauren Teixeira:
Oh, that’s exactly what it is. Yeah.
Robinson Meyer:
So how would you fix this? We were kind of getting into how you would fix this, but it seems to me to be tricky because all of this emerges from this constitutional issue, allegedly, around how the utilities face wildfire risk.
Lauren Teixeira:
So I think one good thing is you wouldn’t necessarily have to change the constitution, and the legal scholars have ideas about how we can get around that. But the risk does need to be redistributed, and that’s the thing that’s important. As you allude to, doing that will be incredibly hard for a number of classic political economy problems, which is that incumbents will resist any policy that will make them pay more. Those incumbents being homeowners in high-risk areas as well as local governments who do not want to charge people higher property taxes for wildfire mitigation because they want people to move there, as well as some I would say uniquely Californian entities such as Consumer Watchdog I don’t know if you’ve heard of them, but they’re kind of like a Naderite organization whose kind of sole purpose in life is to resist any.
Lauren Teixeira:
Kind of pro-business or thing that will make the economy function more efficiently. So yeah, they have like a whole apparatus where their whole thing is whenever insurers try to raise their rates, they immediately intervene in the consumer intervener process. And by the way, get a nice cut from that because that’s how Prop 103 works is you can pay out to the people who intervened. So that’s a huge constituency that is really against any reforms to the insurance market. There’s also the wildfire victims who are obviously very sympathetic and, in my opinion, are a little bit being used to launder some consumer watchdog type sentiments, but they’re hard to argue with. So people are going to resist this a lot. And, you know, what I propose in my report is essentially buying out the incumbents. So... There are going to be people in high-risk areas who, if we get rid of strict liability and we sunset the FAIR Plan, so that’s another thing I think needs to happen.
Robinson Meyer:
Let’s talk briefly, what is the FAIR Plan? So right now, the home insurance market in California is kind of increasingly broken because of wildfire risk as well. And the particular scapegoat or the particular kind of magical risk absorber that’s been created under California law is called the FAIR Plan. So just tell us a little bit about the FAIR Plan and how that fits into this stew.
Lauren Teixeira:
So the FAIR Plan was conceived in the late 1960s as an insurer of last resort, essentially for black people who could not get insurance because of racism. And that’s what it was. And it served its purpose. And up until quite recently, people on the FAIR Plan were people in low risk areas, low risk urban areas. So over time, and this is actually, it’s not just California and other states, it’s turned into an insurer for people who live by the beach and in high-risk areas that are prone to wildfire. You might think, why is the state, you know, giving automatic insurance to people in very high-risk areas who also are often quite wealthy? Not always, but often. And the reason is that it’s very politically popular to offer insurance to everyone, and, Another reason is it props up the real estate market because you can’t really get a mortgage without insurance.
Robinson Meyer:
Right. And there’s this crucial interlinkage where mortgages exist for 30 years. You’re in hock to a mortgage for 30 years, but that mortgage is dependent on an annual renewal of your home insurance. And so if suddenly home insurance stops working for people, then either they have to go naked, which is the insurance industry term for not having insurance, which may eventually affect their mortgage and therefore their largest store of wealth. Or you like find some way to kind of make all the math math as a state because suddenly you have a fairly large population of people which even if the majority of homeowners covered by the FAIR Plan would be able to bear the risk and maybe should bear some of the risk you still have a large group of people who may not be able to bear the risk who may have gotten to this situation through no fault of their own or through very little kind of fault of their own and suddenly their main store of wealth is like tied up with this uninsurable asset.
Lauren Teixeira:
And that would be disastrous. Yeah. I mean, both politically and just for people’s welfare.
Robinson Meyer:
So your idea, as I understand it, is that these things would have to be fixed as a single package. So like describe that package.
Lauren Teixeira:
So my idea is that we have these issues in insurance and utilities. Utilities are propping up the insurance industry. Homeowners are going to be greatly damaged if the insurance industry is no longer popped up. So you kind of have to address all of these concerns at the same time. So my proposal is switch it to a fault-based standard. I don’t know if it’s going to require changing the constitution or not, but the point is you need to transfer some risk off of the utilities. This will be greatly damaging to homeowners.
