Environment Report: Why Utilities Put a Dollar Value on Your Life

A fireball flew 1,000 feet into the air after a natural gas pipeline exploded and ripped through a San Bruno neighborhood in 2010. 

Witnesses thought a plane had crashed. Others thought it was an earthquake.  

Investigators later blamed defective welds in Pacific Gas and Electric’s gas pipelines for the blast that flattened dozens of homes and killed eight people. State lawmakers leapt into action, passing stricter safety laws for natural gas pipelines on California’s investor-owned utilities within a year.  

The state’s Public Utilities Commission got the message: It was their job to make sure that the utilities they regulated prioritized safety, not just on gas pipelines but the electric poles and wires these companies built, too.  

The California Public Utilities’ Commission or the CPUC’s, main job had been to review how much these energy companies wanted to charge customers in order to build pipelines and string the electric wire that keep California running. In exchange for taking on all that responsibility – and liability – the state allows these private energy companies to earn a little extra on top of that cost to keep as profit.  

Regulators now wanted to get inside the minds of these companies’ leaders to understand how they spent the money Californians paid them every month on their energy bill. They wanted to know (because apparently they couldn’t explain) how the investments and profits these companies made off building and maintaining the energy grid made Californians safer? 

“The commission often does not have a way of knowing how utilities value information on safety and risk and new technology as part of their overall investment strategy,” the CPUC wrote in 2013.  

Fifteen years since the San Bruno incident and the CPUC is still working that out. The commission started with an extremely complicated set of rules called risk based decision making where each private utility could come up with their own formula that was supposed to explain how companies decided what to build where, when and why. That was supposed to be more transparent. The utilities submitted their formulas in 2015. By 2016, the CPUC and utility watchdog groups said, we don’t really get it, can you guys try and use the same math behind your formulas?  

That’s when the CPUC began to inch toward a much plainer method. If you want to know how much utilities are spending to provide safety, then put a dollar value on safety. To do that, one must conduct an exercise nobody wants to do: Put a dollar value on human life.  

I wrote about that last week. The exercise helps thread the needle between affordability and safety of the energy grid. Think of it this way: We could spend all our money on building a grid that we’re almost certain never sparks a wildfire and pipelines that never leak or explode. But then we’d be broke. 

Or, as economist Judson Boomhower from the University of California-San Diego explained to me, if we don’t cap spending “the alternative is we don’t accept any risk of death ever and then you never leave your house and we all drive tanks.”  

We’re all Bob Wiley and we never leave our apartment.  

“The moment the Commission embarked on a risk-based approach to safety, it implicitly recognized that absolute safety rarely exists within a finite safety budget. The Commission should therefore confront the issue by making an explicit recognition of this tradeoff and defining acceptable levels of risk tolerance,” CPUC Safety and Enforcement Division staff wrote. 

It was in the CPUC’s hands, then, to decide what level of risk the public was willing to accept. The system the CPUC had set up, allowing utilities to come up with their own formulas, meant that none of their information was comparable. Nobody knew how much risk could be reduced per dollar spent.  

The CPUC’s staff put it better: “The current process is similar to adding two rotten apples, seven rotten oranges and two missing dollars and then calling that weighted sum a risk score.”  

By 2022, CPUC staff started recommending the commission lean on an age-old economic concept that most people comprehend by name: A cost-benefit analysis. In other words, for real now guys, show us your hands – tell me how much risk your spending reduces.  

Naming the price utilities were willing to pay to avoid one death (another way of describing the value of a statistical life) was just one step in this process. Watchdog groups that make it their job to fight these private energy companies at the CPUC pointed out San Diego Gas and Electric and Pacific Gas and Electric were willing to spend $100 million — ten times more than most.  

And the higher the value of human life, the more the utility can justify spending and the more they will want to spend, causing ratepayer bills to go up – the thinking goes.  

And that’s why the CPUC told them to drop their price.  

In Other News 

• In other utility spending news, the Eaton fire could wipe out a $13 billion fund created to help investor-owned utilities pay for wildfire claims. Californians pay for half of this via their utility bills while investors pick up the other half of the tab. Gov. Gavin Newsom proposed replenishing that fund and the utilities are funding a campaign to support him. (POLITICO) 
• Imperial Valley’s multi-billion-dollar farming economy just lost its last investor in beet sugar, which means the crop could meet its end. Imperial County officials worry that could mean a $243 million hit to its local economy and a loss of 700 local jobs. (KPBS) 
• Speaking of economies, our Jim Hinch wrote this awesome piece about the potential impact of President Donald Trump’s immigration and tariff policies on the cross-border economies of San Diego and Tijuana. (VOSD) 
• The Salton Sea, a drying lake fed by agricultural runoff from Imperial Valley farmers, is drying up which creates a lot of dust in the air for surrounding communities. A new report shows a bunch of other bad stuff is probably also in the air because of it. (inewsource) 
• New rules that nixed some of the financial benefits of rooftop solar for owners are now in limbo after a state Supreme Court ruling. (Union-Tribune) 
• The city of San Diego is backing away from plans to rebuild Lake Hodges Dam  because costs to do so are ballooning. The San Diego County Water Authority said it won’t pay for half of it anymore. (Union-Tribune) 
• The Metropolitan Transit System might bring all of its bus drivers in-house instead of using a contractor. That’s more expensive but could be more reliable, MTS says. 

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