Electricity-Caused Wildland Fires: Costs, Social Fairness, and Proposed Solution

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If electric power is distributed by an overhead network of cables, the ignition of wildland fires is unavoidable, although prudent management efforts can reduce the losses. The economic aspects of these fires are driven by tort litigation, which tends to create serious problems of social fairness. The present system does not contain adequate incentives towards minimizing these costs, nor appropriate measures to ensure that costs are allocated in a fair manner. The problems are universal, but a specific focus on the wildfire situation in California is assumed. The electric utilities there are regulated by the California Public Utilities Commission, and the regulations are almost wholly prescriptive. Striking is the absence of any benefit/cost considerations in the regulation of utilities. Regulations have also created distortions in the insurance market, notably subsidizing fire-unsafe behaviors. The legal and regulatory system should be changed to promote fire-safe behaviors. It should also be changed to more fairly apportion the cost burdens. A strategy which should be adopted more widely is that of Public Safety Power Shutoffs. The optimal solution is to enact legislation to create a no-fault system, similar to Workers’ Compensation. In such a system, tort-based liability litigation is replaced by a system which provides basic compensation to wildfire victims, irrespective of the cause and associated fault. However, reform of insurance regulation and zoning are also required.