Robinson Meyer:
A fault-based standard is that utilities, in order to be responsible for a wildfire, would have to have been negligent in some way. Their negligence would have had to, you know, originated the fire.
Lauren Teixeira:
So, yeah, I do think they should maintain some liability. Again, it doesn’t address the more philosophical question of, you know, what really created the risk, because there’s the ignition risk, but there’s also the conflagration. So, moving on. We changed to a fault-based standard, and that will cause an insurance market crisis. Luckily, California has finally faced the music with that. And we have finally started letting insurers charge forward looking, like using forward looking risk models, which before you were not allowed to do. And we’ve also started letting insurers pass on the cost of reinsurance, which before you were also not allowed to do, which is kind of crazy because, you know, that’s how the business works. So that’s getting repaired. We still require insurers to offer coverage to meet quotas of coverage, which obviously poses some moral hazard, but...
Lauren Teixeira:
The point is we need to restore actuarial pricing to the insurance market. That will be fine for the people who are getting subsidized coverage in Lake Tahoe or Malibu or Calabasas. It will be very bad for, you know, you could call them affordability migrants rather than amenity migrants. They left the cities because housing was unaffordable. Now they’re in the wild and urban interface. They’re not rich. Their home is their greatest store of wealth. My suggestion is to keep the FAIR Plan, but put a sunset on it. Say, you know, after 2040, no more FAIR Plan. And in that time, just offer either second mortgages or straight up grants for home hardening so that those people can get an affordable premium when they have to go back into the private market. And that would be funded through taxpayer grants.
Robinson Meyer:
And so that way, first of all, you shift it from the rate base to the tax base. But the idea there basically is that you give people a deadline and then you say, you got to get your home ready by this date and we’re going to pay you a ton of money or we’re going to do it for you, basically.
Lauren Teixeira:
Yeah. And it would make sure that no one gets on the FAIR Plan in the future, right? It just kind of helps slowly depopulate it if you know that you’re not going to have it forever.
Robinson Meyer:
One interesting kind of subtext of your report is that these two systems, the electricity system where prices are increasingly high, and the insurance system where homes in California are becoming increasingly uninsurable, are like tied together which is very interesting, but means that opportunities for reform are like even more difficult than you would expect them to be generally. So do you have to resolve them together? The recently Politico reported that Governor Newsom is proposing ways to the state legislator to like fix the electricity insurance issues or to reform the electricity insurance issues. How much of that needs to happen in conjunction with the home insurance issues? Or can you kind of piecemeal them out?
Lauren Teixeira:
I think they do need to happen in conjunction. The reason being that, you know, as far as we know, and insurers did submit testimonials about this, is that the extent they are solvent, it’s because they have this recourse of suing the utilities and recovering damages. So if strict liability goes away or if utility liability is capped or something like that, it will mechanically mean that insurers have to pick up more risk, and that could mean more non-renewals. They could be even less solvent. That would be bad because, again, it’s politically popular for everyone to have insurance. So you would need some kind of reform in the insurance market where either, you know, the rich people can go to actuarial prices and the poorer people can get FAIR Plan. And the insurers are one of the main constituencies lobbying against this reform for this exact reason. And the idea is that if they see on the table that they will be able to maintain solvency in other ways, they will be less opposed to the reform.
Robinson Meyer:
What’s the case for strict wildfire eligibility? Like, how did this come about in the first place?
Lauren Teixeira:
It was kind of just how they interpreted it at the time. I think the theory with strict liability is that it’s the public inflicting this on you, right, in the form of the government. So we should socialize it across the public. And usually that’s going to be through the tax base if the streetlight falls on your car. But in the case of wildfire, that’s getting socialized through the electricity rates.
Lauren Teixeira:
It’s just a very strange, strange case of this doctrine being applied.
