Fault Lines: California Utilities and the Wildfire Economy

Over the past decade, California's wildfire crisis has escalated dramatically, with fires becoming more frequent, destructive, and deadly. Eighteen of the 20 most destructive wildfires in the state's history have occurred since 2000. In early 2025, the Palisades and Eaton fires devastated Los Angeles County, destroying thousands of structures, forcing nearly 200,000 residents to evacuate and causing at least 29 deaths.

On May 2, Wall Street Journal reporter Katherine Blunt joined Stanford’s Corporations and Society Initiative (CASI) to discuss how climate change, utility mismanagement, and policy failures are fueling this crisis, and what it will take to build a more fire-resilient future.

The conversation was moderated by Kate Kabat, a CASI student leader pursuing a joint MBA and master’s degree from the Stanford Doerr School of Sustainability. She opened by asking Blunt to explain the human impact on the growing intensity of wildfires, specifically the role utilities play.

Blunt explained that while utility infrastructure is not the leading cause of wildfires, it nevertheless remains a major cause. High-voltage power lines, especially those running through forested areas, can quickly spark fires.

“If you have a power line that fails in a forest, maybe 15 years ago that fire would be relatively easy to contain,” she noted, “but we've seen periods of extremely severe drought and tens of millions of trees have died. There's just an enormous amount of fuel, so that when that power line fails, the chances of it becoming catastrophic is much higher than it might have been.”

She added that rising housing costs have pushed more people into fire-prone regions. When fires do occur, there are more lives at risk and more structures to burn.

Blunt detailed how the business models of the utilities can increase those risks. Most utilities, she explained, are regulated monopolies that are granted exclusive rights to serve specific regions in exchange for oversight by state commissions like the California Public Utilities Commission (CPUC). The companies are financially rewarded for capital investments, such as building new power lines or upgrading substations, because they earn a guaranteed rate of return.

Blunt explained that utilities were long viewed as growth-oriented businesses, especially following the post–World War II boom.

“We went through a period over the last couple of decades in which power demand in the US was mostly flat, so you weren't really having to make the same sorts of investments to serve growing demand.”

That’s now starting to change, she noted, as rising electrification and the rapid expansion of AI-driven technologies drive new projections for increased energy demand.

Critical maintenance operations, however, such as inspections and replacing aging equipment, are treated as expenses, which means that they don’t offer the same profit incentives as new investment.

This imbalance can lead to dangerous neglect. Blunt cited the 2018 Camp Fire as a tragic example, which killed 84 people and leveled the town of Paradise.  The blaze was caused by a simple hook, installed in the early 1900s, that finally failed after decades of wear.

“It had just been hanging there for a hundred years, wearing down, little by little with every windstorm until it broke,” she said.  “And the reason why that happened is because PG&E was not doing adequate inspections of its system in that area, in part, because that area is really remote.”

Blunt also explained that sending crews there was costly and time-consuming. While PG&E is the most infamous case, she emphasized that this short-term, cost-cutting mindset runs throughout the industry. When safety takes a back seat, she said, the risks multiply.

Kabat followed up by asking whether the traditional utility model was still viable given decades of deferred maintenance and rising wildfire risks. Do other structures such as municipal or cooperative utilities offer better solutions?

As Blunt explained, there’s no perfect model. Investor-owned utilities (IOUs) are common in densely populated areas, while public and cooperative models tend to operate in smaller or rural communities. Each structure faces tough trade-offs, especially when it comes to liability. In the IOU model, shareholders are supposed to bear the cost of utility-caused wildfires.

PG&E declared bankruptcy because of the liabilities it faced due to the wildfires it caused. Blunt observed that the bankruptcy result treated fire victims very poorly relative to others having claims on PG&E. She saw the bankruptcy process as one that further victimized the fire victims.

Blunt emphasized that reforming IOUs is legally and financially complex. But she raised a critical, unresolved question: How do we properly value and incentivize operations and maintenance, not just as a cost, but as a form of risk prevention that can save billions and protect lives? It's a hard question, she admitted, but one that’s increasingly urgent.

Kabat raised the issue of PG&E's initiative to minimize liability through capital investments, specifically the plan to bury power lines underground. Blunt explained that the plan was launched in 2021 by new CEO Patti Poppe (Stanford GSB MS ’05) following the devastating Dixie Fire, which ignited near Paradise just months into her tenure. The fire prompted Poppe to commit to burying 10,000 miles of power lines in high-risk fire zones. While symbolically powerful, the figure represents less than 10% of PG&E’s total overhead lines. Still, the move marked a major shift in how the utility aims to reduce wildfire liability through capital investment.

Blunt noted that undergrounding drastically reduces the risk of fire caused by downed lines, but it’s also prohibitively expensive, averaging $3 million per mile, and slightly less in already-burned areas like Paradise. Because these upgrades are considered capital investments, PG&E can earn a regulated return on them, unlike maintenance work.

The plan has sparked debate within the CPUC, Blunt said, because “electricity costs in California are very high and you've seen a growing amount of rate pressure on the part of regulators over the last number of years.”

Critics have argued that similar risk reductions could be achieved at lower cost by insulating lines and investing in other technologies. CPUC ended up landing somewhere in the middle, authorizing PG&E to do some undergrounding, while pursuing more cost-effective safety upgrades. Either way, Blunt said, the investments the company needs to make to meet the demands of AI power and electrification for electric vehicles will continue to grow.

“We're heading into a future in which electricity is going to cost more. But that doesn't make it easier for consumers to stomach, especially those of more limited means.”

As the discussion turned to audience questions, the conversation focused on the central tension at the heart of PG&E’s crisis: how does a utility balance financial survival with public safety in an era of mounting wildfire risk and aging infrastructure?

Attendees raised some ideas for solutions, but Blunt explained that several of the suggested approaches were difficult to apply to electric utilities due to their capital intensity and essential service role.

A huge problem we face involves determining who should bear the costs and how these costs should be allocated when wildfires create widespread destruction.

“There's this idea that wildfire liability cost falls on shareholders, not customers,” she said. “But PG&E’s bankruptcy was such a disaster, and again, the losers in the situation were the fire victims. Hedge funds made a lot of money.”

Blunt was referring to a KQED investigation that found a group of hedge funds, including David Tepper’s Appaloosa Management, made at least $2 billion by offloading PG&E shares they were awarded during the company’s bankruptcy exit. Rather than stabilizing the utility or ensuring full payouts to wildfire victims, the funds largely cashed out within a year.

“There’s a very strong case for keeping utilities out of bankruptcy. These are critical service providers.”

Technological innovation and wildfire mitigation strategies, such as AI-powered predictive maintenance and preemptive power shutoffs, are gaining traction and could help to drive down ignitions. Yet regulatory, financial, and social equity challenges, especially the disproportionate impact of clean energy transitions on lower-income customers, continue to complicate progress.

Blunt closed by emphasizing that there are no quick answers.

“There's no easy, perfect solution. It's going to take a really long time to fix this, at a time when climate change continues, and [infrastructure] continues to deteriorate. We have to solve this somehow.”