October 15, 2019
An Answer for California’s Power Shutdowns
by Paul Carroll
The awarding of the Nobel Peace Prize last week to Ethiopia’s prime minister brought back the memory of a time I interviewed Isaias Afwerki, one of the key factors in this year’s prize. It was 1991, and Afwerki had just emerged from the bush in Eritrea. He led a guerrilla movement that, after 30 years, won the country’s independence from Ethiopia. In the process, his guerrillas helped depose a brutal Communist government in Ethiopia. The tall, high-cheekboned freedom fighter cut quite the figure, driving by himself to his first press conference in a Jeep that looked like it had just rolled out of the mountains. He charmed the four or five of us reporters who happened to be in the area for the impromptu gathering—and, I’m sorry to report, has since become one of the world’s most notorious dictators. Ethiopia’s prime minister, Abiy Ahmed, won the Peace Prize largely because he may have figured out how to restore peace with his country’s northern neighbor. Afwerki did not share in the prize; he is a big part of the problem, not the solution.
Eritrea comes to mind because of another problem, too: the power blackouts being staged by PG&E to prevent wildfires in California, where many of us on the ITL team live.
When I stayed in Asmara, Eritrea’s capital, the electricity in my hotel cut out often. I had hot water an hour a day. Now, here I am in California, one of the world’s most dynamic economies, the home of Silicon Valley, and the main utility in Northern California just turned off power to 2 million people because it can’t figure out how to keep power lines from arcing and starting fires (or is just too lazy to effectively clear away the brush near the lines that provides fuel for fires).
Eritrea at least had an excuse for its outages in 1991. It is one of the world’s poorest countries and had just survived a war that killed 100,000 to 300,000 people. The conflict was so wrenching that if you asked, say, a 50-year-old his age, he’d say he was 20, because the 30 years of civil war didn’t count as living.
But what’s California’s excuse?
It turns out that everybody has an excuse, or at least someone to blame. The feds blame the state for poor forest management. The state blames the utility, PG&E, for poor management and general indifference to the fire problem. PG&E blames the state, saying it should assume much of the liability for its forests and citizens. Republicans blame Democrats for being tree-huggers and trying to prevent the kinds of fires that would thin out forests and avoid the monster conflagrations that ravaged the state last year. Democrats blame climate change. And so on.
No matter how the blame eventually gets assigned, the one sure thing is that the citizen/consumer will eventually foot the bill. A tax is coming. It may be in traditional form, with the state collecting money to pay for forest management, to absorb liability from PG&E, etc. Or, the tax may be collected through higher electricity rates. But a tax is coming, and it will be heavy.
Maybe it’s time for insurance to ride to the rescue.
We won’t be able to do anything much this time around, but maybe can do more to prevent a next time.
At the moment, insurers are fleeing from the wildfire issue. That’s natural. The amount of uncertainty is enormous, and so are the potential damages. But, in a day and age when every company claims to be customer-centric, perhaps we can, in fact, look at the problem from the standpoint of the customer and find a series of ways—both big and small—to help.
Think about the blackout issue from the standpoint of, say, the venues in Napa where weddings were scheduled over the weekend. It’s hard to have a reception without electricity. That band doesn’t sound so great without an amp, and not many people will dance if they have to gather around the DJ’s iPhone—for as long as the battery lasts. Maybe those venues lined up generators and ran up other expenses to make sure they could pull off the event. But maybe the venue had to cancel and refund the money to the devastated couple.
Now imagine the wineries that lost temperature control in the vats recently filled with this year’s grape harvest. Or the restaurants that had food go bad as it sat in warming refrigerators. Or all the facilities that lost tourism business because of uncertainty. Or the parents who had to skip work because their kids’ schools were closed, then check into a hotel because the power was off at home. Or…or…or….
The only folks I know of who were happy were Cal kids who saw that lights were off on the Berkeley campus, meaning that the threatened blackout had hit and that they could stop studying for mid-terms.
Some of those affected will be covered by some form of business interruption insurance, but policies weren’t written with today’s California in mind. What would qualify as an event triggering a policy? The fact that the utility deliberately turned off your power? Hmmm. Many policies require an interruption of a certain length, such as 48 hours, but the blackouts were often shorter—long enough to cause uncertainty and mess up a business but maybe not long enough to trigger a claim.
The wildfire/blackout problem isn’t going away, even if the state government and PG&E—the two big villains, in my book—get their acts together. So, people and businesses will need and welcome help adjusting to the risk of outages for years to come.
Some of that help will come in the form of insurance: policies adapted to a world of occasional blackouts. But some can be provided through means that will feel unusual for insurers.
Perhaps information services can alert people sooner about impending blackouts—PG&E’s communications were lousy this time around. Maybe risk management services can help line up backup so that the fish doesn’t rot in the refrigerator and the wine harvest doesn’t spoil. Businesses could find ways to help parents whose kids’ schools have closed—Bring Your Child to Work During a Blackout, anyone? The answer for many could even just be a battery.
Whatever the answer, the idea is to think through the blackout issue from the standpoint of all those millions of individuals who have been affected and who will be affected by future blackouts. Then we can see what, in the name of providing peace of mind, the insurance industry can do to help, even if that means stretching beyond traditional boundaries.
There won’t be a Nobel Peace Prize in it for you, but there will likely be plenty of profit streams, and there will certainly be lots of grateful clients.