Robinson Meyer:
California state policy is so interesting because it’s this interesting mix of like fixes that were a good idea at the time that just emerged from the court system or emerged from the state system. And then variously like politicians or voters having bad preferences. Often when non-Californians discuss California policy, there’s a temptation to blame the politicians or the state Democratic Party, because it’s had trifecta control of the state at this point for a long time, 10 years or something. It seems to me that the more elevated assessment is that actually voters want a lot of things that are like very difficult to reconcile. And so like politicians kind of like do their largely their best to reconcile. So my question about this whole situation is, is this kind of a voter problem? Or is this a politician’s problem? Or is this like, unfortunately, multiple Chekhov guns that were accidentally written into state law, like all had their trickers wired together and nobody realized it because of the the you know kitchen twine bubble gum and twigs that constituted the legal regime at the time it made sense to implement them but then like when one trigger went off like suddenly all the guns fired and it was like oh shit you know so like whose fault is this
Lauren Teixeira:
Great question. I think that … I don’t think California voters are dumber than voters anywhere else in the country. I do think that the California ballot system gives the dumbness of voters a real chance to shine and be enshrined in law, which for the listeners, we have a ballot proposition system where there will be all of these propositions on the ballot every year that kind of sound good in the three-sentence summary that’s like, do you think puppies should be given treats? That’s something on the ballot. And people say, yes, that sounds good to me. And that’s what happened with Prop 103 in 1988, the consumer watchdog Naderite people said, hmm, these auto insurance premiums are kind of high. What if you could have lower ones? And people said, sounds great, right? And most people have not seen supply demand curves. They don’t realize that it’s a bad idea for the market not to clear. And they say, cool. And by the way, it didn’t pass overwhelmingly. Like there were people who were like, maybe this is a bad idea. It passed, I think it was only 54% or something like that. But now that’s the law of the land, and...
Lauren Teixeira:
Insurance increases are subject to the whims of an elected official who has every reason to not approve insurance increases. So, yeah, I think the proposition system has been somewhat bad for the state. I think in general there’s an unwillingness to acknowledge tradeoffs in California or to accept them. However, it turns out that when you don’t do that, the risk just gets pushed somewhere else. So insurers and utilities are pretty easy bad guys. It’s also easy to perpetuate something when the costs are diffuse and the benefits are concentrated. But eventually, you know, push comes to shove and people are wondering, why are we subsidizing the insurance of people with second homes in Tahoe?
Robinson Meyer:
This seems like an interesting case, though, because it seems like the insurance market being broken is sort of related to the prop system. But the utility insurance being broken is like not related to the prop system. That’s just related to like a combination of this unusual doctrine in the California constitution around government liability and the unusual role that public utilities play.
Lauren Teixeira:
I mean, utilities are such a weird business model. They’re not like anything else. And they are also captive, famously. So it’s really easy to put stuff on them and to hide stuff in the rape base. And you don’t want them to go bankrupt.
Robinson Meyer:
Yeah, like a utility can’t exit the state. Like it’s kind of captive both ways, right? Because on the one hand, lawmakers can put costs on the utilities and utilities have to pay them. On the other hand, the utility can force the state to bear costs because the utility can’t go anywhere. Where it’s imminent in the infrastructure. I think one theme of your report, and one theme of the story you’ve just kind of spun for us, is that utilities are acting reasonably. They’re acting like very rationally when they try to reduce risk because this is an existential issue for them and it’s existential in like a corporate way. They will go bankrupt. If they start a catastrophic wildfire, you know, on top of the many other horrible consequences of starting a catastrophic wildfire, and that would be bad. And so therefore, they’re acting like very reasonably when they try to reduce these expenses. But it also seems to be that policymakers, and I want to defend the regulatory system that exists here. When policymakers, like, can’t assume the utility will take the public’s best interest when they are writing policy about the utility, because the utility is kind of like a monster or it’s like a very well-trained but not perfectly trained large beast in that it is going to usually do the things you expect.
Robinson Meyer:
It is also, the utility is in fact interest bound and legally bound to like, be a for-profit company. It seems like this is a challenge of utility governance more broadly, is that you have to like both write policy that allows the utility to provide reasonable service and that is bound by, I don’t know, where we assume it’s kind of bound by supply and demand curve. But in fact, the utility isn’t bound by supply and demand curves at all. It’s this totally anomalous form of corporation. And if you write the policies wrong, then it will kind of go haywire on you.
