Wildfires, Rate Hikes, and the Future of Electricity in California

January’s Eaton and Palisades Fires in Los Angeles were unprecedented in the scale and speed of their destruction, a worrisome sign of the emerging risks we face in a warming world. And, leaving aside the risks of future wildfires, it’s virtually certain that the repercussions of these recent blazes will impact electricity users throughout California – even those located outside of the growing areas of the state designated as “High Fire Threat Districts.” 

While it remains to be seen whether or not sparks from electrical infrastructure were responsible for these fires – investigations, and lawsuits, are underway – the fact is that about half of the most destructive wildfires in California’s history have been caused by utility equipment. And regardless of whether electrical equipment proves to be responsible in this case, utilities will understandably seek to strengthen their wildfire prevention efforts in response. 

The good news is that, despite what the devastation in Los Angeles might suggest, utilities have made real progress in reducing the risks of catastrophic fires in the state. The bad news is, these efforts are adding significant costs to our electricity bills, and some preventive actions such as planned Public Safety Power Shutoffs (PSPS) events and increased sensitivity of protective equipment can lead to disruptions to electric service for hours or even days on end. 

Read on to learn more about the link between wildfires, rising utility rates, and growing reliability risks – and to learn how microgrids can help protect your organization by providing low-cost, on-site energy resources capable of operating independently from the grid.   

Growing Utility Investments in Grid Hardening

Over the past decade-plus, and especially over the past five years, California’s largest utilities have sharply ramped up their spending on wildfire prevention activities – and for good reason. In 2007, SDG&E’s equipment sparked three major wildfires, and in 2017 and 2018, following years of drought, SCE and PG&E saw their systems spark a series of catastrophic blazes – including the Camp Fire of 2018, which was accompanied by liabilities that drove PG&E into bankruptcy. According to the California Public Utilities Commission (CPUC), the regulator responsible for approving utility investment plans, wildfires are “the single most significant risk” for these large utilities.

Utilities are working to mitigate this risk in a wide variety of ways, including the undergrounding and insulation of power lines, the installation of cameras and weather stations, the use of sensors to detect equipment disturbances, vegetation management (i.e. trimming trees near power lines), and, increasingly, the use of drones and AI to better inform vegetation management and equipment maintenance needs. With climate change increasing the frequency and intensity of droughts as well as extending California’s dry seasons into the windy winter months, these investments are only becoming more important.

According to the utilities, these investments are proving effective at reducing wildfire risks, but they are also costly – especially in the case of undergrounding, which can cost from $2 million to $6 million per mile. And unfortunately, these important-but-expensive investments are ultimately paid for through utility rates, and the growing toll of these costs is one of the primary drivers of eye-popping rate increases of over 50% on average for commercial and industrial customers statewide since 2020. 

The California Public Utilities Commission (CPUC) authorized SDG&E, SCE, and PG&E to collect $27 billion in wildfire prevention costs from 2019 to 2023, which account for a growing share of total costs passed onto customers. The most recent figures are highest in PG&E territory, where costs surpassed $3 billion, or nearly 20% of total costs billed to customers, in 2023, up from less than $100 million or 1% as recently as 2019. SDG&E’s lower level of spending recently is in part because they made their own investments earlier, following the 2007 wildfires in their territory, which is a major reason their rates are the highest in the state – although, as SCE and PG&E ramp up their own investments, they’re starting to catch up.

In the aftermath of the Eaton and Palisades fires, utilities will likely be looking to increase these investments in wildfire prevention, and the CPUC will be likely to authorize them – and even fast-track them. Last year, the CPUC approved a new program, authorized by the state legislature, that will expedite approvals for undergrounding utility infrastructure, perhaps the most effective as well as the most expensive solution. 

While the wildfire safety benefits of these investments are generally recognized by utilities, regulators, and the legislature, and while there are processes in place to control costs and seek sources of outside funding where available, the unfortunate fact is that the burden of financing this critical wildfire prevention work will fall heavily on Californians’ utility bills. 

The Rise of Planned – and Unplanned – Preventive Outages

Despite the fact that these investments reduce the likelihood of utility equipment starting wildfires, the recent blazes in Los Angeles are a stark reminder that eliminating this risk entirely is impossible. CPUC data on fire ignitions provides a sobering illustration of this: in 2023, SDG&E equipment was linked to 16 fires, down from a peak of 32 fires in 2015; SCE was linked to 90 fires, compared to 173 fires in its recent peak year of 2021; and PG&E equipment ignited a whopping 374 wildfires, which was still a major improvement from a high of 510 wildfires in 2020. 

