Power infrastructure: who should foot the bill when maintenance fails?

San Diego Gas & Electric wants its ratepayers to cover 90% of the remaining costs it incurred when its fallen power lines caused three major brush fires in 2007, even though state investigations found that poor maintenance caused the power lines to fall. What needs to be established in the wake of a power infrastructure incident to ensure that the cost of failure is distributed fairly?


After the incident at Oroville Dam in Northern California, US – where, after heavy rain, hundreds of thousands of gallons of water from Lake Oroville damaged the dam’s main water outlet and forced the first-ever use of the emergency spillway in an effort to prevent catastrophic flooding – there will be some hard questions to answer.

Unlike the dam’s main outlet, which is concrete-reinforced, the emergency spillway is an earthen channel, which was rapidly eroded by the volume of water pounding down its incline. The risk of the auxiliary spillway failing prompted the evacuation of 185,000 people from nearby counties.

The safety credentials of the emergency spillway were questioned as far back as 2005 during the dam’s relicensing process, when environmental groups filed a motion with the Federal Energy Regulatory Commission (FERC) arguing that the earthen back-up spillway would need to be protected with concrete to prevent erosion and loss of crest control in the event of extreme rainfall. The motion was denied by the FERC on the advice of the Department of Water Resources and other state agencies, which stated that the upgrade, which would have cost many millions of dollars, was unnecessary.

Although Oroville Dam hosts the 819MW Edward Hyatt underground hydroelectric power plant, questions over the historic maintenance of the dam and its spillways will primarily fall on federal and state water management agencies. But power generation and transmission is another sector that is susceptible to failure during unusual conditions, especially if maintenance is sub-standard.

2007 wildfires: SDG&E still counting the cost

When power outages or other infrastructure failures do occur, the standard of maintenance becomes an important component to the question of where the cost of failure will fall. Southern Californian utility San Diego Gas & Electric (SDG&E) is still embroiled in a dispute over the costs it incurred after a series of deadly wildfires in October 2007.

Three major wildfires – named Witch Creek, Rice and Guejito – raged through San Diego County in October 2007, exacerbated by drought conditions and unusually strong Santa Ana winds, which reached speeds of 85mph and hampered firefighting efforts. Collectively, the three blazes claimed two lives and destroyed well over 1,300 buildings.

"SDG&E’s costs associated with the fires reached into the billions."

SDG&E’s costs associated with the fires reached into the billions, including $2.4bn paid to settle 2,000 lawsuits from property owners, a $685m payment to reimburse policyholders’ insurance companies and, somewhat tellingly, $14.3m that the company agreed to pay the state to settle claims of poor maintenance that allegedly ignited the fires.

For several years, SDG&E, along with its parent company Sempra Energy, has been in opposition with its customers as it attempts to spread the costs of the 2007 fires. The utility’s liability insurance covered much of the cost, but $421m remains unrecovered. SDG&E has proposed to the California Public Utilities Commission (CPUC) that 90% of the remaining cost – around $379m – be passed on to the company’s ratepayers via increased energy bills, which it says would add around $1.70 to consumers’ monthly bills over a six-year period.

The remaining 10% of the cost would be covered by the company’s shareholders under SDGE’s proposal, which it says is based on a similar agreement with the CPUC over a toxic waste case in the 1990s. 

Utility vs. ratepayers: who should foot the bill for the fires?

SDG&E ratepayers are naturally unimpressed with the utility’s proposal, which has been strongly opposed by legal challenges and resistance from consumer groups since the plan was mooted in September 2015. On 9 January this year, nearly a decade after the wildfires, the CPUC held a public hearing on the SDG&E cost proposal so that two administrative law judges could receive input for their recommendation to CPUC commissioners, who will make the final ruling on the utility’s proposal.

Emotions ran high at the meeting, with members of the public who lost their homes to the fires indignant about having their costs foisted on to SDG&E’s customers. “This is a picture of our house burning,” the San Diego Union-Tribune quoted a local resident as saying during the meeting. “SDG&E has to pay, not the ratepayers who were victimized.”

“They [SDG&E] want to spit in our face,” said another resident whose home was destroyed.

The utility, meanwhile, has argued that the underlying weather conditions leading up to and during the fires – including dry ground and hurricane-force Santa Ana winds – hindered firefighting efforts and created a situation outside of SDG&E’s control.

“The damage of those fires was outside of our control,” said SDG&E vice president of electric transmission and system engineering Dave Geier at the hearing. “We had no reason to know that those fires would occur on that day in those potential locations and those circumstances. Trust me, if we did we would have done everything possible to make sure those fires didn’t happen.” 

Was SDG&E’s maintenance up to scratch?

The CPUC eventual decision will likely be determined by a ‘reasonableness standard’ established by the commission’s prior decisions, which indicates that for the utility to recover costs from its ratepayers after the disaster, it must show that the “operation and management of its facilities prior to the 2007 wildfires were reasonable”.

Several investigations into SDG&E’s maintenance of infrastructure at the sites where the three fires were first ignited suggest the company may have trouble convincing the commission that its maintenance actions were those of a prudent manager. A 2008 investigation by the CPUC’s Consumer Protection and Safety Division found that the Guejito fire was ignited when a Cox Communications lashing wire hit an SDG&E conductor, while the Rice and Witch fires were allegedly caused by sparks from downed SDG&E wires.

The investigation contended that the fires were caused or contributed to by poor maintenance, and that SDG&E (and Cox) in several incidences violated, among others, the CPUC’s General Order 95 Rule 31.1, which mandates proper maintenance of electrical infrastructure and consideration of prevailing conditions to ensure safe service.

"The Rice and Witch fires were allegedly caused by sparks from downed SDG&E wires."

An October 2016 investigation and testimony prepared by the CPUC’s independent Office of Ratepayer Advocates (ORA) also argued against SDG&E’s cost recovery effort, noting the maintenance failures that contributed to the fires and discounting the utility’s primary argument that prevailing conditions were the main culprit for the damage caused.

“SDG&E’s actions in regards to the 2007 Witch, Guejito, and Rice fires were not those of a prudent manager,” reads the conclusion of ORA’s testimony. “SDG&E’s failure to respond reasonably to the tripping and arcing of the facilities associated with the Witch Fire, failure to perform adequate inspections and maintain required clearances in regards to the Guejito Fire, and failure to perform the required vegetation management in regards to the Rice Fire all contributed or directly led to those three fires’ ignitions. SDG&E’s analysis of weather and environmental conditions cannot be relied upon. The utility’s description of Red Flag Warnings and how they were used is misleading.”

All of this data, along with SDG&E’s arguments and feedback from the public, will feed into the CPUC’s final decision on whether the company can recover its costs from its ratepayers. The evidence presented by multiple agency investigations will be detrimental to the utility’s case, and the ongoing negotiations are bad for the company’s PR. For critics, the case has become emblematic of a wider sentiment that some private utilities are skimping on maintenance investment in the knowledge that the cost of a catastrophe can be passed on to their customers.