Lauren Teixeira:
Yeah. I mean, people respond to incentives or companies respond to incentives and they very rationally follow the incentives that were created by the structure. Would making it not for profit change that? I don’t know. I mean, a not for profit utility would also be subject to inverse condemnation with strict liability in California. And you know we can get into public power stuff but it’s a little beyond the scope of this. I don’t see that as the solution.
Robinson Meyer:
I don’t think it needs to be part of the solution to just be like an interesting challenge of this policy making
Lauren Teixeira:
In that yeah it’s just nothing’s perfect like it’s just a really really hard thing the the incentives for utilities are inherently, bad and perverse no one solved it right we have the idea that maybe performance-based rate making could solve something and at least make them, a little more responsive to the idea that you should be cost-effective. I think that would be great if we did that. We’ve already drifted toward that a little bit in that in SB 254, the utilities were required to report how cost-effective the various interventions were, like per units of risk reduced. And they have made some advancements. Like, to give them credit, they have figured out that you can reduce a lot of risk very cheaply through operational measures. However, the existential thing is still around, that the utility could go poof if they happened to set a fire. So... I don’t know. It’s really tough.
Robinson Meyer:
Just to go back to like California specific policy challenges, how much of this is an issue of it’s very hard to raise tax revenue in California, but it’s very easy to raise electricity rates. Speaking of the prop system, right, it’s very hard to pay to like increase the tax base in California. But the CPUC can raise electricity rates when the utility asks it for, asks it to do so.
Lauren Teixeira:
I think that’s a big part of it. Yeah.
Robinson Meyer:
Yeah. And so to some degree, this is the public’s in California, not the public in the sake of the government, but the public in the sense of like the society’s easiest way of raising revenue in the California system. And so therefore, it’s the revenue that tends to get raised. Unfortunately, it’s very regressive and bad for climate policy.
Lauren Teixeira:
Right. It’s a tax through a different system. It’s a regressive tax. And it’s rational to do that. But as I argue in my report, this is actually a really ineffective and inefficient way of reducing wildfire risk. And that, you know, say we weren’t parking all of this on the utilities, I think it’s very possible we would get a lot more risk reduction for the same amount of money, in that when it’s all on the utilities, they could very expensively underground a power line or a local municipality or property owner could construct a fuel break or do mitigation much more cheaply, and reduce the same amount of risk. But with the status quo, we end up with the expensive power line instead of the fuel break. And I think that’s a huge loss of opportunity because obviously wildfire is very dangerous and bad. And we want to get as much risk reduction for a certain sum of money as we can. So what we have right now is the politically convenient thing, but it’s not the most risk reducing thing. And the most risk reducing thing is not the politically convenient thing. But we may have to go toward it because electricity rates have also become politically unattainable.
Robinson Meyer:
And just talk briefly about the challenge of high electricity rates in California. What do they mean?
Lauren Teixeira:
They are very bad for everyone. California famously has very ambitious climate goals having to do with electrification. We’re still holding down the an EV in every home kind of paradigm. We hope people will switch to electric stoves, etc. Obviously, it’s very hard to do that if your electricity rates are incredibly high. And I think I saw somewhere it’s like it doesn’t even make sense at this point to get an EV rather than a gas car because of the electricity rates. And that’s, you know, you want people to not make that choice. And for that reason, a lot of the green groups actually are pushing. They want inverse condemnation reform. So that’s another reason to have lower electricity rates. In general, abundant energy is great. We don’t want it to be expensive. And yeah, it’s a big challenge.
Robinson Meyer:
And when it’s expensive, decarbonization’s even harder. Laura Teixeira, thank you so much for joining us on Shift Key.
Lauren Teixeira:
Thank you so much for having me.
Robinson Meyer:
And that will do it for us today and this week. We’ll be back next week with a new episode of Shift Key. Until then, Shift Key is a production of Heatmap News. Our editors are Jillian Goodman and Nico Lauricella. Multimedia editing and audio engineering is by Jacob Lambert and by Nick Woodbury. Our music’s by Adam Kromelow. Thanks so much for listening. We’ll see you next week.