As a failsafe to avoid ignitions during times of high wildfire risk – e.g. a combination of strong winds with high temperatures and dry brush – the CPUC ruled in 2012 that utilities have the authority to shut down the grid entirely in a threatened area to protect the public. At first, these “Public Safety Power Shutoff” or “PSPS” events were primarily, and rarely, called in rural areas, but in the aftermath of the Camp Fire they have been used more often and across wider swathes of the state. In 2019, multi-day outage events in the Bay Area brought wider attention to the PSPS protocols, and their use reached an all-time high in 2024 with 34 events called statewide – including 20 in SCE territory alone. 

PSPS events last about two days on average, posing a risk of significant costs to businesses in affected areas. And as with the wildfire risk mitigation investments described above, it’s virtually certain that the Los Angeles wildfires – and the lawsuits that have followed – will lead to a greater willingness to call PSPS events going forward, just as their use rose in the years following the Camp Fire. Indeed, six events have already been called through the first two months of 2025, and on a recent investor call PG&E said that it would now use PSPS events as a first line of defense instead of a last resort. 

Businesses also face risks of shorter, more sudden outages from localized shutoffs of utility equipment. Protective equipment like circuit breakers can turn off automatically if disturbances are detected – for instance, if an animal or a tree branch makes contact with an energized power line. In response to the recent fires, utilities may boost the sensitivity of these protective settings, increasing the likelihood and frequency of short outages that can add up to significant costs for businesses in sectors like manufacturing, food processing, and data centers.

Unlocking Grid Independence With a Microgrid

Given the likelihood that utility prices will keep going up, and that service interruptions will become more frequent, it’s no surprise that Californian homeowners, businesses, and other organizations are seeking ways to establish a degree of independence from the grid. Increasingly-familiar solar installations can provide some insulation from rate hikes, but organizations looking for a more robust and resilient solution are turning towards a more advanced technology: microgrids.

Microgrids are integrated systems of on-site energy infrastructure that use advanced controls to orchestrate multiple resources such as solar arrays, battery storage, and/or dispatchable fuel-based generators. Microgrids can operate alongside the utility grid and optimize the use of energy from each resource to minimize overall costs, but if the utility grid goes down, microgrids have the ability to operate independently (or “island”) from the grid and use on-site resources to keep critical operations running. 

In other words, microgrids can directly address both the growing risks of power disruptions and rate hikes driven by wildfire risks:

Optimized Cost Savings: Like solar-only installations, microgrids deliver everyday cost savings and provide a hedge against future rate hikes. However, advanced controls enable microgrids to deliver greater value by optimizing the use of battery storage to avoid using the grid when prices are high – for instance, during peak time-of-use (TOU) rate hours, or when demand charge penalties could be incurred. 

If and when California utilities change their rate structures, as they have in recent years to disincentivize solar-only installations, these advanced controls can continually optimize and re-optimize microgrid operations to ensure maximum cost savings over the long term. Microgrids can also take advantage of new opportunities to secure additional revenues from demand response and virtual power plant (VPP) programs – all while ensuring that core operations are not impacted. 

‍Ensuring Resilience: Grid independence capability is a critical differentiator for microgrids, as most solar installations and even some solar-plus-storage systems don’t have the ability to island from the grid. Microgrids, by contrast, can optimize the use of solar, batteries, and potentially low-emission natural gas generators to provide ultra-reliable, unlimited-duration backup power – a more reliable, efficient, and low-emission solution than diesel backup generators. And, crucially, diesel generators are purely an added cost... while microgrids are a source of cost savings. 

Your Partner for Secure, Affordable Energy

With their ability to mitigate price as well as resilience risks, microgrids offer a powerful solution for California organizations looking to lock in lower energy costs before wildfire-driven rate increases spiral further out of control – or before an extended PSPS event (or lots of little power disruptions) takes a major chunk out of their budget. That’s why the U.S. microgrid market has been growing at an annual rate of 32% according to Wood Mackenzie, and it’s why California has more microgrid installations than any other state.

And, while microgrids are inherently complex, Scale has helped to pioneer a “microgrid-as-a-service” model that radically simplifies the process of securing the diverse benefits of this technology. Scale’s Microgrid Service Agreement (MSA) contracts provide customers with a turnkey microgrid optimized to their site’s specific energy needs for $0 down, with Scale providing end-to-end design, construction, and operations and maintenance services throughout the project’s lifespan. WoodMackenzie finds that such “microgrid-as-a-service (MaaS) models are becoming popular across diverse sectors,” and Scale’s combination of industry-leading expertise, contracts tailored to customer’s needs, and backing from major institutional lenders and investors has made it a leader in this space. 

With Scale as a long-term energy partner, it’s never been easier to adopt this cutting edge technology – and in California, the energy security and affordability advantages of a microgrid have never been more urgently needed. If you're wondering what a microgrid could mean for your organization, we can provide rapid, accurate estimates of the potential benefits for your facility - reach out today to get started.