California Wildfires Expose Fragile Infrastructure and Escalating Economic Risks
From the time of the onset of the Los Angeles County fires to Friday, January 10, Edison International (EIX) stock fell 14%. This meant for a $4.3 billion loss in market value. (EIX’s principal subsidiary, Southern California Edison, provides electricity in the region.) This stock market loss is valued even greater than the probable loss the utility would incur under California rules if it is found responsible in some way for the fires. We should point out that Wall Street’s skittishness in this regard likely stems from the Pacific Gas and Electric 2019 bankruptcy filing following somewhat similar fire disasters.
“Take the electric company. First, when will these repeated climate disasters in the service territory make insurance difficult if not impossible to procure at reasonable rates (compared to past prices) and cause many residents to leave the service area instead of rebuilding?” asked Leonard Hyman, an economist and financial analyst in the energy sector, and William Tilles, a senior industry advisor and speaker on energy and finance. “Insurers currently estimate a possible $20 billion hit from the fires. Some have left the California market entirely. Utility customers can move. A utility company with a fixed service area cannot do this. Second, when will customers, suffering increasingly lengthy outages whenever the electric company turns off power to protect the network, start looking for alternatives that now range from solar to mini-nukes?”
According to Oil Price, Barely mentioned, except by the fire chiefs, was the water shortage— that is where it was needed at sufficient pressure. (Did you know that water availability and pressure goes into the score for insurance rates?} The Los Angeles area water system was built up in the same era as Jack Nicholson’s character, Jake Gittes, investigated the bad guys in Chinatown. The situation has changed over a hundred years. Even worse, Southern California built its water system based on an apportionment of fictitious Colorado River water— that is, the states that signed the Colorado compact overestimated the river’s normal flow. California’s water authorities have their work cut out for them and it involves more than hydrants. But the water problem won’t be limited to the Southwest. Watch what happens when the new data centers in various parts of the country start to compete with locals for water.
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