Edison’s Profits, California’s Risk: The Case for a Public Utility System

OPINION

A piece of paper from a book lies on a burned lot in Altadena, January 2025 (File Photo – Felita Kealing)

The Los Angeles County Fire Department has concluded that Southern California Edison’s equipment caused the Eaton Fire, which destroyed thousands of homes and businesses in Altadena and surrounding communities. Edison has acknowledged that its equipment was likely responsible. The question now is not simply whether Edison should compensate the survivors, but whether California’s system of privately owned, for-profit electric monopolies is capable of fairly allocating the enormous financial risks created by catastrophic wildfires.

By Scott Phelps

Edison has also launched a mailing and advertising campaign under the name “Wildfire Victims First,” arguing that trial attorneys and litigation costs are diverting money that should go to victims (survivors). But why is the debate being framed as “survivors versus trial lawyers” rather than “survivors versus the utility responsible for the damage”?

Public Utilities: Privatization of Profit, Socialization of Risk

Edison, like other for-profit public-utility monopolies, practices the privatization of profits while socializing risk. It creates a system in which private shareholders can capture returns while some catastrophic risks ultimately reach ratepayers, taxpayers, or the broader public. We have seen this before.

Edison held closed-door discussions with the California Public Utilities Commission over its failed maintenance of the San Onofre nuclear power station, which rendered the plant unusable and caused enormous costs for replacement power and closure. Those proceedings ultimately produced a 2014 settlement under which ratepayers were billed $3.3 billion for the failed investment and replacement-power costs, while the company paid $1.4 billion for costs associated with the broken equipment while the plant was nonoperational. Public outcry subsequently reduced the ratepayers’ bill by $775 million.

Near the turn of the century, Edison and PG&E both transferred billions of dollars to their parent companies rather than using their historical profit reserves to cushion the high wholesale prices caused by the scams of the deregulation era. This forced the state to step in with a financial rescue, meaning once again that taxpayers paid the bill.

Short Term: The PG&E Example Should Be Applied to Edison

When found liable after the Northern California fires of 2015, 2017, and 2018, PG&E faced $30 billion in potential liabilities. The company had to declare Chapter 11 bankruptcy and provide $13.5 billion for a survivors’ settlement fund, pay $11 billion to insurance companies, and provide $1 billion to regional and local government agencies. The CPUC also fined the company $1.93 billion.

Certainly, a similar framework could be applied now rather than letting Edison off the hook.

But the PG&E experience also exposes the deeper problem: California’s existing liability, insurance and regulatory system was not designed to fairly and predictably allocate the financial consequences of catastrophes on this scale. When damages reach tens of billions of dollars, the costs are ultimately divided among survivors, insurers, shareholders, ratepayers and the public, often through years of litigation, bankruptcy proceedings and regulatory settlements. That is not a fair or predictable system for compensating survivors or protecting ratepayers.

Long Term: There Must Be a Better Way

California needs to transition away from these guaranteed-profit monopoly “public” utilities. We need to break them up into nonprofit electric cooperatives or public utility districts formed by voters, so that Wall Street profits are not given higher priority than justice for fire survivors and affordable electricity for ratepayers.

Such a transition would be complex and would require careful planning to protect grid reliability, maintain investment in infrastructure, and ensure that essential services are not disrupted. But the difficulty of changing the system should not be an excuse for preserving one that repeatedly leaves the public bearing catastrophic risks.

California has repeatedly changed the structure of essential infrastructure when the existing institutional arrangement stopped serving the public interest. On the national level, the breakup of Ma Bell is one example. It took many years of litigation and regulatory action to dismantle an entrenched monopoly, but policymakers ultimately concluded that the existing structure no longer served the public interest.

We cannot keep allowing monopolies to guarantee profits while transferring their losses to the public. We need to put the public good ahead of maintaining corporate profits. Otherwise, we will continue to be a corporatocracy for the monopolies rather than a real democracy for the people.

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